425: Arogo Capital Acquisition Corp. and Ayurcann Holdings Corp. Announce Business Combination Agreement

Ayurcann Holdings Corp. and Arogo Capital Acquisition Corp. have entered into a definitive business combination agreement, with a combined enterprise value estimated at U.S. $210 million.

Summary

• Ayurcann Holdings Corp., a Canadian cannabis extraction company, and Arogo Capital Acquisition Corp., a special purpose acquisition company, have entered into a definitive business combination agreement.
• The combined enterprise value is estimated to be U.S. $210 million.
• Ayurcann specializes in processing and manufacturing cannabis 2.0 and 3.0 products and is a leading producer of vapes and pre-rolls in Ontario.
• The Canadian cannabis market is projected to reach US$5.63 billion in 2024, with an expected annual growth rate of 3.17% to reach US$6.58 billion by 2029.
• Upon completion, Ayurcann is expected to have up to US$19.6 million in cash on its balance sheet (assuming no redemptions) to support growth and market expansion.
• Under the agreement, a Canadian merger sub will amalgamate with Ayurcann, and a Delaware merger sub will merge with Arogo, resulting in both becoming wholly-owned subsidiaries of the post-business combination publicly traded entity.
• Ayurcann shareholders will receive shares of common stock of the publicly traded entity based on an implied pro forma enterprise value of approximately $210 million, at a price of $10.00 per share.
• The transaction is expected to close in the second half of 2024, pending regulatory, court, and shareholder approvals.
• ARC Group Limited is acting as sole financial advisor to Ayurcann, and EF Hutton is serving as capital markets advisor to Arogo.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the business combination, highlighting Ayurcann's strong growth and market position, as well as the potential benefits of the transaction. However, it also acknowledges certain risks and uncertainties, such as regulatory approvals and redemption requests.

Positives

• Ayurcann has experienced 100% year-over-year growth of gross revenue over the last three audited financial reporting years.
• The business combination will provide Ayurcann with up to US$19.6 million in cash to support general business activities, including new product development, new distribution networks, and exploring national and international acquisition opportunities.
• The Canadian cannabis market is experiencing strong growth, providing a favorable environment for Ayurcann's expansion.

Negatives

• The transaction is subject to regulatory, court, and shareholder approvals, as well as customary closing conditions, which could delay or prevent the closing.
• The amount of cash available to Ayurcann post-transaction is dependent on the level of redemptions by Arogos stockholders, which is uncertain.

Risks

• The transaction may not be completed if regulatory, court, or shareholder approvals are not obtained.
• Redemption requests by Arogos public stockholders could reduce the amount of cash available to Ayurcann post-transaction.
• The forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.

Future Outlook

The business combination is expected to drive Ayurcann onto a new growth trajectory, enhancing its capabilities and expanding its market reach. Ayurcann intends to use the cash infusion to support general business activities, including new product development, new distribution networks, and exploring national and international acquisition opportunities.

Management Comments

• Suradech Taweesaengsakulthai, CEO and Director of Arogo, stated that the business combination is set to drive the business onto a new growth trajectory, enhancing its capabilities and expanding the market reach in meaningful ways.
• Igal Sudman, Chief Executive Officer of Ayurcann, stated that the business combination with Arogo is their next step in growing the company nationally while allowing them to also look for international opportunities.

Industry Context

The announcement highlights the growing Canadian cannabis market and Ayurcann's position as a key player in the extraction and product development segment. The transaction reflects a trend of cannabis companies seeking access to public markets and capital to fuel expansion.

Comparison to Industry Standards

• The revenue growth of 100% year over year over the last three audited financial reporting years is a strong indicator of success compared to industry averages.
• The enterprise value of U.S. $210 million is a significant valuation in the Canadian cannabis market, suggesting a strong market position and growth potential.
• Comparible companies in the cannabis extraction and product development space include MediPharm Labs and Valens Company, although Valens Company was acquired by SNDL Inc. in 2023.

Stakeholder Impact

• Shareholders of Ayurcann will receive shares of common stock in the publicly traded entity.
• Arogos stockholders will have the opportunity to vote on the transaction.
• The combined company is expected to benefit from enhanced capabilities and expanded market reach.
• The transaction is expected to create value for both Ayurcann and Arogo stakeholders.

Next Steps

• Obtain regulatory, court, and shareholder approvals.
• Satisfy or waive all customary closing conditions.
• Close the transaction in the second half of 2024.
• Integrate Ayurcann into the post-business combination publicly traded entity.
• Execute growth plans, including new product development, new distribution networks, and exploring national and international acquisition opportunities.

Key Dates