8-K: Body and Mind Inc. to Sell Illinois Assets for $5 Million, Focus on New Jersey Expansion

Body and Mind Inc. (BaM) is selling its Illinois cannabis assets to Dutchess Cannabis for $5 million in cash and a potential earnout, aiming to strengthen its balance sheet and fund its New Jersey dispensary construction.

Summary

• Body and Mind Inc. (BaM) has entered into definitive agreements to sell its Illinois assets, NMG IL 1, LLC and NMG IL 4, LLC, to Rubino Ventures IL, LLC, operating as Dutchess Cannabis.
• The total cash consideration is US$5 million, with half paid upon the effectiveness of managed services agreements (MSAs) and half upon closing, subject to Illinois regulatory approval.
• There is also a potential cash earnout based on trailing twelve-month EBITDA calculated as of the end of the fifteenth month period after the effectiveness of the respective MSAs.
• BaM's CEO, Michael Mills, stated that the sale allows the company to obtain near-term cash to improve its balance sheet and fund its New Jersey dispensary construction.
• Dutchess Cannabis will pay a monthly fee of $12,500 and reimburse certain expenses under the MSAs, subject to approval by the Illinois Department of Financial and Professional Regulation.
• NMG IL 4 will receive $833,334 cash within three business days following the effectiveness of its MSA with Rubino Ventures LLC.
• NMG IL 4 will also receive $833,333 cash at closing, less certain indebtedness and transaction expenses.
• NMG IL 1 will receive $1,666,666 cash within three business days following the effectiveness of its MSA with Rubino.
• NMG IL 1 will also receive $1,666,667 cash at closing, less certain indebtedness and transaction expenses.
• The earnout is payable in cash equal to 3.2x the Earnout Period EBITDA less the purchase price already paid, with the Earnout Period consisting of months 4 through 15 following regulatory approval of the MSAs.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company is selling assets, it's doing so to improve its financial position and focus on growth opportunities in New Jersey. The potential earnout also adds a positive element.

Positives

• The sale provides Body and Mind Inc. with $5 million in near-term cash.
• The transaction allows BaM to strengthen its balance sheet.
• The funds will support the construction of the company's New Jersey dispensary.
• BaM has the potential to benefit from an earnout based on the future success of Dutchess Cannabis.
• The sale allows BaM to exit a challenging Illinois market and focus on more promising opportunities.

Negatives

• BaM is selling assets, indicating potential challenges in the Illinois market.
• The earnout is contingent on future performance and may not materialize.
• The transaction is subject to Illinois regulatory approval, which could delay or prevent the sale.
• The closing considerations are reduced by certain indebtedness and transaction expenses, decreasing the net proceeds.

Risks

• The transaction is subject to Illinois regulatory approval, which may be delayed or denied.
• The earnout is dependent on the future performance of the acquired assets.
• The cannabis industry is facing challenges, which could impact the value of the earnout.
• The company's success in New Jersey is not guaranteed and depends on various factors.
• The company may face challenges in integrating the new dispensary into its existing operations.

Future Outlook

The company intends to use the proceeds from the sale to strengthen its balance sheet and fund the construction of its New Jersey dispensary.

Management Comments

• Michael Mills, CEO of BaM, stated that the sale allows the company to obtain near-term cash to better its balance sheet and provide capital for its New Jersey dispensary construction.
• Meg Rubino, CEO of Dutchess Cannabis, stated that they are excited to bring high-quality and affordable cannabis to the City of Markham and Village of Lynwood.

Industry Context

The cannabis industry is currently facing challenges, making growth capital difficult and expensive to obtain, which is influencing BaM's decision to sell assets.

Comparison to Industry Standards

• It is difficult to compare this transaction to industry standards without knowing the specific financial performance of the Illinois assets being sold.
• Comparable transactions in the cannabis industry often involve multiples of revenue or EBITDA, but the details of this deal suggest a focus on immediate cash flow and strategic realignment for BaM.
• Other cannabis companies like Curaleaf, Trulieve, and Green Thumb Industries have been actively expanding through acquisitions, but this deal represents a strategic divestiture for BaM.

Stakeholder Impact

• Shareholders will benefit from the improved financial stability and focus on growth in New Jersey.
• Employees in Illinois may be affected by the change in ownership.
• Customers in Markham and Lynwood will see a change in the operator of the dispensaries.
• Suppliers may need to establish new relationships with Dutchess Cannabis.

Next Steps

• Obtain Illinois regulatory approval for the sale and the managed services agreements.
• Complete the closing of the asset sale.
• Utilize the cash proceeds to fund the construction of the New Jersey dispensary.
• Monitor the performance of Dutchess Cannabis to potentially receive an earnout.

Key Dates