Glass House Brands Inc. (OTCQX:GLASF) (OTCQX:GHBWF) (NEO:GLAS.A.U) (NEO:GLAS.WT.U) closed the first tranche of the non-brokered private placement of series B preferred stock, at face value of $1,000 per share of GH Group, Inc., a subsidiary of the company.
The initial closing of the offering included approximately $14.7 million of new money invested and approximately $22.6 million face value of existing series A preferred stock exchanged for new series B preferred stock. A total of 37,337 shares of series B preferred stock were issued, with an aggregate face value of approximately $37.4 million. The company expects to complete the offering in the next 30 days, after which a total of approximately $50.0 million of series B preferred stock is expected to be outstanding.
"We feel fortunate to have successfully raised capital in this challenging market environment," stated Kyle Kazan, Glass House Brands chairman and CEO. "While the California cannabis industry struggles through commoditization amongst other issues, we are very grateful for the support we have received from our existing preferred stock investors who exchanged their series A preferred stock for this series B preferred stock along with the new investors in this series B preferred stock round. We are thankful for the confidence bestowed on our company and management team. As we close out the remainder of this fundraise, we also are putting our full focus behind our stated target of achieving free cash flow positive operations excluding the capex for phase II of the SoCal farm by the first quarter of 2023."
The company is using $10.0 million of the cash proceeds from the offering to repay an interim bridge loan from its senior lender and the balance for general working capital and transaction costs.
Transaction Details
Holders of the series B preferred stock will be entitled to an annual dividend at a rate of 20% for the first two years after the date of initial issuance of series B preferred stock, 22.5% for the third year and, thereafter, 25% until the 54-month anniversary of the initial issuance. The dividend will accrue and be paid quarterly with an annual amount equal to 10% of the initial investment being payable in cash and the balance of the dividend being paid in kind, accumulating and compounding on a quarterly basis until paid; provided that if the series B preferred stock remains outstanding after the 54-month anniversary of the initial issuance, the annual dividend shall thereafter be payable solely in cash at a rate of 20%.
The issuance of each share of series B preferred stock with a face value of $1,000 per share will be accompanied by the delivery of 200 warrants of the company. Each warrant has a five-year term and entitles the holder to purchase one new equity share in the capital of the company at a price of $5.00 per warrant share subject to customary anti-dilution adjustments. The company has the option to terminate any unexercised warrants if the underlying shares trade at a price of at least $12.00 per share, subject to customary anti-dilution provisions. As a condition to entering into the offering, holders of series A preferred stock who held existing warrants of the company with a $10.00 exercise price agreed to the cancellation of such existing warrants, with 100 existing warrants to be canceled for each series B preferred share that is issued in exchange for series A preferred stock.
As part of the offering, certain directors and senior officers of the company have subscribed for an aggregate of 8,544 series B preferred shares and will receive an aggregate of 1,7 million warrants therewith. The participants in the offering included Kazan who, following the initial closing, beneficially owns or controls 6.2 million (or approximately 12.7%) of the company's equity securities on a partially diluted basis. Immediately prior to the offering, Kazan beneficially owned or controlled 5.6 million (or 11.6%) of the company's equity securities on a partially diluted basis.
Kazan received an additional 1.2 million warrants in connection with his exchange of series A preferred stock with a face value of $5.8 million for series B preferred stock with equivalent face value. Kazan agreed to the cancellation of 578,864 existing warrants that he beneficially owned or controlled immediately prior to the initial closing of the offering. Kazan holds and controls his securities of the company for investment purposes only and Kazan may increase or decrease his beneficial ownership or control over the securities of the company, which he may do, from time to time, depending on market or other conditions and to the extent deemed advisable in light of his general investment strategy.
Photo by Giorgio Trovato on Unsplash
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