03:26:13 EST Thu 02 Feb 2023
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Glass House Brands closes $50-million offering

2022-12-06 16:56 ET - News Release

Mr. John Brebeck reports

GLASS HOUSE BRANDS ANNOUNCES THE FINAL CLOSING OF THE SERIES B PREFERRED STOCK OFFERING, FULLY SUBSCRIBED AT $50M

Glass House Brands Inc. has closed the third and final tranche of the previously announced non-brokered private placement of Series B preferred stock, face value $1,000 per share of GH Group Inc., a subsidiary of the company. The final closing of the offering included approximately $7.8-million of cash. Of this amount, about $7-million was fresh capital, while about $800,000 was used to fully redeem the remaining issued and outstanding shares of Series A preferred stock of GH Group. Combined new cash raised from all three closings is approximately $26.5-million, not including the amount used to redeem the shares of Series A preferred stock.

A total of 49,969 shares of Series B preferred stock have been issued, with an aggregate face value of approximately $50-million, making the raise 100 per cent complete, based on the targeted total financing amount of $50-million.

Kyle Kazan, Glass House Brands co-founder, chairman and chief executive officer, stated: "I am happy to announce that we have completed the Series B preferred stock offering. It is fully subscribed at $50-million. There was excess investor demand, but we hit our cap and could not accept any additional subscriptions. I'm humbled by the interest in our preferred equity round which exceeded the $50-million ceiling, so we decided to offer a small non-brokered private placement of shares of Series C preferred stock of GH Group capped at $5-million. Having more cash in the bank gives us extra cushion going into a likely recessionary economy in 2023 and 2024. The terms of the Series C preferred stock offering are nearly identical to the Series B preferred stock offering, with the key difference being that the Series C preferred stock will be designated as junior to the Series B preferred stock. In terms of dilution to our equity base, we expect the potential dilution from this relatively small Series C preferred stock financing to be minimal -- approximately 1 per cent of the outstanding shares of Glass House, assuming that all warrants are eventually exercised on a cashless basis. With the Series B preferred stock offering now closed and the Series C preferred stock offering collecting final subscriptions, we continue to focus on our stated target of achieving free cash-flow-positive operations by the third quarter of 2023, excluding capex spending, for expansion of cannabis cultivation capacity at the SoCal farm."

Holders of the Series B preferred stock will be entitled to an annual dividend at a rate of 20 per cent for the first two years after the date of initial issuance of Series B preferred stock, 22.5 per cent for the third year and, thereafter, 25 per cent until the 54-month anniversary of the initial issuance. The dividend will accrue and be paid quarterly with an annual amount equal to 10 per cent 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 per cent.

The issuance of each share of Series B preferred stock with a face value of $1,000 per share was accompanied by the delivery of 200 warrants of the company. Each warrant has a five-year term from the initial issuance and entitles the holder to purchase one new equity share in the capital of the company at a price of $5 per warrant share, subject to customary anti-dilution adjustments. The company has the option to accelerate the expiration of any unexercised warrants if the underlying equity shares of the company trade at a price of at least $12 per share, subject to customary anti-dilution provisions. As a condition to entering into the offering, holders of Series A preferred stock who participated in the offering and held existing warrants of the company with a $10 exercise price agreed to the cancellation of such existing warrants, with 100 existing warrants to be cancelled for each Series B preferred share that is issued in exchange for Series A preferred stock.

The warrants, the warrant shares issuable upon exercise of the warrants and any equity shares of the company into which the warrant shares may convert in accordance with their terms are subject to a four-month statutory hold period from the date of issuance of the warrants under applicable Canadian securities laws.

The intended use of net proceeds from the Series B offering of approximately $26.5-million includes $10-million which was used to repay an interim bridge loan from the company's senior lender immediately following the first closing and approximately $16.5-million for working capital and transaction costs. Prior to initial closing of the offering, the company had approximately $99.5-million outstanding in senior secured debt, unsecured convertible debt and preferred equity. As of this final closing of the Series B offering, this amount is expected to increase to approximately $116-million. Upon closing of the Series C preferred stock offering, this amount is expected to increase to $121-million.

About Glass House Brands Inc.

Glass House is one of the fastest-growing vertically integrated cannabis companies in the United States, with a dedicated focus on the California market and building leading, lasting brands to serve consumers across all segments.

We seek Safe Harbor.

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