Hiku Brands Company Ltd. (OTCQB: DJACF) is focused on building a portfolio of engaging cannabis brands, unsurpassed retail experiences, and handcrafted cannabis production. With a national retail footprint led by Tokyo Smoke, craft cannabis production through DOJA’s ACMPR licensed to grow, Van der Pop’s female-focused educational platforms, and Maïtri, its Quebec based cannabis brand featuring high quality handmade accessories, Hiku houses an industry-leading portfolio that aims to set the bar for cannabis brands in Canada.

 

On July 10, 2018, the company announced that they have entered into a definitive arrangement agreement, pursuant to which Canopy Growth will acquire all of the issued and outstanding common shares of Hiku. The total deal value would be $308 million.

 

As per management, this transaction represents an incredible step in the Hiku journey that both realize immediate benefits for its shareholders and at the same time provides an unparalleled opportunity to join forces with a preeminent global cannabis player. Ultimately, the consolidated entity would continue to build one of the world’s most engaging and successful cannabis retail and brand business. Canopy is an extraordinary cannabis company that is well positioned to lead both in Canada and around the world

 

Key Synergies of the Canopy deal:

• Secures an Immediate Attractive Premium for Hiku Shareholders: The Transaction provides Hiku shareholders with a premium of 33% based on the 20-day volume weighted average prices of the Canopy Shares and the Hiku Shares as of July 9, 2018, and a premium of 21% based on the closing prices of the Canopy Shares on the TSX and the Hiku Shares on the CSE on July 9, 2018.
• Strengthening a Leading Vertically Integrated Global Cannabis Company: Canopy Growth is a leading diversified global cannabis company and market leader with distinct brands and an award-winning product portfolio that spans federally legal markets around the globe in both medical and recreational segments. This transaction strengthens the diversity and range of brands in the portfolio and improves access to multiple demographic segments.
• Integration of Retail Operations: The Transaction provides Canopy Growth and Hiku with an integration and expansion opportunity with respect to retail stores in provinces where direct consumer sales will be permitted pursuant to the Cannabis Act, including a pipeline of growth opportunities.
• Complimentary Portfolio of Brands: The Transaction provides Canopy Growth and Hiku with the opportunity to leverage a combined portfolio of established brands through their respective retail stores across the country and thereby generate incremental opportunities with distributors.
• Alignment with Strong Management Team: Hiku’s strong management team brings best-in-class retail, design and marketing experience, which are well aligned with and further supplements Canopy’s existing strategy and operations.
• Strong Access to and Immediate Availability of Capital:Canopy Growth recently closed the issuance of convertible notes amounting to $600 million in gross proceeds. This capital and liquidity will support both Companies continued expansion efforts
• Continued Participation in Expanded Platform for Future Growth: Hiku shareholders, through their ownership of Canopy Shares, will have the opportunity to participate in the growth of Canopy Growth and will benefit from the enhanced growth prospects of the combined company. The Transaction will provide substantial infrastructure and operational support to accelerate Hiku’s growth strategy, future product development, and innovation, together with Canopy Growth and its global partners.
• Enhanced Liquidity and Capital Markets Profile: Canopy Growth is listed on both the New York Stock Exchange (“NYSE”) and the TSX. Canopy Shares are highly liquid with an average daily trading volume of approximately 5.4 million shares, representing approximately C$197 million on a daily basis over the last three months.

 

The management is trying aggressively to diversify its brand portfolio in the promising adult market. The first quarter of 2018 was also focused on solidifying Hiku’ vertically integrated cannabis company and positioning it to win in the legal adult-use market in Canada.

 

With its solid foundation of Tokyo Smoke and its existing retail footprint, its artisanal handcrafted cannabis grown at DOJA’s state of the art facility in British Columbia, and iconic brands like Van der Pop and Maïtri, management believes that Hiku is very well positioned to usher in the adult-use cannabis sector in Canada.

 

Additionally, merger with Canopy, a recognized leader in the cannabis sector, brings in considerable scalable production and seasoned R&D capabilities giving Hiku immediate access to substantial infrastructure and operational support to accelerate Hiku’s growth strategy, future product development, and innovation, together with Canopy Growth and its global partners.

 

Canada is on track to significantly expand its regulated cannabis market and to capitalize on Canada’s rapidly burgeoning regulated cannabis market DJACF continues to find projects that seek to boost their inflows and engages in acquisitions and strategic alliances meant to get them well positioned within the industry.

 

About DOJA Cannabis Ltd:

Hiku’s wholly-owned subsidiary, DOJA Cannabis Ltd., is federally licensed to cultivate and sell cannabis pursuant to the ACMPR, owning two production facilities in the heart of British Columbia’s Okanagan Valley. Hiku’s subsidiary, TS Brandco Holdings Inc. (“Tokyo Smoke”), has been conditionally awarded one of four master retail licenses in Manitoba. Hiku also operates a network of retail stores selling coffee, clothing and curated accessories, across British Columbia, Alberta, and Ontario.

 

Key Brands:

Other recent announcements:

• Launched Hiku – The merger of DOJA Cannabis Company Limited and TS Brandco Holdings Inc. (“Tokyo Smoke”) closed and the combined company was renamed Hiku Brands Company Ltd. – becoming Canada’s first vertically integrated cannabis brand house and uniting the cannabis brands DOJA, Tokyo Smoke, and Van der Pop.

• Awarded Manitoba Retail License – 10006215 Manitoba Ltd. (“Tokyo Smoke Manitoba”), a company of which Hiku owns a 79.9% equity interest, with the participation of BOBHQ, was conditionally awarded one of four master retail licenses in Manitoba’s Request for Proposal process for the opportunity to operate retail cannabis stores. The license gives Tokyo Smoke Manitoba the ability to operate legal retail cannabis stores and an online cannabis e-commerce platform in Manitoba.
• Entered into First International Partnership in Jamaica – Hiku entered into a letter of intent with Kaya Inc., the first licensed medical cannabis producer and dispensary operator in Jamaica, to launch a strategic alliance to pursue medical and adult-use cannabis branding, genetics, and retail opportunities in Jamaica and Canada.

• Announced Cannabis Oil Partnership – Signed a strategic partnership agreement with Vitalis Extraction Technology Inc., a Kelowna-based company at the forefront of CO2 extraction innovation.
• Redefining the Cannabis Retail Experience – Entered into an exclusive collaboration agreement with Jackman Reinvention Inc. (a strategic and creative brand consultancy with deep experience in retail execution) to create a blueprint for Hiku’s dispensary build-outs in select provinces.
• Bringing Exceptional Products to Market – Entered into a letter of intent to establish a co-marketing, retail and select distribution relationship with GSW Creative Corporation Inc., d/b/a dosist, a leading wellness brand providing consistent, controlled and effective cannabis-based solutions.

• Received Sales License – DOJA Cannabis Ltd. (“DOJA”), a wholly-owned subsidiary of Hiku, received an amendment to its sales license from Health Canada to include the sales of dried cannabis, cannabis plants, and seeds.

• Acquired Quebec-based Cannabis Brand Maïtri – The Company acquired 100% of the issued and outstanding shares of Maïtri Group Inc. (“Maïtri”), a Quebec-based cannabis accessory and design brand.
• Newfoundland & Labrador Investment – The Company entered into a binding letter of intent with Oceanic Releaf Inc. Oceanic is a Newfoundland & Labrador-based late-stage applicant under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). Under the terms of the Oceanic LOI, Hiku will invest up to $1,000,000 in cash and up to $2,000,000 worth of common shares of Hiku in exchange for 25% of the post-closing aggregate issued and outstanding shares of Oceanic on a fully-diluted basis.
• Improved liquidity: Hiku recently converted $14,880,000 of debentures, representing approximately $3.1 million in interest savings for the Company.

 

Cannabis industry growth – Projected Stabilized Values By 2024 ($ Billions in Revenue):

Financials: The company has made no revenues thus far. They, however, stand to generate significant revenues with the legalization of marijuana in Canada given their investment in the industry. Moving forward, given their investments, they are well poised for substantial traction.

 

Key risk factors and potential stock drivers:

DJACF is still an early stage cannabis company and has not yet generated meaningful revenue and will likely operate at a loss as it grows its market position and seeks ways to monetize it.

 

It said the company is likely to see meaningful results from their current investments. Analysts remain hopeful that these payoffs will take shape quite soon and stay bullish about the stock price.

 

Regulatory Risk: Notwithstanding the current operational and marketing progress, the company continues to remain exposed to regulatory and legal risk.

 

Scaling risk: Cannabis is a difficult plant to grow in scale while meeting quality standards. Therefore, any time or cost overrun in Hiku’s ongoing activities and its impact on business & financial profile will continue to remain a key investor sensitivity factor.

 

Hiku’s ability to maintain liquidity and financial flexibility to fund its incremental capital requirements will remain a challenge for the company.  Additionally, the industry is competitive, and DJACF will be competing with many other and better-financed companies.

 

Stock Performance

 

Comments:

• On July 16^th, 2018, DJACF was at $1.22, on volume of 292K shares exchanging hands. Market capitalization is $195 million. The current RSI is 56.06
• In the past 52 weeks, shares of DJACF have traded as low as $0.20 and as high as $3.88
• At $1.22, shares of DJACF are trading above its 50-day moving average (MA) at $1.12 and below its 200-day moving average (MA) at $1.43
• The present support and resistance levels for the stock are at $1.21 & $1.37 respectively.

 

 

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