An issuer proposes to complete a reverse take-over transaction with a target company -- The issuer applied for relief from the requirements in section 4.10(2)(a)(ii) of National Instrument 51-102 Continuous Disclosure Obligations and Item 5.2 of Form 51-102F3 Material Change Report to file, in respect of the proposed reverse takeover transaction, historical audited annual financial statements and certain comparative interim financial statements of certain entities acquired by the target that may be considered to be the "primary business" of the target -- the acquisitions are immaterial, individually and in the aggregate, to the target's financial results disclosed in the target's financial statements -- Relief granted.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, s. 4.10(2)(a)(ii).
Form 51-102F3 Material Change Report, Item 5.2.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED AND IN THE MATTER OF ACREAGE HOLDINGS, INC. (FORMERLY, APPLIED INVENTIONS MANAGEMENT CORP.) (THE FILER)
WHEREAS the Ontario Securities Commission (the "Commission") has received an application from the Filer for a decision under Ontario securities legislation for an exemption (the "Exemption Sought") from (A): the requirements in subparagraph 4.10(2)(a) of National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102") and item 5.2 of Form 51-102F3 Material Change Report ("Form 51-102F3") to (i) provide certain audited annual financial statements for each of the Acquisition Entities (as hereinafter defined) for each of the three most recently completed financial years of the Target (as hereinafter defined), (ii) provide certain comparative interim financial statements for each of the Acquisition Entities in respect of the most recently completed interim period of the Target completed prior to the Transaction (as hereinafter defined), (iii) provide management's discussion and analysis ("MD&A") in respect of each of the financial statements referred to in (i) and (ii); and (B) from the requirements to include audited annual financial statements of the Filer, the Target and each of the Material Acquisitions (as such terms are defined herein) for the third most recently-completed financial year.
AND WHEREAS the Filer has represented to the Commission that:
1. The Filer was incorporated under the Business Corporations Act (Ontario) on July 12, 1989 as "Applied Inventions Management Inc.". On August 29, 2014, the Filer's name was changed from Applied Inventions Management Inc. to "Applied Inventions Management Corp.".
2. The Filer continued into British Columbia on November 9, 2018 as "Acreage Holdings, Inc." under the Business Corporations Act (British Columbia).
3. The Filer's head and registered office was located at 1 Adelaide Street East, Suite 801, Toronto, Ontario, M5C 2V9 and, following the continuance, its registered and records office is 2800 Park Place, 666 Burrard Street, Vancouver, British Columbia, V6C 27Z.
4. The outstanding shares of the Filer are not listed or posted for trading on any exchange as the Filer is an unlisted reporting issuer.
5. The Filer is a reporting issuer in the province of Ontario and is not a reporting issuer in any other jurisdiction in Canada. The Filer is not in default of securities legislation in any jurisdiction.
The Filer's Transaction with High Street Capital Partners, LLC
6. The Filer entered into a definitive agreement with High Street Capital Partners, LLC (the "Target") and certain affiliates and associates thereof pursuant to which, among other things, the Target will conduct a reverse takeover of the Filer (the "Transaction") and the subordinate voting shares of the Filer following the Transaction (the "Resulting Issuer") will be listed on the Canadian Securities Exchange ("CSE").
7. The Target is a limited liability company established under the laws of the State of Delaware. The head office of the Target is located at 366 Madison Avenue, 11th Floor, New York, NY, 10017, and its registered office is located at 1209 Orange Street, Wilmington, Newcastle, Delaware.
8. The Target aims to be a vertically-integrated U.S. cannabis market participant and operates through its subsidiaries in various U.S. states. The Target has historically pursued, and continues to pursue, strategic acquisitions and transactions to develop and expand its operations.
9. The Target is not a reporting issuer in any jurisdiction nor is any class of its securities listed on a stock exchange.
10. In accordance with the CSE's Form 2A (the "Listing Statement"), financial statement disclosure concerning the Target is required to be in accordance with National Instrument 41-101 General Prospectus Requirements ("NI 41-101").
11. On February 19, 2016, the Target acquired a controlling interest in 22nd and Burn, Inc., East 11th, Inc. and The Firestation 23, Inc. (collectively "Cannabliss").
12. In 2018, the Target completed the following acquisitions (the "Material Acquisitions") for which the Filer is proposing to include the prescribed financial statements and MD&A on the basis that the subject matter of each of the Material Acquisitions constitutes a "primary business" within the meaning of Form 41-101F1 Information Required in a Prospectus ("Form 41-101F1"):]
(a) D&B Wellness, LLC d/b/a Compassionate Care Center of Connecticut;
(b) Prime Wellness of Connecticut, LLC;
(c) The Wellness & Pain Management Connection, LLC; and
(d) Prime Alternative Treatment Center Consulting, LLC.
13. The Target has completed or is proposing to complete certain acquisitions (the "Subject Acquisitions") referred to below for which the Filer does not propose to include standalone or consolidated financial statements in the Listing Statement:
(a) Maryland Medicinal Research & Caring, LLC ("MMRC")
(b) Prime Consulting Group, LLC / Prime Wellness Centers, Inc.
(c) NYCANNA, LLC
(d) South Shore BioPharma, LLC
(e) HSRC NorCal, LLC/CWG Botanicals, Inc.
(f) NNC LLC d/b/a Nature's Care Company, LLC
(g) In Grown Farms 2, LLC
(h) GCCC Management, LLC
(i) Nature's Way Nursery of Miami, Inc.
(collectively, the "Acquisition Entities").
14. The Listing Statement will include the following financial statements of the Filer and its subsidiaries (the "Prepared Financial Statements"), each prepared in accordance with International Financial Reporting Standards and, in the case of audited financial statements, audited in accordance with Canadian generally accepted auditing standards:
(a) Filer's audited annual consolidated financial statements as at and for the years ended August 31, 2018 and 2017;
(b) Target's audited annual consolidated financial statements as at and for the years ended December 31, 2017 and 2016 and unaudited interim consolidated financial statements as at and for the three and six months ended June 30, 2018 and 2017, which, for greater certainty, include the results of Cannabliss and MMRC from the respective acquisition dates thereof, being February 19, 2016 and October 31, 2017, respectively;
(c) audited annual financial statements as at and for the years ended December 31, 2017 and 2016 and unaudited interim financial statements for the three and six months ended June 30, 2018 and 2017 in respect of each of the Material Acquisitions; and
(d) pro forma financial statements of the Resulting Issuer giving effect to the Transaction and each of the Material Acquisitions.
15. In addition to applying to the Commission for the Exemption Sought, the Filer will also apply to the CSE for a waiver from the equivalent financial statement requirements in the Listing Statement.
16. The Filer believes that stand-alone, historical financial statements for each of the Acquisition Entities are not required in order to provide full disclosure of all material facts relating to the Resulting Issuer following completion of the Transaction, given that:
(a) the Subject Acquisitions are immaterial, individually and in the aggregate, to the Target's financial results disclosed in the Prepared Financial Statements and, as a result, the standalone financial information would not be valuable or provide meaningful additional disclosure to potential investors; and
(b) the exclusion of such stand-alone historical financial information does not alter the Target's key historical financial trends as disclosed in the Prepared Financial Statements.
Historical Financial Statements
17. Subsection 4.10(2)(a) of NI 51-102 provides that if a reporting issuer completes a reverse takeover, it must file the following financial statements for the reverse takeover acquirer, unless the financial statements have already been filed:
(i) financial statements for all annual and interim periods ending before the date of the reverse takeover and after the date of the financial statements included in an information circular or similar document, or under item 5.2 of the Form 51-102F3, prepared in connection with the transaction; or
(ii) if the reporting issuer did not file a document referred to in subparagraph (i), or the document does not include the financial statements for the reverse takeover acquirer that would be required to be included in a prospectus, the financial statements prescribed under securities legislation and described in the form of prospectus that the reverse takeover acquirer was eligible to use prior to the reverse takeover for a distribution of securities in the jurisdiction.
18. Item 5.2 of Form 51-102F3 requires a material change report filed in respect of a closing of the Transaction to include, for each entity that results from the Transaction, disclosure (including financial statements) prescribed under securities legislation and described in the form of prospectus that the entity would be eligible to use.
19. The financial statement requirements for a prospectus are found in NI 41-101 and Form 41-101F1. Item 32.1 (as modified by Item 32.4) of Form 41-101F1 includes the following requirements:
The financial statements of an issuer required under this item to be included in a prospectus must include:
(i) the financial statements of any predecessor entity that formed, or will form, the basis of the business of the issuer, even though the predecessor entity is, or may have been, a different legal entity, if the issuer has not existed for two years, and
(ii) the financial statements of a business or businesses acquired by the issuer within three years before the date of the prospectus or proposed to be acquired, if a reasonable investor reading the prospectus would regard the primary business of the issuer to be the business or businesses acquired, or proposed to be acquired, by the issuer.
20. Section 32.4 of Form 41-101F1 provides for certain exceptions to the financial statement disclosure requirements in the event that the issuer is an "IPO Venture Issuer".
21. Amendments to securities legislation adopted in June 2015, including Form 41-101F1, were intended to result in "venture issuers" and "IPO venture issuers" (as defined in applicable securities legislation) only being required to include two-year audited financial statements in prospectuses; however, under section 32.4(2) of Form 41-101F1 the exemption is not available in respect of reverse take-over transactions such as the Transaction.
22. The Prepared Financial Statements, together with the other disclosure prescribed by the Listing Statement, will provide disclosure of all material facts relating to the Filer following the completion of the Transaction, and the Target, and will contain sufficient information to permit investors to make a reasoned assessment of the Resulting Issuer's business following completion of the Transaction.
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED that the Exemption Sought is granted provided that:
1. the Listing Statement includes the Prepared Financial Statements; and
2. the Listing Statement is filed on SEDAR forthwith following acceptance by the CSE.
DATED at Toronto, Ontario this 13th day of November 2018.