EX-99.40 41 ex9940.htm FILING STATEMENT DATED NOVEMBER 14, 2018

Exhibit 99.40 

 

 

ACREAGE HOLDINGS, INC.

 

CSE FORM 2A LISTING STATEMENT

November 14, 2018

Acreage Holdings, Inc. will derive a substantial portion of its consolidated revenues from the cannabis industry in certain states of the United States, which industry is illegal under United States federal law. Acreage Holdings, Inc. will be indirectly involved (through High Street Capital Partners, LLC) in the cannabis industry in the United States where local state laws permit such activities. Currently, High Street Capital Partners, LLC and its licensed subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the adult-use and medical cannabis marketplaces in various U.S. states.

The United States federal government regulates drugs through the Controlled Substances Act (21 U.S.C. § 811), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under United States federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. The United States Food and Drug Administration has not approved cannabis as a safe and effective drug for any indication.

In the United States, cannabis is largely regulated at the state level. State laws that permit and regulate the production, distribution and use of cannabis for adult-use or medical purposes are in direct conflict with the federal Controlled Substances Act, which makes cannabis use and possession federally illegal. Although certain states authorize medical or adult-use cannabis production and distribution by licensed or registered entities, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal and any such acts are criminal acts under federal law. The Supremacy Clause of the United States Constitution establishes that the United States Constitution and federal laws made pursuant to it are paramount and in case of conflict between federal and state law, the federal law shall apply.

On January 4, 2018, U.S. Attorney General Jeff Sessions issued a memorandum to U.S. district attorneys which rescinded previous guidance from the U.S. Department of Justice specific to cannabis enforcement in the United States, including the Cole Memorandum (as defined herein). With the Cole Memorandum rescinded, U.S. federal prosecutors have been given discretion in determining whether to prosecute cannabis related violations of U.S. federal law, including in jurisdictions in which the production, distribution and use of cannabis is permitted under state law. U.S. Attorney General Jeff Sessions resigned on November 7, 2018. As of his resignation, Matthew Whitaker is the acting U.S. Attorney General. It is unclear what impact this development will have on U.S. federal government enforcement policy.

There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the Controlled Substances Act with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, Acreage Holdings, Inc.’s business, results of operations, financial condition and prospects would be materially adversely affected.

In light of the political and regulatory uncertainty surrounding the treatment of U.S. cannabis-related activities, including the rescission of the Cole Memorandum discussed above, on February 8, 2018 the Canadian Securities Administrators published a staff notice (Staff Notice 51-352) setting out the Canadian Securities Administrator’s disclosure expectations for specific risks facing issuers with cannabis-related activities in the United States. Staff Notice 51-352 confirms that a disclosure-based approach remains appropriate for issuers with U.S. cannabis-related activities. Staff Notice 51-352 includes additional disclosure expectations that apply to all issuers with U.S. cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services to third parties involved in the U.S. cannabis industry.

Please see the table of concordance under Trends, Commitments, Events or Uncertainties in Section 3.3 for further information on the material facts, risks and uncertainties related to U.S. issuers with cannabis-related activities.

See Section 17 of this Listing Statement - Risk Factors for additional information.

 
 
 
 
 
 
 
 
 
 

 

 
 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Listing Statement contains “forward-looking information” and “forward-looking statements” within the meaning of Canadian securities laws and United States securities laws (“forward-looking statements”). Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on management’s current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions of the Resulting Issuer (as defined herein). In addition, the Resulting Issuer may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Resulting Issuer that are not statements of historical fact and may also constitute forward-looking statements. All statements, other than statements of historical fact, made by the Resulting Issuer that address activities, events or developments that the Resulting Issuer expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words and includes, among others, information regarding: expectations for the effects of the RTO (as defined herein); expectations for the potential benefits of the RTO; statements relating to the business and future activities of, and developments related to, the Resulting Issuer after the date of this Listing Statement, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Resulting Issuer’s business, operations and plans; potential future legalization of adult-use and/or medical cannabis under U.S. federal law; expectations of market size and growth in the U.S. and the states in which the Resulting Issuer operates; expectations for other economic, business, regulatory and/or competitive factors related to the Resulting Issuer or the cannabis industry generally; and other events or conditions that may occur in the future.

Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as at the date they are made and are based on information currently available and on the then current expectations. Holders of securities of the Resulting Issuer are cautioned that forward-looking statements are not based on historical facts but instead are based on reasonable assumptions and estimates of management of the Resulting Issuer at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Resulting Issuer, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to: the available funds of the Resulting Issuer and the anticipated use of such funds; the availability of financing opportunities, legal and regulatory risks inherent in the cannabis industry, risks associated with economic conditions, dependence on management and currency risk; risks relating to U.S. regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with third-party service providers; risks related to the enforceability of contracts; reliance on the expertise and judgment of senior management of the Resulting Issuer; risks related to proprietary intellectual property and potential infringement by third parties; the concentrated voting control of the Resulting Issuer’s Founder and the unpredictability caused by the anticipated capital structure; risks relating to the management of growth; increased costs associated with the Resulting Issuer becoming a publicly traded company; increasing competition in the industry; risks inherent in an agricultural business; risks relating to energy costs; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement of judgments and effect service outside of Canada; risks related to future acquisitions or dispositions; sales by existing shareholders; the limited market for securities of the Resulting Issuer; limited research and data relating to cannabis; as well as those risk factors discussed in Section 17 of this Listing Statement below and as described from time to time in documents filed by the Resulting Issuer with Canadian securities regulatory authorities.

Consequently, all forward-looking statements made in this Listing Statement and other documents of the Resulting Issuer are qualified by such cautionary statements and there can be no assurance that the anticipated results or developments will actually be realized or, even if realized, that they will have the expected consequences or effects.

 
 

 

 

Although Acreage Holdings (as defined herein) and Pubco (as defined herein) have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Forward-looking statements are provided and made as of the date of this Listing Statement and none of the Resulting Issuer, Acreage Holdings or Pubco undertakes any obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under securities legislation. See “Risk Factors”.

 

 
 
TABLE OF CONTENTS
1. ABOUT THIS LISTING STATEMENT 1
2. CORPORATE STRUCTURE 9
3. GENERAL DEVELOPMENT OF THE BUSINESS 13
4. NARRATIVE DESCRIPTION OF THE BUSINESS 34
5. SELECTED CONSOLIDATED FINANCIAL INFORMATION 80
6. MANAGEMENT’S DISCUSSION AND ANALYSIS 81
7. MARKET FOR SECURITIES 81
8. CONSOLIDATED CAPITALIZATION 82
9. OPTIONS TO PURCHASE SECURITIES 83
10. DESCRIPTION OF THE SECURITIES 85
11. ESCROWED SECURITIES 101
12. PRINCIPAL SHAREHOLDERS 101
13. DIRECTORS AND OFFICERS 102
14. CAPITALIZATION 109
15. EXECUTIVE COMPENSATION 112
16. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS 115
17. RISK FACTORS 115
18. PROMOTERS 141
19. LEGAL PROCEEDINGS 142
20. INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 142
21. AUDITORS, TRANSFER AGENTS AND REGISTRARS 143
22. MATERIAL CONTRACTS 143
23. INTEREST OF EXPERTS 144
24. OTHER MATERIAL FACTS 144
25. ENFORCEMENT OF JUDGEMENTS 153
26. FINANCIAL STATEMENTS 153

 

 
 

 

 

SCHEDULE “A” PUBCO’S AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017

 

SCHEDULE “B” PUBCO’S MD&A FOR THE YEARS ENDED AUGUST 31, 2018 AND 2017

 

SCHEDULE “C” ACREAGE HOLDINGS’ AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “D” ACREAGE HOLDINGS’ MD&A FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “E” ACREAGE HOLDINGS’ INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “F” ACREAGE HOLDINGS’ MD&A FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “G” PRO FORMA FINANCIAL STATEMENTS OF THE RESULTING ISSUER

 

SCHEDULE “H” D&B WELLNESS’ AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “I” D&B WELLNESS’ MD&A FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “J” D&B WELLNESS’ INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “K” D&B WELLNESS’ MD&A FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “L” PRIME WELLNESS OF CONNECTICUT’S AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “M” PRIME WELLNESS OF CONNECTICUT’S MD&A FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “N” PRIME WELLNESS OF CONNECTICUT’S INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “O” PRIME WELLNESS OF CONNECTICUT’S MD&A FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “P” THE WELLNESS & PAIN MANAGEMENT CONNECTION’S AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “Q” THE WELLNESS & PAIN MANAGEMENT CONNECTION’S MD&A FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “R” THE WELLNESS & PAIN MANAGEMENT CONNECTION’S INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “S” THE WELLNESS & PAIN MANAGEMENT CONNECTION’S MD&A FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 
 

 

 

SCHEDULE “T” PRIME ALTERNATATIVE TREATMENT CENTER CONSULTING’S AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “U” PRIME ALTERNATATIVE TREATMENT CENTER CONSULTING’S MD&A FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

SCHEDULE “V” PRIME ALTERNATATIVE TREATMENT CENTER CONSULTING’S INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

SCHEDULE “W” PRIME ALTERNATATIVE TREATMENT CENTER CONSULTING’S MD&A FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

 

 

 

 

 
 

1.       ABOUT THIS LISTING STATEMENT

1.1       Glossary of Terms

Unless the context otherwise requires or where otherwise provided, the following words and terms shall have the meanings set forth below when used in this Listing Statement. Terms and abbreviations used in the financial statements appended to this Listing Statement are defined separately and the terms and abbreviations defined below are not used therein, except where otherwise indicated. Words importing the singular, where the context requires, include the plural and vice versa and words importing any gender include all genders.

1940 Act” has the meaning ascribed thereto in Section 17 of this Listing Statement;

22nd and Burn” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

A&R LLC Agreement” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Acreage Acquisitions” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Acreage Holdings” refers to High Street Capital Partners, LLC;

Acreage Holdings Members” means the members of Acreage Holdings;

Acreage Holdings Notes” means the senior secured convertible notes of Acreage Holdings dated as of, on, or about, November 27, 2017;

Acreage Holdings Units” means the Class A, Class B, Class C, Class C-1, Class D and Class E units in the capital of Acreage Holdings outstanding from time to time;

Acreage Holdings Warrants” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Acreage ND” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Acreage Support Agreement” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Affiliate” means a corporation that is affiliated with another corporation as described below. A corporation is an “Affiliate” of another corporation if: (i) one of them is the subsidiary of the other; or (ii) each of them is controlled by the same Person. A corporation is “controlled” by a Person if: (i) voting securities of the Corporation are held, other than by way of security only, by or for the benefit of that Person; and (ii) the voting securities, if voted, entitle the Person to elect a majority of the directors of the Corporation. A Person beneficially owns securities that are beneficially owned by: (i) a corporation controlled by that Person; or (ii) an Affiliate of that Person or an Affiliate of any corporation controlled by that Person;

Agency Agreement” means the agreement entered into by Acreage Holdings and a syndicate of agents led by the Lead Agent in connection with the Finco SR Financing;

Agents” means a syndicate of agents led by the Lead Agent;

Allowable capital loss” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

Amalco” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Amalgamation” means the amalgamation of Finco and MergerSub, in accordance with the terms of the Amalgamation Agreement;

Acquisition Entities” means, collectively, each of Maryland Medicinal Research & Caring, LLC, Prime Consulting Group, LLC / Prime Wellness Centers, Inc., NYCANNA, LLC, South Shore BioPharma, LLC, HSRC NorCal, LLC/CWG Botanicals, Inc., NNC LLC d/b/a Nature’s Care Company, LLC, In Grown Farms 2, LLC, GCCC Management, LLC and Nature’s Way Nursery of Miami, Inc.;

 

FORM 2A - LISTING STATEMENT

 

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as converted to Subordinate Voting Shares” includes the conversion of the Proportionate Voting Shares and Multiple Voting Shares and the redemption or exchange, as applicable, on a 1:1 basis of the Acreage Holdings Units and Class B Non-Voting Common Shares of USCo2 into Subordinate Voting Shares;

Associate” when used to indicate a relationship with a Person, means: (i) an issuer of which the Person beneficially owns or controls, directly or indirectly, voting securities entitling him to more than 10% of the voting rights attached to outstanding securities of the issuer; (ii) any partner of the Person; (iii) any trust or estate in which the Person has a substantial beneficial interest or in respect of which a Person serves as trustee or in a similar capacity; or (iv) in the case of a Person who is an individual: (a) that Person’s spouse or child; or (b) any relative of the Person or of his spouse who has the same residence as that Person;

Audit Committee” has the meaning ascribed thereto in Section 13.2 of this Listing Statement;

Awards” has the meaning ascribed thereto in Section 9 of this Listing Statement;

Balance Interest” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Bank Secrecy Act” has the meaning ascribed thereto in Section 17 of this Listing Statement;

Basis Adjustments” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

BCBCA” means the Business Corporations Act (British Columbia), as amended;

Board” means the board of directors of Pubco, Acreage Holdings or the Resulting Issuer, as the context requires;

BTH” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

CA Management Services Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Canadian Holder” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

CAS” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

CBD” means cannabidiol;

CDS” means CDS Clearing and Depository Services Inc.;

Certificate” means a certificate of amalgamation issued by the Director pursuant to Division 3 of the BCBCA;

Closing” means the closing of the RTO;

Class A Subordinate Voting Shares” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Class B Multiple Voting Shares” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Coattail Agreement” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Code” means the Internal Revenue Code of 1986, as amended from time to time;

Common Units” means Class A, Class B, Class C, Class D and Class E Acreage Holdings Units;

Compensation and Corporate Governance Committee” has the meaning ascribed thereto in Section 13.2 of this Listing Statement;

Compensation Options” has the meaning ascribed thereto in Section 4.1 of this Listing Statement;

 

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Consolidation” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Continuance” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

CSA” Controlled Substances Act, as amended from time to time;

CSE” means the Canadian Securities Exchange;

CT Management Services Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

CTO” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

CWG” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

DEA” has the meaning ascribed thereto in Section 17 of this Listing Statement;

Definitive Agreement” means the agreement dated September 21, 2018 among Pubco, Acreage Holdings, Finco, MergerSub, USCo and USCo2 regarding the terms of the RTO;

Dixie” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Dixie Promissory Note” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

DLLCA” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

DOJ” means the U.S. Department of Justice;

DPH” has the meaning ascribed thereto in Section 4.2 of this Listing Statement;

East 11th” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

ERISA” means the Employee Retirement Income Security Act of 1974, as amended;

Escrow Agreement” has the meaning ascribed thereto in Section 11 of this Listing Statement;

Escrow Agent” means Odyssey Trust Company, in its capacity as escrow agent in connection with the Finco SR Financing;

Escrowed Funds” means the funds from the sale of the Finco Subscription Receipts that were deposited in escrow until the Escrow Release Conditions were satisfied;

Escrow Release Conditions” means, together: (i) written confirmation from each of the Acreage Holdings, Finco and Pubco that all conditions to the completion of the RTO in accordance with the terms of the Definitive Agreement, without any material amendment, shall have been satisfied, other than the Amalgamation or the release of the Escrowed Funds and the transactions form part of the RTO that are not capable of being completed prior to the Amalgamation and except for those conditions that have been waived by the Lead Agent in its sole discretion; (iii) the Subordinate Voting Shares being approved for listing on the CSE; (iv) the receipt of all regulatory, shareholder and third-party approvals, if any, required in connection with the RTO and the listing of the Subordinate Voting Shares on the CSE; (v) neither Finco nor Acreage Holdings shall be in breach or default of any of its covenants or obligations under the Subscription Receipt Agreement or the Agency Agreement, except (in the case of the Agency Agreement only) for those breaches or defaults that have been waived by the Lead Agent and all conditions set out in the Agency Agreement shall have been fulfilled, which shall all be confirmed to be true in a certificate of a senior officer of each of Acreage Holdings and Finco; and (vi) the delivery of the release certificate to the Escrow Agent in accordance with the terms of the Subscription Receipt Agreement;

FDA” means the U.S. Food and Drug Administration;

 

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Final Distribution” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Financing Proceeds” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

FinCEN” has the meaning ascribed thereto in Section 17 of this Listing Statement;

FinCEN Memorandum” has the meaning ascribed thereto in Section 17 of this Listing Statement;

Finco” refers to Acreage Finco B.C. Ltd., a corporation existing under the laws of the Province of British Columbia;

Finco SR Financing” means the private placement offering of 12,566,144 subscription receipts of Finco at a price of $25.00 per subscription receipt for total gross proceeds of $314,153,3600;

Finco Subscription Receipts” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

FINRA” means Financial Industry Regulatory Authority;

Firestation” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

FIRPTA” has the meaning ascribed thereto in Section 24 of this Listing Statement;

FLW” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Form 41-101F1” means Form 41-101F1 - Information Required in a Prospectus, as amended;

forward-looking statements” has the meaning ascribed thereto on the second page of this Listing Statement;

Founder” means Kevin Murphy;

HC Management Services Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Health Circle” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Holder” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

HSC Solutions” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

HSRC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

IFRS” means the International Financial Reporting Standards, as issued by the International Accounting Standards Board;

IGF” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Impire” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Interest” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Iowa Relief” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

IRS” means the U.S. Internal Revenue Service;

Kalyx” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Lead Agent” means Canaccord Genuity Corp.;

Listing Statement” means this listing statement dated November 14, 2018;

 

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Lock Up” has the meaning ascribed thereto in Section 11 of this Listing Statement;

MA-RMD” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Material Acquisitions” means, Acreage Holdings’ acquisitions of (i) 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, each of which constitutes a “primary business” within the meaning of Form 41-101F1 Information Required in a Prospectus;

MD&A” means a management’s discussion and analysis;

ME Management Services Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Members” means the holders of Acreage Holdings Units from time to time;

Membership Unit” means an Acreage Holdings Unit representing a fractional part of the ownership interests of all members in Acreage Holdings;

MergerSub” refers to HSCP Merger Corp., a corporation existing under the laws of the Province of British Columbia;

MIPC Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

MMRC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

MOU” has the meaning ascribed thereto in Section 17 of this Listing Statement;

Multiple Voting Shares” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Named Executive Officers” or “NEOs” has the meaning ascribed thereto in Section 15 of this Listing Statement;

Nature’s Way” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

NCC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

NCCRE” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

New Omnibus Equity Plan” means the omnibus incentive plan approved by Pubco Shareholders at the Meeting and adopted by the Resulting Issuer;

NH Management Services Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

NI 41-101” means National Instrument 41-101 - General Prospectus Requirements, as amended;

NI 51-102” means National Instrument 51-102 - Continuous Disclosure Obligations, as amended;

NI 52-110” means National Instrument 52-110 - Audit Committees, as amended;

NI 58-101” means National Instrument 58-101 - Disclosure of Corporate Governance Practices, as amended;

Non-Canadian Holder” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

NYCANNA” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

NYMRC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

OBCA” means the Business Corporations Act (Ontario), as amended;

Offer” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

 

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“OLCC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Options” has the meaning ascribed thereto in Section 9 of this Listing Statement;

Participants” has the meaning ascribed thereto in Section 9 of this Listing Statement;

PATCC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

PATC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

PCG” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Person” means any individual, corporation, partnership, unincorporated association, trust, joint venture, governmental body or any other legal entity whatsoever;

Post Roll-Up Acquisitions” has the meaning ascribed thereto in Section 3.2 of this Listing Statement;

Primary Business” has the meaning ascribed thereto in Section 3.2 of this Listing Statement;

Prior LLC Agreement” has the meaning ascribed thereto in Section 2.2 of this Listing Statement;

profit interests” mean the Class C-1 Units in the capital of Acreage Holdings outstanding from time to time;

Proportionate Voting Shares” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Pubco” refers to Acreage Holdings, Inc. (formerly Applied Inventions Management Corp.) and its subsidiaries prior to the RTO;

Pubco Audit Committee” has the meaning ascribed thereto in Section 13.2 of this Listing Statement;

Pubco Board” means the board of directors of Pubco;

Pubco Meeting” means the annual and special meeting of shareholders of Pubco held on November 6, 2018;

Pubco Shareholders” means the shareholders of Pubco prior to completion of the RTO;

PWC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

PWC Management Services Agreement” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

PWCT” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

PWPA” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Registered Holders” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

‘‘Registered Plan” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

Related Person” means, (i) each director and executive officer, and (ii) an associate or permitted assign of such director or executive officer;

Reorganization” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Resulting Issuer” refers to Acreage Holdings, Inc. (i.e. Pubco and its subsidiaries following the RTO), and, in the case of references to matters undertaken by a predecessor in interest to the Resulting Issuer or its subsidiaries, includes each such predecessor in interest, unless the context otherwise requires;

Resulting Issuer Board” means the board of directors of the Resulting Issuer;

 

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Resulting Issuer Shares” means the Subordinate Voting Shares, the Proportionate Voting Shares and the Multiple Voting Shares, as the case may be;

Resulting Issuer Warrants” means the issued and outstanding warrants in the capital of Acreage Holdings;

Roll-Up” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Roll-Up Note” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Roll-Up Transactions” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Roll-Up Unit” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Rollover Interest” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

RSUs” has the meaning ascribed thereto in Section 9 of this Listing Statement;

RTO” means the Reorganization and listing of the Subordinate Voting Shares on the CSE;

SEC” has the meaning ascribed thereto in Section 17 of this Listing Statement;

Section 280E” has the meaning ascribed thereto in Section 17 of this Listing Statement;

“SFN” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

SR Offering Price” has the meaning ascribed thereto in Section 4.1 of this Listing Statement;

Staff Notice 51-352” has the meaning ascribed thereto in Section 3.3 of this Listing Statement;

Subdivision” has the meaning ascribed thereto in Section 2.4 of this Listing Statement;

Subordinate Voting Share Conversion Right” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Subordinate Voting Shares” means the subordinate voting shares of the Resulting Issuer, the terms of which are further described in Section 10 of this Listing Statement;

Subscription Receipt Agreement” means the subscription receipt agreement entered into on November 13, 2018 among Finco, Acreage Holdings, the Lead Agent and the Escrow Agent setting out the terms and conditions of the Finco Subscription Receipts;

Subsidiaries” means the direct and indirect subsidiaries of Acreage Holdings or the operating companies in which Acreage Holdings has an ownership interest and “Subsidiary” means any one of them;

Subsidiary Seller” has the meaning ascribed thereto in Section 3.1 of this Listing Statement;

Tax Act” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

Tax Benefit Schedule” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Tax Proposals” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

Tax Receivable Agreement” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Tax Receivable Bonus Plan” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Tax Receivable Bonus Plan Participant” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

Taxable capital gain” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

 

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THC” means tetrahydrocannabinol;

Treaty” has the meaning ascribed thereto in Section 24.2 of this Listing Statement;

USCo” refers to Acreage Holdings America, Inc., a Nevada corporation;

USCo Shares” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

USCo2” refers to Acreage Holdings WC, Inc., a Nevada corporation;

USCo2 Support Agreement” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

U.S.” or “United States” means the United States of America;

U.S. Exchange Act” has the meaning ascribed thereto in Section 10.1 of this Listing Statement;

U.S. Holder” has the meaning ascribed thereto in Section 24.1 of this Listing Statement;

USA Patriot Act” has the meaning ascribed thereto in Section 17 of this Listing Statement;

USRPHC” has the meaning ascribed thereto in Section 17 of this Listing Statement;

USRPI” has the meaning ascribed thereto in Section 24 of this Listing Statement;

VIE” has the meaning ascribed thereto in Section 17 of this Listing Statement;

WCM” has the meaning ascribed thereto in Section 3.1 of this Listing Statement; and

WPMC” has the meaning ascribed thereto in Section 3.1 of this Listing Statement.

1.2       Market and Industry Data

 

Market data and industry forecasts contained in this Listing Statement have been obtained from industry publications, various publicly available sources and reports purchased by Acreage Holdings as well as from management’s good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Acreage Holdings believes that the industry data is accurate and that its estimates and assumptions based thereon are reasonable, but there is no assurance as to the accuracy or completeness of this data. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there is no assurance as to the accuracy or completeness of included information. Although the data is believed to be reliable, Acreage Holdings has not independently verified any of the information from third-party sources nor has it ascertained the validity or accuracy of the underlying economic assumptions relied upon therein. Certain of the industry data presented herein has been derived from reports paid for by Acreage Holdings and prepared by The Arcview Group, a cannabis industry investment and research company.

 

Actual outcomes may vary materially from those forecast in the reports or publications referred to herein, and the prospect for material variation can be expected to increase as the length of the forecast period increases. Although we believe that the sources relied upon are generally reliable, the accuracy and completeness of such information is not guaranteed and has not been independently verified. See “Forward-Looking Statements” and “Risk Factors”.

 

1.3       Information Regarding Pubco

The information regarding Pubco that has been included in this Listing Statement is based upon public filings made by Pubco, together with inquiries made of management of Pubco, and accordingly, there can be no assurance that such information is accurate or complete. See “Risk Factors”.

 

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1.4       Information Regarding Subsidiaries

The information regarding Kalyx, Dixie, SFN and the entities Acreage Holdings manages but does not own as disclosed Section 3 that has been included in this Listing Statement is based upon information available to the Resulting Issuer and inquiries made of management of the Resulting Issuer and the Subsidiaries, and accordingly, there can be no assurance that such information is accurate or complete. See “Risk Factors”.

1.5       Interpretation

 

Any statements in this Listing Statement made by or on behalf of management are made in such persons’ capacities as officers of the Resulting Issuer, Acreage Holdings or Pubco, as applicable, and not in their personal capacities.

 

All information in this Listing Statement is stated as at November 14, 2018, unless otherwise indicated.

 

Except where otherwise indicated in this Listing Statement, all references to dollar amounts and “$” are to United States currency.

 

1.6        Non-IFRS Measures

 

None.

 

2.       CORPORATE STRUCTURE

2.1        Corporate Name & Head and Registered Office

This Listing Statement has been prepared in connection with the RTO and proposed listing of the Subordinate Voting Shares on the CSE.

 

The registered and head office of Pubco is located at Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia.

 

The head office of Acreage Holdings is located at 366 Madison Avenue, New York, New York 10017 and the registered address is located at 1209 Orange Street, Wilmington, Delaware, care of a registered agent.

 

Upon completion of the RTO, the registered office of the Resulting Issuer will be located at Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia and the head office will be located at 366 Madison Avenue, New York, New York 10017.

 

2.2        Jurisdiction

 

Pubco was incorporated under the OBCA as “Applied Inventions Management Inc.” on July 12, 1989. On August 29, 2014, Pubco filed articles of amendment changing its name from “Applied Inventions Management Inc.” to “Applied Inventions Management Corp.”. On November 9, 2018, in connection with the RTO, Pubco continued into British Columbia, changed its name to “Acreage Holdings, Inc.” and effected the amendment of its Articles of Incorporation to amend the terms of its authorized share capital. Prior to the Amalgamation, Pubco had the following subsidiaries: Applied Inventions Management Corp. USA (Delaware), Tour Technologies Inc. (Montana) and MergerSub.

 

Acreage Holdings is a limited liability company formed on April 29, 2014 under the Limited Liability Company Act (Delaware) and is governed by a limited liability company agreement dated December 10, 2015, as amended and restated on each of July 22, 2016, March 24, 2017 and April 27, 2018 (the “Prior LLC Agreement”). The Prior LLC Agreement was amended and restated in connection with the completion of the RTO. For further details in respect of the A&R LLC Agreement, see “-- A&R LLC Agreement”.

 

The Resulting Issuer will be a reporting issuer in the Province of Ontario.

 

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2.3       Inter-corporate Relationships

 

The following diagram presents the material subsidiaries and certain business interests of Acreage Holdings, including upon giving effect to the completed Roll-Up Transactions, immediately prior to the completion of the RTO.

 

 

2.4       The RTO

 

In connection with the completion of the RTO, a series of transactions were completed resulting in a reorganization of Pubco and Acreage Holdings as a result of which, the Resulting Issuer became the indirect parent of Acreage Holdings (the “Reorganization”).

 

The principal steps of the Reorganization were as follows:

 

1.Pubco continued from the Province of Ontario into the Province of British Columbia (the “Continuance”) and concurrent therewith: (i) subdivided Pubco’s Class B multiple voting shares (the “Class B Multiple Voting Shares”) on the basis of one and one-half (1.5) Class B Multiple Voting Shares for each Class B Multiple Voting Share issued and outstanding immediately prior thereto (the “Subdivision”); (ii) consolidated Pubco’s issued and outstanding Class A Subordinate Voting Shares (the “Class A Subordinate Voting Shares”) and Class B Multiple Voting Shares on the basis of one (1) post-consolidation share of such class, as applicable, for every existing 350 share of such class (the “Consolidation”); and (iii) approved the adoption of Articles under the BCBCA which effected the amendment of Pubco’s then current Articles of Incorporation to: (A) amend the terms of the Class A Subordinate Voting Shares such that they have special rights and restrictions and be renamed “Subordinate Voting Shares”; (B) create a new class of shares consisting of an unlimited number of “Multiple Voting Shares” having special rights and restrictions (the “Multiple Voting Shares”); (C) create a new class of shares consisting of an unlimited number of “Proportionate Voting Shares” having special rights and restrictions (the “Proportionate Voting Shares”); (D) amend the terms of the existing Class B Multiple Voting Shares such that they have the same special rights and restrictions as the Subordinate Voting Shares pursuant to (A) above; (E) delete Pubco’s Class C preference shares in their entirety; and (F) change its name to “Acreage Holdings, Inc.”;
 

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2.Finco issued subscription receipts (the “Finco Subscription Receipts”) in exchange for gross proceeds of $314,153,600 (the “Financing Proceeds”);
3.the outstanding Finco Subscription Receipts were converted into Finco common shares with each holder of a Finco Subscription Receipt receiving one Finco common share in exchange therefor;
4.Pubco, MergerSub and Finco completed a three-cornered amalgamation pursuant to the statutory procedure under Section 269 of the BCBCA pursuant to which Finco shareholders (including former holders of Finco Subscription Receipts) received Subordinate Voting Shares and Finco and MergerSub amalgamated with the resulting entity being “Amalco”;
5.Amalco was dissolved and liquidated, pursuant to which all of the assets of Amalco were distributed to Pubco;
6.all outstanding Acreage Holdings Notes were converted, pursuant to their terms, into Class A Membership Units;
7.other than the Founder, certain executive employees, holders of profit interests and certain residents of California, all Members contributed their Acreage Holdings Units to USCo in exchange for voting common shares of USCo. Members which reside outside the U.S. received Class A common shares of USCo, while Members which reside within the U.S. received Class B common shares of USCo;
8.Kevin Murphy, the Chief Executive Officer and Founder of Acreage Holdings and proposed Chief Executive Officer and director of the Resulting Issuer, contributed a portion of his Acreage Holdings Units to USCo in exchange for Class C voting common shares of USCo and otherwise continued to hold his remaining Acreage Holdings Units;
9.holders of USCo common shares contributed their USCo common shares to Pubco in exchange for Subordinate Voting Shares, Proportionate Voting Shares and, together with a subscription for cash by Mr. Murphy, Multiple Voting Shares. Holders of Class A common shares of USCo (being non-U.S. Holders) received Subordinate Voting Shares, holders of Class B common shares (being U.S. Holders) of USCo received Proportionate Voting Shares and Mr. Murphy received Multiple Voting Shares;
10.Members who are resident of California, for California state income tax purposes, contributed their Acreage Holdings Units to USCo2 in exchange for non-voting shares of USCo2;
11.through USCo and USCo2, Pubco contributed the Financing Proceeds to Acreage Holdings upon completion of the RTO; and
12.all outstanding warrants in the capital of Acreage Holdings were converted, pursuant to their terms, to permit the holders thereof to acquire one Subordinate Voting Share for each warrant held (the “Acreage Holdings Warrants”).

Following completion of the Reorganization, Acreage Holdings Units retained by the Founder, certain executive employees and profit interests holders, carry redemption and exchange rights allowing, subject to contractual restrictions, the holder thereof to exchange their Acreage Holdings Units for newly-issued Subordinate Voting Shares on a one-to-one basis. The Resulting Issuer will have the option to instead make a cash payment equal to a volume weighted average market price of one Subordinate Voting Share for each Acreage Holdings Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the A&R LLC Agreement. The Resulting Issuer’s decision to make a cash payment upon a Member’s election will be made by the independent directors of the Resulting Issuer Board (within the meaning of applicable securities laws) who are disinterested. The Resulting Issuer, USCo and Acreage Holdings entered into a support agreement related to the above redemption and exchange rights (the “Acreage Support Agreement”). See “Description of the Securities - Description of Capital of Acreage Holdings - Acreage Support Agreement”.

The Resulting Issuer’s structure following the RTO, as described above, is commonly referred to as an “Up-C” structure. The Up-C structure allows the Members to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the RTO. One of these benefits is that future taxable income of Acreage Holdings that is allocated to the Members will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, because the Members may redeem their Acreage Holdings Units for Subordinate Voting Shares or, at the Resulting Issuer’s option, for cash, the Up-C structure also provides the Members with potential liquidity that holders of non-publicly-traded limited liability companies are not typically afforded.

 

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In connection with the Reorganization, non-U.S. holders of Acreage Holdings Units will generally be subject to U.S. withholding tax under Code Section 1446(f) upon the disposition of Acreage Holdings Units equal to 10% of the fair market value of shares received in the exchange, or approximately $22 million, based on the SR Offering Price of Subordinate Voting Shares. The Resulting Issuer will withhold 10% of the Subordinate Voting Shares delivered to non-U.S holders, or approximately 900,000 Subordinate Voting Shares, and the Resulting Issuer may cancel such Subordinate Voting Shares. In the case of the cancellation of such shares, the Resulting Issuer will pay the resulting tax withholding tax obligation out of the use of proceeds from the Finco SR Financing. The Resulting Issuer reserves the right to facilitate the sale of such shares and, in such case, to remit the proceeds thereof in satisfaction of its withholding tax obligation.

 

Following completion of the Reorganization, (i) Pubco holds all of the outstanding voting shares of USCo and all of the outstanding voting shares of USCo2, and (ii) the outstanding Acreage Holdings Units are held by USCo (69.77%), USCo2 (2.00%), and the Founder, certain executive employees and profit interests holders (28.23%).

 

Set forth below is the organizational structure of Acreage Holdings after giving effect to the Reorganization:

 

 

 

Through USCo, the sole manager of Acreage Holdings, the Resulting Issuer will operate and control all of the business and affairs of Acreage Holdings and, through Acreage Holdings and the Subsidiaries, conduct the business currently carried on by Acreage Holdings.

 

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Set forth below is the organizational structure of the Acreage Holdings after giving effect to the Reorganization and the Roll-Up, including its material Subsidiaries:

 

 

 

3.       GENERAL DEVELOPMENT OF THE BUSINESS

3.1       General Development of the Business

Upon completion of the RTO, the business of Acreage Holdings will become the business of the Resulting Issuer.

 

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General Development of Pubco’s Business

Pubco was initially formed in order to identify, develop and market innovative products and inventions, including the SAVE swimming pool intrusion alarm, a swimming pool alarm device. Pubco completed its initial public offering pursuant to a prospectus dated June 13, 1990 and became a reporting issuer in the Province of Ontario. A cease trade order (“CTO”) was imposed on Pubco by the Ontario Securities Commission on February 20, 2001 for failure to file its annual audited consolidated financial statements for the year ended August 31, 2000 and interim unaudited consolidated financial statements for the three-month period ended November 30, 2000. These consolidated financial statements were subsequently filed on SEDAR by Pubco. On August 27, 2011, the Ontario Securities Commission issued a Revocation Order of the CTO. Pubco ceased all operations of its legacy business in 2001.

Since 2011, Pubco has been focused on identifying a business or asset acquisition. On August 29, 2014, Pubco filed articles of amendment changing its name from “Applied Inventions Management Inc.” to “Applied Inventions Management Corp.”. Pubco entered into the Definitive Agreement with Acreage Holdings on September 21, 2018, which provided the general terms and conditions of the RTO, pursuant to which Pubco acquired all of the issued and outstanding securities of Acreage Holdings in exchange for securities of Pubco.

On November 9, 2018, in connection with the RTO, Pubco completed the Continuance, the Subdivision and the Consolidation and changed its name to “Acreage Holdings, Inc.”.

General Development of Acreage Holdings’ Business

Mr. Murphy began investing in the cannabis space in 2011 with minority investments in dispensaries located in medical-use states on the east coast of the United States. Acreage Holdings was founded by Mr. Murphy in April 2014 to invest in the burgeoning U.S. regulated cannabis market and, until April 2018, was an investment holding company and engaged in the business of investing in cannabis companies. As part of the formation of Acreage Holdings in 2014, Mr. Murphy contributed his cannabis related investment portfolio valued at approximately $14 million to Acreage Holdings in exchange for 20 million Class B Membership Units.

Since its formation, Acreage Holdings has invested in geographically diverse licensed entities that operate in both the adult-use and medicinal-use authorized U.S. states. The Subsidiaries focus on all aspects of the state-regulated cannabis industry. As a result of its experience investing in the industry, and, in many cases, active involvement with the Subsidiaries, Acreage Holdings’ management gained significant experience in cultivation, processing and dispensing of cannabis and cannabis infused products.

From inception until Acreage Holdings began the Roll-Up, the principal business activity of Acreage Holdings was to provide debt and equity capital to existing cannabis license holders, cannabis license applicants and related management companies which are party to financing and consulting services agreements with Acreage Holdings-owned entities in states throughout the U.S. where medical and/or adult-use of cannabis is legal. Such investments included straight debt securities (secured or unsecured), convertible debt instruments and/or common or preferred equity securities issued by the Subsidiaries. As an investor in these Subsidiaries, Acreage Holdings was generally entitled to hold board seats and played an advisory role in the management and operations of such Subsidiaries, which afforded Acreage Holdings the opportunity to build its institutional knowledge in the cannabis space. Additionally, being an investor in the Subsidiaries provided Acreage Holdings with the ability to develop a vertically-integrated U.S. cannabis market participant with one of the largest footprints in the industry.

As of the date of this Listing Statement, Acreage Holdings, through its Subsidiaries, holds 34 licenses to operate dispensaries and nine licenses to grow and process cannabis, and owns or operates cannabis businesses in 14 states across the U.S., including California, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Ohio, Oregon and Pennsylvania. Each of the Subsidiaries are in various stages of development and operations, ranging from having only recently obtained a newly issued state cannabis license or to being fully operational. Acreage Holdings also has entered into agreements which will, upon successful completion of the transactions, result in Acreage Holdings owning or operating cannabis businesses in Florida, Michigan, Oklahoma and Rhode Island. Acreage Holdings plans to continue its expansion, with active efforts underway to acquire new and existing licenses in other states. In certain states, licenses are required to be held by non-profit entities. In those states, Acreage Holdings has entered into management agreements with such entities, under which Acreage Holdings has the right to control the operations of such entities and earns fees in exchange for managing such enterprises.

 

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Following completion of the Roll-Up and the Acreage Acquisitions, Acreage Holdings will own 100% of the Subsidiaries, other than Dixie, Kalyx, The Wellness & Pain Management Connection, LLC (“WPMC”) and NCC Real Estate, LLC (“NCCRE”).

See “Narrative Description of the Business - Principal Products and Services” for a description of the principal products and services offered directly or indirectly through Acreage Holdings.

Roll-Up Transactions

Beginning in April 2018, Acreage Holdings focused its business strategy on acquiring control over the Subsidiaries (other than Dixie, Kalyx, WPMC and NCCRE) in which it had an existing investment (collectively, the “Roll-Up Transactions” or the “Roll-Up”).

In order to effect the Roll-Up Transactions, Acreage Holdings entered into a membership interest purchase and contribution agreement (each, a “MIPC Agreement”) with the then-owners of equity interests of each of the applicable Subsidiaries (in each case, a “Subsidiary Seller”), pursuant to which Acreage Holdings agreed to purchase, and each Subsidiary Seller agreed to sell, the equity interest in the applicable Subsidiary held by such Subsidiary Seller (in each case, the “Interest”). The general terms and conditions set out in each MIPC Agreement are summarized below.

 

As consideration for the purchase of the Interest of each Subsidiary Seller, Acreage Holdings agreed to issue to such Subsidiary Seller: (i) such number of Class D Membership Units (each, a “Roll-Up Unit”) determined by dividing the value attributable to the portion of the Interest to be rolled into Acreage Holdings (the “Rollover Interest”) by $6.20; and (ii) an unsecured promissory note (each, a “Roll-Up Note”) in the initial principal amount equal to the value of the Interest less the Rollover Interest, if any, (the “Balance Interest”). Each Roll-Up Note bears interest at a rate of 10% per annum and is repayable upon the earlier of the date that is 18 months following the issuance thereof or the closing of an event similar to a reverse takeover of a public entity or another going-public transaction. Acreage Holdings was permitted to determine the allocation of the Interest between the Rollover Interest and the Balance Interest, as applicable, by delivery of a notice to each of the Subsidiary Seller setting out same. See “Prior Sales.”

 

See the table included below under “-- Summary of Roll-Up Transactions” for the material terms of each Roll-Up Transaction and Schedule “G” for the pro forma financial statement impact of the Roll-Up Transactions on the business of Acreage Holdings.

 

The following is an overview of each Subsidiary involved in the Roll-Up Transactions:

California

HSRC NorCal, LLC & CWG Botanicals, Inc.

HSRC NorCal, LLC (“HSRC”) is a limited liability company formed on June 3, 2016 under the laws of the State of California and provides management and administrative services through a Management Services Agreement dated June 9, 2016 (the “CA Management Services Agreement”) with CWG Botanicals, Inc. (“CWG”). CWG was formed on December 21, 2015 under the laws of the State of California as a non-profit mutual benefit corporation and converted to a for-profit corporation in January 2018. CWG cultivates and processes cannabis. Pursuant to the CA Management Services Agreement, HSRC receives all revenue received by CWG on a monthly basis, pays all of CWG’s expenses and retains the excess of revenue less those expenses as a management fee. The CA Management Services Agreement has a 10-year term.

 

CWG leases a 20,000 square foot property and completed development of a series of cultivation rooms in July 2017 with a total footprint of 10,000 square feet and a canopy of approximately 2,500 square feet. In September 2017, CWG began developing a second 10,000 square foot manufacturing facility to produce distillates and concentrates. On August 5, 2017, September 21, 2017 and October 28, 2017, CWG received licenses to manufacture, grow and distribute cannabis, respectively, from the State of California’s Department of Consumer Affairs. Until California finalizes its regulations regarding cannabis, all licenses issued to operators in the California cannabis industry are temporary and renew every 90 days. It is anticipated that the licenses will continue to renew until approximately December 2018, when the California rules regarding license issuances are expected to be finalized.

 

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CWG was recently issued its final temporary manufacturing license extension on November 1, 2018, which expires on January 31, 2019. In addition, CWG's final temporary distribution license extension has been issued and will expire on January 26, 2019. For both the manufacturing and distribution licenses, CWG's application is under review by state and local regulators. Once that review is complete, CWG will be issued an annual or provisional license, both of which expire after twelve months. The license type (annual or provisional) will be determined by the City of Oakland or the State of California, depending on whether they were able to complete CWG's review by December 31, 2018.

 

As for CWG's cultivation license, a temporary license extension was issued on September 22, 2018 and will expire on December 22, 2018. CWG is eligible for one more extension, which would be the final temporary cultivation license extension. That will be determined based on the state’s progress with CWG's annual license application, which is currently under review. Depending on the state's timeline, along with the City of Oakland's timeline, either a provisional or annual license will be issued, both of which expire after 12 months.

 

Prior to the Roll-Up, Acreage Holdings owned 45% of the outstanding equity interests of HSRC and CWG. Acreage Holdings expects to complete the Roll-Up of HSRC and CWG in the first quarter of 2019, following which it will own 100% of the outstanding equity interests of HSRC and CWG. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

 

Connecticut

Prime Wellness of Connecticut, LLC & Community Administrative Services, LLC

Prime Wellness of Connecticut, LLC (“PWCT”) is a limited liability company formed on August 27, 2013 under the laws of the State of Connecticut and operates a dispensary in South Windsor, Connecticut. PWCT receives certain administrative, operational and consulting services through a Management Services Agreement dated November 2017 (the “CT Management Services Agreement”) with Community Administrative Services, LLC (“CAS”). CAS is a limited liability company formed on March 14, 2017 under the laws of the State of Connecticut and was formed to assist PWCT with certain administrative functions regarding medicinal cannabis license applications, renewals and pharmacy consultations for licensed patients. Pursuant to the CT Management Services Agreement, PWCT pays CAS a fixed monthly fee in exchange for the services provided thereunder. The CT Management Services Agreement has an initial term of five years and automatically renews for successive five-year terms unless terminated by the parties.

 

PWCT operates a 3,200 square foot retail medicinal cannabis dispensary location in South Windsor, Connecticut that opened to licensed patients on August 1, 2014. PWCT received a Medical Marijuana Dispensary License from the State of Connecticut’s Department of Consumer Protection on April 10, 2014, which license has been continuously renewed for successive one-year terms on its anniversary date. CAS leases a 1,500 square foot property adjacent to PWCT. Under the laws of the State of Connecticut, licensed individuals must register with one specific dispensary and may not purchase medicinal cannabis from other dispensaries.

 

Prior to the Roll-Up, Acreage Holdings owned 17.5% of the outstanding equity interests in each of CAS and PWCT. On September 13, 2018, Acreage Holdings completed the Roll-Up of PWCT and now owns 100% of the outstanding equity interests of PWCT. Acreage Holdings is in process of acquiring the outstanding business of CAS. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

Acreage Holdings is not aware of any contingent or unrecorded liabilities assumed in connection with the foregoing acquisition.

 

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Illinois

NCC LLC

NCC LLC d/b/a Nature’s Care Company, LLC (“NCC”) is a limited liability company formed on June 26, 2014 under the laws of the State of Illinois and operates a medicinal cannabis dispensary in Rolling Meadows, Illinois. On January 22, 2016, NCC received a Registered Medical Cannabis Dispensing Organization registration certificate from the Illinois Department of Financial and Professional Regulation, which has been continuously renewed for successive one-year terms on its anniversary date.

 

Under the laws of the State of Illinois, licensed individuals must register with one specific dispensary and may not purchase medicinal cannabis from other dispensaries.

 

NCC is currently having its sales and use tax returns audited by the State of Illinois for the periods of January 2016 through March 2018. Acreage Holdings may seek to extend the statute of limitations in order to complete the audit.

 

Prior to the Roll-Up, Acreage Holdings held approximately 30% of the outstanding equity interests in NCC. Acreage Holdings expects to complete the Roll-Up of NCC on or about November 30, 2018, following which it will own 100% of the outstanding equity interests of NCC. All conditions to closing have been satisfied, save for meeting final regulatory administrative conditions, which Acreage Holdings anticipates to be completed during the fourth quarter of 2018. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

Maine

The Wellness & Pain Management Connection, LLC

WPMC is a limited liability company formed on August 3, 2011 under the laws of the State of Delaware and provides management, operational and consulting services through a management agreement dated August 3, 2011 (the “ME Management Services Agreement”) with Northeast Patient Group d/b/a Wellness Connection of Maine (“WCM”). WCM is a non-profit entity formed on June 16, 2010 in the State of Maine. Pursuant to the ME Management Services Agreement, WPMC operates and provides management services to WCM and receives compensation in consideration therefor based upon a fixed price per pound of product sold by WCM. For other certain services, WPMC receives compensation at agreed-upon rates based upon the services provided by WPMC. WPMC has the right to appoint two of the five members of WCM’s board of directors. The ME Management Services Agreement has an initial term of eight years and automatically renews for a second term of eight years, followed by a third term of nine years, unless terminated by the parties in accordance with its terms.

 

WCM operates medicinal cannabis dispensaries in each of Bath, Brewer, Gardiner and Portland, Maine, and operates a 40,000 square foot cannabis cultivation and processing facility in Auburn, Maine. On various dates between 2011 and 2012, WCM received four certificates of registration from the Maine Department of Health and Human Services for the operation of its dispensaries and cultivation and processing facilities. Maine does not issue separate licenses for cultivation and processing facilities and dispensaries. The licenses have been continuously renewed for successive one-year terms since the dates of issuance.

 

Prior to the Roll-Up, Acreage Holdings held 39% of the outstanding equity interests in WPMC. On June 19, 2018, Acreage Holdings completed the Roll-Up of WPMC and currently holds 93.9% of the outstanding equity interests of WPMC. The remaining 6.1% of the outstanding equity interests in WPMC are held by certain unaffiliated investors. The relationship among the owners of WPMC is governed by that certain limited liability company agreement, dated as of October 26, 2015. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

 

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Maryland

Maryland Medicinal Research & Caring, LLC

Maryland Medicinal Research & Caring, LLC (“MMRC”) is a limited liability company formed on October 6, 2015 under the laws of the State of Maryland and operates a dispensary in Baltimore, Maryland. On July 26, 2018, MMRC received a license to operate its dispensary from the Natalie M. LaPrade Maryland Medical Cannabis Commission, an independent commission within the Maryland Department of Health and Mental Hygiene, which license expires on July 26, 2024.

Prior to the Roll-Up, Acreage Holdings held 80% of the outstanding equity interests in MMRC. On July 31, 2018, Acreage Holdings completed the Roll-Up of MMRC and currently holds 100% of the outstanding equity interests of MMRC. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

Massachusetts

Prime Consulting Group, LLC & Prime Wellness Centers, Inc.

Prime Consulting Group, LLC (“PCG”) is a limited liability company formed on August 6, 2014 under the laws of the State of Delaware and provides management, operational and consulting services pursuant to a management agreement dated December 1, 2015 (the “PWC Management Services Agreement”) with Prime Wellness Centers, Inc. (“PWC”). PWC was formed on April 29, 2015 as a non-profit corporation under the laws of the State of Massachusetts and was converted to a for-profit corporation on August 15, 2018. PWC operates dispensaries in each of Shrewsbury, Worcester and Leominster, Massachusetts and a cultivation and processing facility in Sterling, Massachusetts. Pursuant to the PWC Management Services Agreement, PCG operates and provides management services to PWC. The PWC Management Services Agreement has an initial term of 15 years and automatically renews for successive five-year terms unless terminated by the parties in accordance with its terms. PCG receives compensation from PWC based upon a fixed price per pound of cannabis sold and a fixed percentage of gross sales for cannabis-infused products sold by PWC.

On June 29, 2015, the Massachusetts Department of Public Health Bureau of Health Care Safety and Quality granted PWC one-year licenses to operate its dispensaries and cultivation and processing facility. The licenses have been continuously renewed for successive one-year terms since the respective dates of issuance.

Prior to the Roll-Up, Acreage Holdings held 20% of the outstanding equity interests in PCG. On July 31, 2018, Acreage Holdings completed the Roll-Up of PCG and currently holds 100% of the outstanding equity interests of PCG. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

Acreage Holdings is not aware of any contingent or unrecorded liabilities assumed in connection with the foregoing acquisition.

 

MA RMD SVCS, LLC & Health Circle, Inc.

MA RMD SVCS, LLC (“MA-RMD”) is a limited liability company formed on May 12, 2016 under the laws of the State of Massachusetts that provides management and consulting services pursuant to a management agreement dated October 31, 2017 (the “HC Management Services Agreement”) with Health Circle, Inc. (“Health Circle”). Health Circle is a non-profit Massachusetts corporation formed on June 24, 2015 and operates dispensaries in Rockland, Massachusetts and a 20,000 square foot dispensary, cultivation and processing facility in Rockland, Massachusetts. Pursuant to the HC Management Services Agreement, MA-RMD operates and provides management services to Health Circle. The HC Management Services Agreement has an initial term of 15 years and automatically renews for successive five-year terms unless terminated by the parties in accordance with its terms. MA-RMD receives compensation from Health Circle based upon a fixed price per pound of cannabis sold and a fixed percentage of gross sales for cannabis-infused products sold by Health Circle.

 

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On September 30, 2015, the Massachusetts Department of Public Health Bureau of Health Care Safety and Quality granted Health Circle one-year licenses to operate its dispensaries and cultivation and processing facility. The licenses have been continuously renewed for successive one-year terms since their respective dates of issuance.

Prior to the Roll-Up, Acreage Holdings held 51% of the outstanding equity interests in MA-RMD. On July 3, 2018, Acreage Holdings completed the Roll-Up of MA-RMD and currently holds 100% of the outstanding equity interests of PCG. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

New Hampshire

Prime Alternative Treatment Center Consulting, LLC

Prime Alternative Treatment Center Consulting, LLC (“PATCC”) is a limited liability company formed on December 24, 2014 under the laws of the State of New Hampshire that provides management, operational and consulting services pursuant to a management agreement dated March 1, 2016 (the “NH Management Services Agreement”) with Prime Alternative Treatment Centers of NH, Inc. (“PATC”). PATC is a non-profit corporation formed on January 15, 2015 under the laws of the state of New Hampshire and operates a dispensary and cannabis processing and cultivation facility in Peterborough, New Hampshire. Pursuant to the NH Management Services Agreement, PATCC operates and provides management services to PATC and receives compensation in consideration therefor based upon a fixed price per pound of products sold by PATC on a monthly basis. The NH Management Services Agreement has an initial term of five years and automatically renews for successive five-year terms unless terminated by the parties in accordance with its terms.

On August 9, 2016, the New Hampshire Department of Health and Human Services issued a license in the form of a Registration Certificate, permitting PATC to operate. In the second quarter of 2018, PATC received a notice from the State of New Hampshire indicating that it needed to implement certain remedial measures before the state agreed to renew its license. PATC has submitted a remediation plan to the New Hampshire Office of Legal and Regulatory Services. PATC is currently implementing those matters and expects to resolve them promptly. Under New Hampshire law, a license does not expire if the licensee submits a timely and sufficient renewal application and the agency has yet to take final action on that renewal application. PATC submitted a timely and complete renewal application, and so its registration certificate is active, current and in good standing pending the resolution of the remediation plan, and has received correspondence from the state affirming this status.

The State of New Hampshire licenses provide recipients with exclusive rights to operate four different entities in their geographically designated part of the state. PATC’s license entitles it to operate in the part of the state with the greatest population density. New Hampshire also requires that each licensed medical cannabis patient register with a single dispensary to meet their individual medical cannabis needs.

Prior to the Roll-Up, Acreage Holdings held 12% of the outstanding equity interests in PATCC. On July 3, 2018, Acreage Holdings completed the Roll-Up of PATCC and currently holds 100% of the outstanding equity interests of PATCC. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

New York

Impire State Holdings LLC, NYMRC, LLC, NYCI, LLC & NYCANNA, LLC

Impire State Holdings LLC (“Impire”) is a limited liability company formed on November 7, 2016 under the laws of the State of New York that primarily invests in NY Medicinal Research & Caring, LLC (“NYMRC”). NYMRC is a limited liability company formed on October 6, 2016 under the laws of the State of New York that primarily invests in NYCANNA, LLC (“NYCANNA”). NYCANNA is a limited liability company formed on November 1, 2016 under the laws of the State of New York and is in the process of opening medical cannabis dispensaries in each of Buffalo, Middletown, Jamaica and Farmingdale, New York, and a 35,000 square foot cultivation and processing facility in Onondaga County, New York.

 

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On August 1, 2017, the New York Department of Health (“NYDOH”) approved NYCANNA’s registration as a registered organization with the state’s Medical Marijuana Program. The registration is valid until July 31, 2019. On May 4, 2018, the NYDOH issued a formal license to NYCANNA to operate its cultivation and processing facility. The NYDOH will issue formal licenses (which have been preapproved) to operate its dispensaries upon the completion of facilities inspections, which will occur when the facilities are ready to be operational, which Acreage Holdings expects will occur in early 2019.

Prior to the Roll-Up, Acreage Holdings held 80% of the outstanding equity interests of Impire, Impire held 50% of the outstanding equity interests of NYMRC and NYMRC held 50% the outstanding equity interests of NYCANNA. NYCI Holdings, LLC (“NYCI”) owned the remaining 50% of the outstanding equity interests of NYCANNA and was previously unaffiliated with Acreage Holdings. Acreage Holdings now owns all of the outstanding equity interests in NYCI. Acreage Holdings completed the Roll-Up of Impire on August 15, 2018 and now owns 100% of the outstanding equity interests of each of Impire, NYMRC and NYCANNA. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

In addition to the terms of the MIPC Agreement in respect of the Roll-Up of Impire, Acreage Holdings also agreed to enter into severance agreements with the former Chief Executive Officer, Chief Operating Officer and Manager of NYCANNA as summarized below.

Chief Executive Officer - Total payments of $645,000, $200,000 of which was paid upon execution of the severance agreement and the remaining $445,000 to be paid in equal monthly installments from closing until July 2020.
Chief Operating Officer - Total payments of $610,000, $200,000 of which was paid upon execution of the severance agreement and the remaining $410,000 to be paid in equal monthly installments from closing until July 2020.
Manager - Total payments of $4,145,000, $3,500,000 of which was paid upon termination of the management agreement between the former manager and NYCANNA and the remaining $645,000 was paid to the former manager in contemplation for a transition services agreement, which has since terminated.

Acreage Holdings is not aware of any contingent or unrecorded liabilities assumed in connection with the foregoing acquisition.

 

Oregon

Cannabliss & Co.

22nd and Burn Inc. (“22nd and Burn”), East 11th Incorporated (“East 11th”), The Firestation 23 Inc. (“Firestation”) and HSCP Oregon, LLC (“Acreage HoldingsOR”) make up the Cannabliss & Co. business in Oregon. Each of 22nd and Burn, East 11th and Firestation received a license to operate a medicinal dispensary on formation but has subsequently surrendered same and currently operates as a recreational dispensary.

(i) 22nd and Burn Inc.

22nd and Burn was formed on March 3, 2014 under the laws of the State of Oregon and operates a recreational dispensary in Portland, Oregon. On December 31, 2016, the Oregon Liquor Commission (“OLCC”) issued 22nd and Burn a license to operate a recreational dispensary. The license expires on December 30, 2018. The license renews on an annual basis on its anniversary date. 22nd and Burn is in the process of renewing its license from December 31, 2018 through December 30, 2019.

Prior to the Roll-Up, Acreage Holdings held 70% of the outstanding equity interests in 22nd and Burn. On June 20, 2018, Acreage Holdings completed the Roll-Up of 22nd and Burn and currently holds 100% of the outstanding equity interests of 22nd and Burn. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

 

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(ii) East 11th Incorporated

East 11th is a corporation formed on June 10, 2014 under the laws of the State of Oregon and operates a recreational dispensary in Eugene, Oregon. On January 3, 2017, the OLCC issued East 11th a license to operate a recreational dispensary in Eugene, Oregon. The license expires on January 3, 2019. The license renews on an annual basis on its anniversary date. East 11th is in the process of renewing its license from January 4, 2019 through January 3, 2020.

Prior to the Roll-Up, Acreage Holdings held 65% of the outstanding equity interests in East 11th. On June 20, 2018, Acreage Holdings completed the Roll-Up of East 11th and currently holds 100% of the outstanding equity interests of East 11th. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

(iii) The Firestation 23 Inc.

Firestation is a corporation formed on February 26, 2014 under the laws of the State of Oregon and operates a recreational dispensary in Portland, Oregon. On January 4, 2017, the OLCC issued Firestation a license to operate a recreational dispensary. The license expires on January 3, 2019. The license renews on an annual basis on its anniversary date. The Firestation is in the process of renewing its license from January 4, 2019 through January 3, 2020.

Prior to the Roll-Up, Acreage Holdings held 65% of the outstanding equity interests in Firestation. On June 20, 2018, Acreage Holdings completed the Roll-Up of Firestation and currently holds 100% of the outstanding equity interests of Firestation. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

(iv) HSCP Oregon, LLC

Acreage HoldingsOR is a limited liability company formed on March 8, 2016 under the laws of the State of Oregon and operates two recreational dispensaries in Springfield and Portland, Oregon and one cultivation and processing facility in Medford, Oregon. On January 9, 2017 and March 9, 2017, the OLCC issued Acreage HoldingsOR licenses to operate its dispensaries in Springfield and Portland, respectively. Each license has been renewed on an annual basis without issue. Acreage HoldingsOR has applied for a “Tier 2 Indoor Producer” license and is expected to receive a permanent license in December 2018. Acreage HoldingsOR completed construction of its 10,000 square foot production and cultivation facility in September 2018.

Prior to the Roll-Up, Acreage Holdings held 49% of the outstanding equity interests of Acreage HoldingsOR. On June 20, 2018, Acreage Holdings completed the Roll-Up of Acreage HoldingsOR and currently holds 100% of the outstanding equity interests of Acreage HoldingsOR. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

Pennsylvania

Prime Wellness of Pennsylvania LLC

Prime Wellness of Pennsylvania LLC (“PWPA”) is a limited liability company formed on July 1, 2016 under the laws of the State of Pennsylvania and operates a 30,000 square foot cultivation and processing facility in South Heidelberg, Pennsylvania. On June 20, 2017, the Pennsylvania Department of Health issued PWPA one of 12 Medical Marijuana Grower / Processor one-year permits. The permit has been renewed for one-year terms since the date of issuance.

Prior to the Roll-Up, Acreage Holdings held 50% of the outstanding equity interests in PWPA. Acreage Holdings completed the Roll-Up of PWPA on October 10, 2018 and now owns 100% of the outstanding equity interests of PWPA. For further details in respect of the Roll-Up, see “-- Summary of Roll-Up Transactions” below.

 

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Summary of Roll-Up Transactions

The following table sets out the material terms of each Roll-Up Transaction:

         

Consideration for Transaction Related to Incremental Ownership

(unaudited)

 
Entity State Date of Closing

 

Pre-
Roll-Up %

 

Post-Roll-Up %

Cash
Payment
($)
Seller Notes
($)
Value of
Class D
Units ($)
Number of Class D
Units
Total Consideration
($)
State
Approval Required?
Acquisitions of Primary Business
PWCT and CAS CT September 13, 2018 17.5% 100.0% $ 2,475,000   $ 478,500   $ 7,121,506   1,148,630   $ 10,075,006   Yes
WPMC ME May 25, 2018 39.0% 93.9% $ 8,167,894   $ 1,125,000   $ 12,924,985   2,084,675   $ 22,217,879   No
PATCC NH July 3, 2018 12.0% 100.0% $  -   $ 1,118,478   $ 14,964,122   2,413,568   $ 16,082,600   No
Subtotal of Acquisitions of Primary Business $ 10,642,894   $ 2,721,978   $ 35,010,613   5,646,873   $ 48,375,485    
                     
Other Acquisitions
HSRC CA Q4 2018 45.0% 100.0% $ 554,184   $  -   $ 3,445,811   555,776   $ 3,999,995   Yes
NCC IL Q4 2018 30.3% 100.0% $ 100,000   $  -   $ 1,294,008   208,711   $ 1,394,008   Yes
PCG MA July 2, 2018 20.0% 100.0% $  -   $ 920,743   $ 21,045,689   3,394,466   $ 21,966,432   No
MA-RMD MA July 3, 2018 51.0% 100.0% $ 1,363,348   $ 7,000,000   $ 999,998   161,290   $ 9,363,346   No
MMRC MD July 31, 2018 80.0% 100.0% $ 202,167   $  -   $ 601,381   96,997   $ 803,548   Yes
NYCANNA NY August 15, 2018 20.0% 100.0% $ 10,307,500   $ 2,237,500   $ 24,075,133   3,883,086   $ 36,620,133   Yes
Cannabliss & Co. OR June 20, 2018 65.0% 100.0% $ 300,000   $ 760,474   $ 249,996   40,322   $ 1,310,470   Yes
PWPA PA October 10, 2018 50.0% 100.0% $ 16,500,000   $  -   $  -    -   $ 16,500,000   N/A
Subtotal of Other Acquisitions $ 29,327,199   $ 10,918,717   $ 51,712,016   8,340,648   $ 91,957,932    
                     
Total Roll-Up Transactions $ 39,970,093   $ 13,640,695   $ 86,722,629   13,987,521   $ 140,333,417    

Acreage Acquisitions

In addition to the Roll-Up Transactions, and as part of its overall business strategy, Acreage Holdings has completed, or expects to complete, a number of strategic acquisitions or investments (the “Acreage Acquisitions”).

 

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The following is an overview of each Acreage Acquisition:

Connecticut

Compassionate Care Center of Connecticut

D&B Wellness, LLC, d/b/a Compassionate Care Center of Connecticut (“CCC-CT”), is a limited liability company formed on October 15, 2013 under the laws of the State of Connecticut and operates a medicinal cannabis dispensary in Bethel, Connecticut. The dispensary opened in August 2014. CCC-CT received a Medical Marijuana Dispensary License from the State of Connecticut’s Department of Consumer Protection on April 10, 2014, and this license has been continuously renewed for successive one-year terms on its anniversary date.

 

On May 31, 2018, Acreage Holdings entered into a MIPC Agreement with CCC-CT pursuant to which Acreage Holdings purchased 100% of the outstanding equity interests of CCC-CT. For further details in respect of the CCC-CT acquisition, see “-- Summary of Acreage Acquisitions” below.

Florida

Nature’s Way Nursery of Miami, Inc.

Nature’s Way Nursery of Miami, Inc. (“Nature’s Way”) is a corporation formed on August 24, 1989 under the laws of the State of Florida. On July 13, 2018, Nature’s Way and the State of Florida Department of Health entered into a settlement agreement, pursuant to which the State of Florida Department of Health agreed to register Nature’s Way as a medical cannabis treatment center. Subject to the satisfaction of certain administrative conditions, Nature’s Way is expected to be granted a license to operate a medical cannabis treatment center from the Florida Department of Health prior to the end of 2018.

On November 2, 2018, Nature’s Way, Acreage and the shareholders of Nature’s Way entered into a Securities Purchase Agreement, pursuant to which Acreage will acquire all of the outstanding equity interests in Nature’s Way, on a cash-free, debt-free basis. Acreage agreed to pay a purchase price of $67,000,000 plus the amount of certain pre-closing expenses (approximately $600,000), less the indebtedness of Nature’s Way as of closing and transaction expenses incurred and/or payable by Nature’s Way. Upon execution of the Securities Purchase Agreement, $10,000,000 was deposited in escrow by Acreage and is governed by the terms of an escrow agreement. The deposit and its release is governed by the terms of the escrow agreement and is refundable to Acreage should the Securities Purchase Agreement be terminated by any party prior to the Initial Closing (as defined below).

It is anticipated that, Acreage’s acquisition of Nature’s Way will be completed in two stages. An initial closing (the “Initial Closing”) will take place no later than January 7, 2019 and immediately following the transfer of all of the assets of the nursery business currently carried on by Nature’s Way, and a final closing (the “Final Closing”) will take place on the later of January 7, 2019 or the date that is three business days following the satisfaction or waiver of the conditions to closing specified in the Securities Purchase Agreement. At the Initial Closing, the $10,000,000 deposit amount is paid to the sellers in exchange for 5% of Nature’s Way outstanding stock. At the Final Closing, the unpaid portion of the purchase price shall be paid in exchange for all outstanding securities of Nature’s Way not then owed by Acreage. The sellers may elect, in aggregate, to receive up to $20,000,000 of purchase price paid at the Final Closing in Acreage Holdings Units rather than cash, with each Acreage Holdings Unit value at $25.00, which units will be subject to the redemption and exchange rights set out in the A&R LLC Agreement.

The Securities Purchase Agreement contains customary representations and warranties and indemnification obligations of Nature’s Way and the sellers, and the completion of the agreement is subject to customary closing conditions.

For further details in respect of the Nature’s Way acquisition, see “-- Summary of Acreage Acquisitions” below.

 

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Illinois

In Grown Farms 2, LLC

In Grown Farms 2, LLC (“IGF”) is a series limited liability company of In Grown Farms LLC, an Illinois limited liability company, each formed on March 28, 2018 under the laws of the State of Illinois, and owns and operates a cannabis cultivation and processing facility in Freeport, Illinois. The 80,000 square foot facility contains a 3,000 square foot cultivation space and a kitchen and laboratory for processing. IGF is in the process of constructing a second 80,000 square foot facility. On March 9, 2015, the Illinois Department of Agriculture awarded IGF a cultivation center permit.

On October 15, 2018, Acreage Holdings entered into a securities purchase agreement with IGF and the seller named therein pursuant to which Acreage Holdings would purchase 100% of the outstanding equity interests in IGF owned by the seller. Consummation of the transaction is subject to customary conditions. For further details in respect of the IGF acquisition, see “-- Summary of Acreage Acquisitions” below.

 

Iowa

Iowa Relief, LLC

Iowa Relief LLC (“Iowa Relief”) is a limited liability company formed on May 17, 2018 under the laws of the State of Iowa for the purposes of operating a 32,000 square foot cultivation and processing medical cannabis facility in Cedar Rapids, Iowa. Acreage Holdings owns all of the outstanding equity interests in Acreage Iowa. On July 1, 2018, Iowa Relief received a license from the Iowa Department of Public Health to cultivate and manufacture medical CBD. This license expires November 30, 2018, but is renewable upon a payment of a fee to the State of Iowa and approval of a renewal application.

Massachusetts

South Shore BioPharma, LLC & Mass Medi Spa, Inc.

South Shore BioPharma, LLC (“SSBP”) is a limited liability company formed on September 10, 2015 under the laws of the State of Delaware and provides management, operational and consulting services through a management agreement (the “MMSP Management and Consulting Services Agreement”) with Mass Medi-Spa, Inc. (“MMSP”). MMSP is a non-profit corporation formed on August 7, 2013 under the laws of the State of Massachusetts and operates two dispensaries in Nantucket and Norwell. Pursuant to the MMSP Management and Consulting Services Agreement, SSBP operates and provides management services to MMSP and is entitled to receive a fixed price per pound of cannabis on a monthly basis. The initial term is 15 years and automatically renews for successive five year terms unless terminated by the parties in accordance with the terms of the MMSP Management and Consulting Services Agreement.

On June 29, 2015, the Massachusetts Department of Public Health issued MMSP a license to operate a cultivation and processing facility and a dispensary. To date, the license has been renewed without issue.

On May 4, 2018, Acreage Holdings entered into Securities Purchase Agreement with SSBP pursuant to which Acreage Holdings purchased 100% of the outstanding equity interests of SSBP. For further details in respect of the SSBP acquisition, see “-- Summary of Acreage Acquisitions” below.

Acreage Holdings is not aware of any contingent or unrecorded liabilities assumed in connection with the foregoing acquisition.

 

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Michigan

Blue Tire Holdings, LLC

Blue Tire Holdings, LLC (“BTH”) is a limited liability company formed on August 30, 2018 under the laws of the State of Michigan that has established the right to lease and/or purchase certain real estate assets throughout the state by the execution of a series of option and purchase agreements. BTH has engaged in discussions with various municipalities in Michigan to secure municipal approval for operating regulated cannabis businesses using these real estate assets. BTH is not affiliated with any Acreage Holdings entity, but BTH will assist Acreage Holdings in establishing a Michigan based entity to operate regulated cannabis businesses within the state, and the real estate assets will be exclusively acquired for that purpose. At Acreage Holdings’ sole direction, BTH will assign any of the real estate assets to Acreage Holdings in support of such licensing.

Acreage Holdings intends to structure its Michigan operation as one or more wholly owned subsidiaries of Acreage Holdings that will directly own and control all licenses granted by the State of Michigan. To the extent that Acreage Holdings is unable to directly obtain such licenses, BTH has agreed to create a management agreement structure with Acreage Holdings that will replicate the economics and control of the licensed businesses for the benefit of Acreage Holdings as if Acreage Holdings directly owned and controlled the licenses, while BTH maintains legal ownership of the licensed businesses. The management services agreement will contain such terms and conditions as may be agreed to by Acreage Holdings and BTH.

New Jersey

Compassionate Care Foundation, Inc.

Compassionate Care Foundation, Inc. (“CCF”) is a non-profit corporation formed on February 4, 2011 under the laws of the State of New Jersey and operates a cultivation and processing facility and dispensary in Egg Harbor, New Jersey. On October 4, 2013, the New Jersey Department of Health issued CCF a license to operate its facilities. The license has been renewed without issue.

On May 9, 2018, Acreage Holdings entered into a convertible bridge loan (the “CCF Bridge Loan”) with CCF pursuant to which Acreage Holdings agreed to loan CCF $2.0 million. In addition, Acreage Holdings entered into a revolving line of credit loan agreement (the “CCF Loan”) with CCF pursuant to which it agreed to provide a $12.5 million revolving line of credit to CCF in exchange for a 5-year, convertible revolving promissory note, bearing interest at a rate of 18% per annum (the “CCF Revolving Note” and, together with the CCF Bridge Loan and CCF Loan, the “CCF Transactions”). The CCF Revolving Note shall automatically convert into a 54% equity stake in a newly-formed entity of Acreage Holding upon enactment of legislative reform to permit the cultivation and sale of cannabis for recreational purposes or to allow a for-profit entity to dispense medical cannabis. As of the date hereof, the CCF Bridge Loan and CCF Loan remain outstanding and $4.25 million is outstanding under the CCF Revolving Note.

On September 7, 2018, Acreage Holdings entered into a Master Services Agreement with CCF (the “NJ Master Services Agreement”), pursuant to which Acreage Holdings operates and provides management services to CCF and receives compensation in consideration therefor based upon a fixed monthly management fee and a fixed price per ounce of product sold by CCF for product sold in flower, bud or leaf form, and a fixed percentage of gross revenues for edible cannabis products. The NJ Master Services Agreement has an indefinite term but is terminable upon a material breach. It also terminates automatically upon the conversion of the CCF Transactions into equity interests in CCF.

For further details in respect of the CCF Transactions, see “-- Summary of Acreage Acquisitions” below.

 

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North Dakota

Acreage North Dakota, LLC

Acreage North Dakota, LLC (“Acreage ND”) is a limited liability company formed on March 29, 2018 under the laws of the State of Delaware and authorized to conduct business in North Dakota on April 9, 2018 for the purposes of operating a vertically integrated medical cannabis business cultivating, processing, transporting and dispensing medical cannabis in Fargo, North Dakota. Acreage ND has submitted an application to obtain a license to operate such business to the North Dakota Department of Health Division of Medical Marijuana and remains in the process of obtaining such license. Acreage Holdings owns all of the outstanding equity interests in Acreage ND.

Ohio

Greenleaf Therapeutics, LLC

Greenleaf Therapeutics, LLC (“GL Therapeutics”) is a limited liability company formed on June 19, 2017 under the laws of the State of Ohio and operates a medical cannabis processing facility. On August 3, 2018, the Ohio Department of Commerce issued GL Therapeutics a provisional license to operate a processing facility in Middlefield under the Ohio Medical Marijuana Control Program. The provisional licenses expire on December 7, 2018. GL Therapeutics is in the process of obtaining a “permanent” certificate of operation, which certificate will be valid for two years following the date of issuance.

On July 2, 2018, Acreage Holdings entered into a series of agreements with OHMM, LLC (“OHMM”) and GL Therapeutics, pursuant to which OHMM granted Acreage Holdings the right to acquire GL Therapeutics and provide management services to GL Therapeutics pending the closing of the acquisition.

Pursuant to the terms of a MIPC Agreement, dated July 2, 2018, among Acreage Holdings and OHMM, OHMM committed to sell all of the outstanding equity interests in GL Therapeutics to Acreage Holdings. The sale of the interests of GL Therapeutics is contingent upon GL Therapeutics holding its license for the required holding period under Ohio law before an entity is permitted to transfer control of such license.

Also on July 2, 2018, Acreage Holdings and GL Therapeutics entered into a credit agreement, security agreement, membership interest pledge agreement, indemnity, guaranty agreement and revolving secured promissory note (collectively, the “GT Loan Documents”), pursuant to which Acreage Holdings agreed to loan GL Therapeutics up to $5.5 million to fund operations. The note matures on July 30, 2023, and bears interest at the prime rate of interest per annum published from time to time in the Wall Street Journal, beginning on August 1, 2019. Acreage Holdings holds a first-priority security interest in all of the properties, assets and rights of GL Therapeutics under the GT Loan Documents.

On August 8, 2018, Acreage Holdings and GL Therapeutics entered into a Management Services Agreement, pursuant to which Acreage Holdings provides management and operational support to GL Therapeutics and receives monthly compensation in consideration therefor based upon a fixed percentage of GL Therapeutics’ net profits. GL Therapeutics and Acreage Holdings also entered into a Development Agreement, pursuant to which Acreage Holdings agreed to manage and coordinate the design and construction of GL Therapeutics’ processing facility.

For further details in respect of the GL Therapeutics acquisition, see “-- Summary of Acreage Acquisitions” below.

Greenleaf Apothecaries, LLC

 

Greenleaf Apothecaries, LLC (“GL Apothecaries”) is a limited liability company formed on June 19, 2017 under the laws of the State of Ohio and operates medical cannabis dispensaries. On June 7, 2018, the Ohio Board of Pharmacy issued GL Apothecaries five provisional licenses to operate dispensaries in Akron, Canton, Cleveland, Columbus and Wickliffe under the Ohio Medical Marijuana Control Program. The provisional licenses expire on December 7, 2018. GL Apothecaries is in the process of obtaining “permanent” certificates of operation, which certificates will be valid for two years following the date of issuance.

 

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On July 2, 2018, Acreage Holdings entered into a series of agreements with OHMM and GL Apothecaries, pursuant to which OHMM granted Acreage Holdings the right to acquire GL Apothecaries and provide management services to GL Apothecaries pending the closing of the acquisition.

Pursuant to the terms of a MIPC Agreement, dated July 2, 2018, among Acreage Holdings and OHMM, OHMM committed to sell all of the outstanding equity interests in GL Apothecaries to Acreage Holdings. The sale of the interests of GL Apothecaries is contingent upon GL Apothecaries holding its licenses for the required holding period under Ohio law before an entity is permitted to transfer control of such license.

Also on July 2, 2018, Acreage Holdings and GL Apothecaries entered into a credit agreement, security agreement, membership interest pledge agreement, indemnity and guaranty agreement and revolving secured promissory note (collectively, the “GA Loan Documents”), pursuant to which Acreage Holdings agreed to loan GL Apothecaries up to $10.5 million to fund operations. The note matures on July 30, 2023, and bears interest at the prime rate of interest per annum published from time to time in the Wall Street Journal, beginning on August 1, 2019. Acreage Holdings holds a first-priority a security interest in all of the properties, assets and rights of GL Apothecaries under the GA Loan Documents.

Acreage Holdings and GL Apothecaries entered into a Management Services Agreement, pursuant to which Acreage Holdings provides management and operational support to GL Apothecaries and receives monthly compensation in consideration therefor based upon a fixed percentage of GL Apothecaries’ net profits.

For further details in respect of the GL Apothecaries acquisition, see “-- Summary of Acreage Acquisitions” below.

Greenleaf Gardens, LLC

 

Greenleaf Gardens, LLC (“GL Gardens”) is a limited liability company formed on January 16, 2017 under the laws of the State of Ohio to operate a medical cannabis cultivation facility. GL Gardens sought the award of a license to operate its cultivation facility. GL Gardens is an intervenor in the pending state court lawsuit against the Department in Franklin County, Ohio, captioned PharmaCann Ohio, LLC v. Jacqueline T. Williams, et al., Case No. 17-CV-010962 (the “GL Litigation”). In such case, a number of applicants that applied to the Ohio Medical Marijuana Control Program for, but did not receive, provisional cultivation licenses have challenged the design, administration and execution of the process used to select provisional license awardees. GL Gardens intervened in the GL Litigation, solely asserting that the Ohio statutory framework for issuance of licenses under the Ohio Medical Marijuana Control Program is unconstitutional under the Ohio Constitution and the Fourteenth Amendment to the U.S. Constitution, both as applied and on its face. The parties to the GL Litigation have entered the discovery phase.

GL Gardens also has a pending administrative appeal challenging the decision not to award it a cultivator license. In such appeal, GL Gardens alleges the same claims and deficiencies as asserted in the GL Litigation.

 

On July 2, 2018, Acreage Holdings entered into a series of agreements with OHMM and GL Gardens, pursuant to which Acreage Holdings acquired the right to acquire GL Gardens and acquired the right to provide management services to GL Gardens pending closing of the acquisition.

Pursuant to the terms of a MIPC Agreement, dated July 2, 2018, among Acreage Holdings and OHMM, OHMM committed to sell all of the outstanding equity interests in GL Gardens to Acreage Holdings. The sale of the interests of GL Gardens is contingent upon the receipt GL Gardens of a cultivator provisional license and GL Gardens holding its licenses for the required holding period under Ohio law before an entity is permitted to transfer control of such license.

Also on July 2, 2018, Acreage Holdings and GL Gardens entered into a credit agreement, security agreement, membership interest pledge agreement, indemnity and guaranty agreement and revolving secured promissory note (collectively, the “GG Loan Documents”), pursuant to which Acreage Holdings agreed to loan GL Gardens up to $8.0 million to fund operations. The note matures on July 30, 2023, and bears interest at the prime rate of interest per annum published from time to time in the Wall Street Journal, beginning on August 1, 2019. Acreage Holdings holds a first-priority security interest in all of the properties, assets and rights of GL Gardens under the GG Loan Documents.

 

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Acreage Holdings and GL Gardens entered into a Management Services Agreement, pursuant to which Acreage Holdings provides management and operational support to GL Gardens and receives monthly compensation in consideration therefor based upon a fixed percentage of GL Gardens’ net profits. GL Gardens and Acreage Holdings also entered into a Development Agreement, pursuant to which Acreage Holdings agreed to manage and coordinate the design and construction of GL Gardens’ processing facility.

Oklahoma

Acreage OK Holdings, LLC

Acreage OK Holdings, LLC (“Acreage OK Holdings”) is a limited liability company formed on September 14, 2018 under the laws of the State of Oklahoma for the purposes of operating a vertically integrated medical cannabis business cultivating, processing, transporting and dispensing medical cannabis in Pocasset, Oklahoma. Acreage OK Holdings has submitted an application to obtain a license to operate such business to the Oklahoma Medical Marijuana Authority and remains in the process of obtaining such license.

Acreage Oklahoma, LLC (“Acreage Oklahoma”) is a limited liability company formed on September 5, 2018 under the laws of the State of Oklahoma and owns 25% of the outstanding equity interests in Acreage OK Holdings. Acreage Oklahoma is a wholly owned subsidiary of Acreage Holdings. The remaining equity interests in Acreage OK Holdings are held by an unaffiliated third party, Greenjacks, LLC.

Acreage Oklahoma is the sole manager of Acreage OK Holdings. On October 1, 2018, Acreage Holdings, Acreage OK Holdings, Acreage Oklahoma, Greenjacks, LLC and Bobby Jackson entered into a Management Services Agreement, pursuant to which Acreage Oklahoma provides certain administrative, management and operational support to Acreage OK Holdings. In consideration for the services provided, Acreage Holdings receives a management fee equal to 100% of Acreage OK Holdings’ monthly net income.

Rhode Island

Greenleaf Compassionate Care Center

Greenleaf Compassionate Care Center, Inc. (“GCCC”) is a non-profit corporation formed on February 17, 2010 under the laws of the State of Rhode Island and operates a cultivation and processing facility in Newport and a dispensary in Portsmouth. On May 25, 2017, the Rhode Island Department of Business Regulation issued GCCC a license to operate its facilities. The license has been renewed without issue.

On October 9, 2018, Acreage Holdings entered into a securities purchase agreement among Acreage Holdings, GCCC Management, LLC (“GCCCM”) and the holders of all of the outstanding equity in GCCCM, pursuant to which Acreage Holdings will acquire all of the outstanding equity in GCCCM. GCCCM and GCCC are in negotiations to enter into a master services agreement and a comprehensive integration agreement upon terms and conditions satisfactory to Acreage Holdings. Consummation of the transaction is subject to customary closing conditions, including satisfaction of diligence and approval by the State of Rhode Island.

 

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Summary of Acreage Acquisitions

The following table sets out the material terms of each Acreage Acquisition:

       

Consideration for Transaction Related to Incremental Ownership

(unaudited)

 
Entity State Date of Closing % Ownership acquired Cash
Payment ($)
Seller
Notes ($)
Value of
Class D
Units ($)
Number of
Class D
Units
Total Consideration ($) State Approval Required?
Acreage Acquisitions              
CCC-CT CT May 31, 2018 100.0% $ 250,000   $ 11,150,000   $ 3,100,000   500,000   $ 14,500,000   Yes
SSBP MA May 4, 2018 100.0% $ 415,664   $ 2,056,367   $ 1,805,173   291,157   $ 4,277,204   Yes
IGF IL Pending 100.0% $ 8,000,000   $ 7,500,000   $  -    -   $ 15,500,000   Yes
CCF NJ Pending  - % $ 10,000,000   $  -   $  -    -   $ 10,000,000   Yes
GL Apothecaries OH July 2, 2018  - % $ 4,162,500   $ 4,175,000   $ 4,162,500   671,371   $ 12,500,000   Yes
GL Therapeutics OH August 8, 2018  - % $ 1,332,000   $ 1,336,000   $ 1,332,000   214,839   $ 4,000,000   Yes
GL Gardens OH Pending  - % $ 1,665,000   $ 1,670,000   $ 1,665,000   268,548   $ 5,000,000   Yes
GCCC RI Pending 100.0% $ 10,000,000   $  -   $  -   $  -   $ 10,000,000   TBD
Nature’s Way(1) FL Pending 100.0% $ 67,000,000   $  -   $  -   $  -   $ 67,000,000   TBD
Total of Acquisitions   $ 35,825,164   $ 27,887,367   $ 12,064,673   1,945,915   $ 75,777,204    

(1) As noted above, the sellers of Nature’s Way may elect to receive up to $20,000,000 in consideration paid in Resulting Issuer subordinate voting shares in lieu of that amount in cash.

 

Other Investments

In addition to Acreage Holdings’ interest in state-licensed cannabis cultivation, processing and dispensary operations, though its Subsidiaries, Acreage Holdings has also invested in non-core cannabis assets. While these investments are not part of Acreage Holdings’ overarching business strategy, management believes that these investments are opportunistic and provide some additional diversification to its portfolio.

The following is a summary of each additional investment:

Colorado

Dixie Brands, Inc.

Dixie Brands, Inc. (“Dixie”) is a corporation formed on May 5, 2014 under the laws of the State of Delaware. Dixie holds the exclusive licensing and intellectual property rights for the Dixie Elixirs and Edibles line of edibles, topicals and tinctures. Dixie has also established Therabis, a deliverable cannabis-based product to pets, and Aceso, a health and wellness product infused with CBD.

 

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Dixie is currently operational in Colorado, California and Nevada, and sells more than 30 different products across 100 SKUs, representing one of the industry’s leading brands of edibles, mints and energy shots. Melvin Yellin and Devin Binford, Managing Members of Acreage Holdings, sit on the board of directors of Dixie.

On March 31, 2015, Acreage Holdings entered into a Stock Assignment with Mr. Murphy pursuant to which it received 240,000 shares of common stock of Dixie from Mr. Murphy. See “General Development of the Business - Selected Financings - Murphy Transaction”. On August 1, 2016, as part of an investment by Murphy Capital, LLC into Acreage Holdings, an additional 65,000 shares of common stock of Dixie were transferred to Acreage Holdings in exchange for 650,000 Acreage Holdings Class A Units.

On April 7, 2016, Acreage Holdings loaned $200,000 to Dixie and in return Dixie issued a promissory note in favor of Acreage Holdings to evidence such indebtedness (the “Dixie Promissory Note”). The Dixie Promissory Note had a maturity date of April 7, 2017. On July 31, 2018, Acreage Holdings converted the Dixie Promissory Note into 54,496 shares of Dixie common stock in full satisfaction of any amounts outstanding thereunder.

As a result of the foregoing transactions, as of the date hereof, Acreage Holdings owns 359,496 shares of common stock of Dixie, representing approximately 3% on a fully diluted basis. Acreage Holdings also owns warrants to acquire 27,548 shares of Dixie’s common stock at $3.63 per share. The warrants expire on March 8, 2023.

Kalyx Development, Inc.

Kalyx Development LLC (“Kalyx”) is a private real estate investment trust that acquires commercial and industrial properties for lease on a triple net basis to cannabis operators in states with legal medical and / or recreational cannabis industries. As of the date hereof, Acreage Holdings owns 656,434 shares of common stock and 50,000 shares of preferred stock of Kalyx, representing approximately 9% of Kalyx on a fully diluted basis.

Illinois

NCC Real Estate, LLC

NCCRE is a limited liability company formed on September 15, 2016 under the laws of the State of Illinois and owns a property containing a 5,600 square foot medical cannabis dispensary in Rolling Meadows, Illinois, which is leased to NCC. Acreage Holdings and owns 33.33% of the issued and outstanding membership interests of NCCRE.

The remaining two-thirds equity interests in NCCRE are owned by two entities unaffiliated with Acreage Holdings, each of which hold one third of the equity interests of NCCRE. The governance of NCCRE and the relationship between the members of NCCRE is governed by the limited liability agreement of NCCRE, dated June 27, 2016.

New Jersey

Wilkins Industrial Park, L.L.C. / DALD, LLC

Wilkins Industrial Park, L.L.C. (“WIP”) is a limited liability company formed on June 10, 1994 under the laws of the State of New Jersey. WIP owns and operates a 110,600 square foot cannabis cultivation facility in Sewell, New Jersey. On April 9, 2018, Acreage Holdings entered into an Agreement of Option to Lease with WIP (the “Sewell Option to Lease”) pursuant to which Acreage Holdings was granted the option to lease the facility upon the terms and conditions set forth in the Sewell Option to Lease. On September 10, 2018, WIP assigned its interest in the Sewell Option to Lease to DALD, LLC (“DALD”). DALD is a limited liability company formed on August 15, 2018 under the laws of the State of New Jersey. On November 7, 2018, Acreage Holdings exercised the Sewell Option to Lease, and DALD and Acreage Holdings entered into a Lease dated as of the same date (the “Sewell Lease”). Acreage Holdings has the right under the Sewell Lease to purchase the premises for $3,000,000 during the initial five-year term. The purchase price to acquire the premises during any subsequent terms will be the greater of $2.5 million and the appraised value. Acreage Holdings issued 419,355 Class D units valued at $6.20 per unit with a total value of $2.6 million upon exercising the Sewell Option to Lease.

 

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Florida

Florida Wellness, LLC

Effective as of October 19, 2018, Acreage Holdings withdrew as a member and resigned as the manager of Florida Wellness, LLC (“FLW”), a limited liability company formed on June 27, 2016 under the laws of the State of Delaware for the purposes of investing in San Felasco Nurseries, Inc. (“SFN”). As a result, Acreage Holdings no longer holds any equity interests in FLW or SFN.

 

Upon withdrawal, FLW issued a $2.44 million promissory note to Acreage Holdings, due and payable upon the earlier of (i) six months after October 19, 2018 and (ii) five days following the closing of a transaction resulting in the transfer of SFN to an acquiring unrelated third party. Interest on the note accrues at 6.0% per annum.

 

Also in connection with the withdrawal, Acreage Holdings agreed to provide for the issuance of 5, 575 Resulting Issuer Warrants with a strike price equal to the price per share of the Finco SR Financing. These warrants will be issued to the remaining members of FLW on a pro rata basis.

 

Dispositions

 

Compass Ventures, Inc. (“Compass”) was formed on April 10, 2014 under the laws of the State of Illinois and holds a cultivation center permit granted by the State of Illinois Department of Agriculture. On February 24, 2017, Acreage Holdings entered into an operating agreement (the “Compass Operating Agreement”) with Compass pursuant to which Acreage Holdings acquired 24.5% of the outstanding membership units in the capital of Compass and 47.5% of Compass’ ongoing net income, net losses and distributions. The Compass Operating Agreement further provides that Compass’ original members receive a 5% preferential claim on all future distributions.

Greenhouse Compass, LLC (“Greenhouse Compass”) was formed on January 25, 2017 in the State of Illinois and holds a Registered Medical Cannabis Dispensing Organization license granted by the State of Illinois Department of Financial and Professional Regulation. On February 24, 2017, Acreage Holdings entered into an operating agreement (the “Greenhouse Compass Operating Agreement”) with Greenhouse Compass pursuant to which Acreage Holdings acquired 24.5% of the outstanding membership units in the capital of Greenhouse Compass and 47.5% of Greenhouse Compass’ ongoing net income, net losses and distributions. The Greenhouse Compass Operating Agreement further provides that Greenhouse Compass’ original members receive a 5% preferential claim on all future distributions.

On August 31, 2016, Acreage Holdings and Greenhouse Group, LLC (“Greenhouse Group”) formed two joint venture operating companies, HSGH Properties, LLC and HSGH Properties Union, LLC (collectively, the “HSGH Joint Ventures”).

On March 6, 2018, Acreage Holdings entered into an equity purchase agreement with Greenhouse Group to sell its equity interests in Compass, Greenhouse Compass and the HSGH Joint Ventures for total consideration of approximately $9.6 million. The transaction closed on May 14, 2018.

3.2       Significant Acquisitions and Dispositions

Significant Acquisitions

None of the Roll-Up Transactions or Acreage Acquisitions, as applicable, constitutes a “significant acquisition” within the meaning of Form 41-101F1, however, certain Roll-Up Transactions and Acreage Acquisitions, as applicable, constitute a “significant acquisition” for which financial statements would otherwise be required under National Instrument 41-101 - General Prospectus Requirements if this Listing Statement were a prospectus. Pursuant to Item 32 of Form 41-101F1, the financial statements to be included in this Listing Statement must include, among other things, the financial statements of a business or businesses acquired within the past two years or proposed to be acquired, if a reasonable investor reading the prospectus would regard the primary business to be the business or businesses acquired or proposed to be acquired (the “Primary Business”).

 

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Acreage Holdings has prepared and included standalone financial statements in this Listing Statement for each Roll-Up Transaction and Acreage Acquisition, as applicable, in respect of a Subsidiary that constitutes a Primary Business and is material to Acreage Holdings, being CCC-CT, PWCT, PATCC and WPMC. See “General Development of the Business - General Development of the Business” for further details concerning each of CCC-CT, PWCT, PATCC and WPMC and the Roll-Up Transactions and Acreage Acquisitions, as applicable.

No financial statements for Subsidiaries subject to the Roll-Up Transactions or Acreage Acquisitions, as applicable, which do not constitute a Primary Business, being those Subsidiaries whose principal assets are comprised of either management contracts or licenses (grow or dispensary) with no operational activities, or which would constitute a Primary Business but is otherwise immaterial to Acreage Holdings’ business and operations, as a whole, have been included in this Listing Statement.

 

Pursuant to an application made to the Ontario Securities Commission, as principal regulator, Pubco obtained an order from the Ontario Securities Commission dated November 13, 2018 exempting Pubco from: (A) the requirements in subparagraph 4.10(2)(a) of NI 51-102 and item 5.2 of Form 51-102F3 Material Change Report to provide (i) audited annual financial statements for each of the Acquisition Entities for each of their three most recently completed financial years, (ii) comparative interim financial statements for each of the Acquisition Entities in respect of the most recently completed interim period completed prior to the Business Combination, (iii) management’s discussion and analysis 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 Pubco, Acreage Holdings and each of the Material Acquisitions for the third most recently-completed financial year.

Please refer to the pro forma financial statements of the Resulting Issuer attached hereto as Schedule “G” to view the effect of the Roll-Up Transactions and Acreage Acquisitions that constitute material Primary Businesses on the operating results and financial position of the Resulting Issuer.

 

Significant Dispositions

No disposition was completed during the most recently completed financial year or current financial year which would constitute a “significant disposition” for which financial statements would be required under NI 41-101 if this Listing Statement were a prospectus.

3.3       Trends, Commitments, Events or Uncertainties

On February 8, 2018, the Canadian Securities Administrators issued Staff Notice 51-352 (Revised) - Resulting Issuers with U.S. Marijuana-Related Activities (“Staff Notice 51-352”) which provides specific disclosure expectations for issuers that have U.S. cannabis-related activities. All issuers with U.S. cannabis-related activities are expected to clearly and prominently disclose certain prescribed information in prospectus filings and other required disclosure documents. In accordance with the Staff Notice 51-352, below is a table of concordance that is intended to assist readers in identifying those parts of this Listing Statement that address the disclosure expectations outlined in Staff Notice 51-352.

 

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Industry Involvement Specific Disclosure Necessary to Fairly Present all Material Facts, Risks and Uncertainties Listing Statement Cross Reference
All Resulting Issuers with U.S. Marijuana-Related Activities Describe the nature of the Resulting Issuer’s involvement in the U.S. marijuana industry and include the disclosures indicated for at least one of the direct, indirect and ancillary industry involvement types noted in this table.

Section 3 - General Development of the Business

Section 4 -Narrative Description of the Business

Prominently state that marijuana is illegal under U.S. federal law and that enforcement of relevant laws is a significant risk. Cover Page (disclosure in bold typeface)
Discuss any statements and other available guidance made by federal authorities or prosecutors regarding the risk of enforcement action in any jurisdiction where the Resulting Issuer conducts U.S. marijuana-related activities.

Section 1.3 Cautionary Statement Regarding the Business

 

Section 3 - General Development of the Business

Section 4 -Narrative Description of the Business

Section 17 - Risk Factors

Outline related risks including, among others, the risk that third-party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions on the Resulting Issuer’s ability to operate in the U.S. Section 17 - Risk Factors
Given the illegality of marijuana under U.S. federal law, discuss the Resulting Issuer’s ability to access both public and private capital and indicate what financing options are / are not available in order to support continuing operations.

Section 4 - Narrative Description of the Business

Section 17 - Risk Factors

Quantify the Resulting Issuer’s balance sheet and operating statement exposure to U.S. marijuana-related activities.

Section 5 - Selected Consolidated Financial Information

Schedules “C”, “E” and “G” to the Listing Statement.

Note: at the time of the Listing Statement, the major operations of the Resulting Issuer are only in the United States

Disclose if legal advice has not been obtained, either in the form of a legal opinion or otherwise, regarding (a) compliance with applicable state regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law. Legal advice has been obtained.
U.S. Marijuana Resulting Issuers with direct involvement in cultivation or distribution Outline the regulations for U.S. states in which the Resulting Issuer operates and confirm how the Resulting Issuer complies with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state.

Section 3 - General Development of the Business

Section 4 -Narrative Description of the Business

Discuss the Resulting Issuer’s program for monitoring compliance with U.S. state law on an ongoing basis, outline internal compliance procedures and provide a positive statement indicating that the Resulting Issuer is in compliance with U.S. state law and the related licensing framework. Promptly disclose any non-compliance, citations or notices of violation which may have an impact on the Resulting Issuer’s license, business activities or operations.

Section 3 - General Development of the Business

Section 4 -Narrative Description of the Business

Section 17 - Risk Factors

 

 

 

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Industry Involvement Specific Disclosure Necessary to Fairly Present all Material Facts, Risks and Uncertainties Listing Statement Cross Reference
U.S. Marijuana Resulting Issuers with indirect involvement in cultivation or distribution Outline the regulations for U.S. states in which the Resulting Issuer’s investee(s) operate.

Section 4 -Narrative Description of the Business

 

 

Provide reasonable assurance, through either positive or negative statements, that the investee’s business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. Promptly disclose any non-compliance, citations or notices of violation, of which the Resulting Issuer is aware, that may have an impact on the investee’s license, business activities or operations.

Section 3 - General Development of the Business

Section 4 -Narrative Description of the Business

 

U.S. Marijuana Resulting Issuers with material ancillary involvement Provide reasonable assurance, through either positive or negative statements, that the applicable customer’s or investee’s business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. Not applicable.

 

 

 

 

 

Regulatory Overview

 

In accordance with Staff Notice 51-352, a discussion of the federal and state-level U.S. regulatory regimes in those jurisdictions where Acreage Holdings is currently directly involved through its Subsidiaries can be found under “Market Information, Trends, Commitments, Events and Uncertainties Usage of Cannabis”. The Subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational and/or medicinal cannabis marketplace in the following U.S. states: California, Florida, Illinois, Iowa, Maryland, New Hampshire, New York, North Dakota, Oregon and Pennsylvania. In addition, Acreage Holdings has pending transactions which, if consummated, would result in it being engaged, through its Subsidiaries, in the manufacture, possession, use, sale or distribution of cannabis in the recreational and/or medicinal cannabis marketplace in the following additional U.S. states: Connecticut, Illinois, Iowa, Massachusetts, New Jersey, North Dakota, Ohio, Oklahoma and Rhode Island. In accordance with Staff Notice 51-352, Acreage Holdings will evaluate, monitor and reassess this disclosure, and any related risks, on an ongoing basis and any supplements or amendments hereto will be reflected in, and provided to, investors in public filings of the Resulting Issuer, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding cannabis regulation. Any non-compliance, citations or notices of violation which may have an impact on any Subsidiary’s licenses, business activities or operations will be promptly disclosed by the Resulting Issuer.

Recently, news media have reported that United States immigration authorities have increased scrutiny of Canadian citizens who are crossing the United States-Canada border with respect to persons involved in cannabis businesses in the United States. There have been a number of Canadians barred from entering the United States as a result of an investment in or act related to United States cannabis businesses. In some cases, entry has been barred for extended periods of time. See “Risk Factors - Risks Generally Related to the Resulting Issuer - Key Personnel” and “Risk Factors - Risks Generally Related to the Resulting Issuer - Canada-United States Border Risks”.

 

4.       NARRATIVE DESCRIPTION OF THE BUSINESS

4.1       Narrative Description of the Business

Prior to the RTO, Pubco had no active business operations aside from seeking business opportunities. Upon effecting the RTO, the below description of Acreage Holdings business will become that of the Resulting Issuer.

Acreage Holdings Overview

 

Acreage Holdings is one of the United States’ largest vertically integrated, multi-state operators in the cannabis industry. Headquartered in New York, the operations of the business include cultivating, processing, distributing and retailing high-quality, effective cannabis. Acreage Holdings markets to medical and adult-use customers through brand strategies intended to build trust and loyalty.

 

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Acreage Holdings and its Founder, Chairman and CEO, Mr. Murphy, have been at the forefront of professional, legal cannabis since Mr. Murphy’s initial investment into Maine in 2011. Since that time, Acreage Holdings has acquired and won cannabis licenses as one of the most trusted and capable operators in this space.

 

 

Today, the footprint of Acreage Holdings spans 14 states, a combination of medical and adult-use markets covering 133 million people. By including anticipated acquisitions, that footprint expands to 17 states covering 165 million people, over half of the U.S. population). With experience in both medical and adult-use markets, Acreage Holdings has the experience and knowledge to capitalize on the transition from medical to adult-use in a way that satisfies consumers and policymakers alike.

 

Currently, Acreage Holdings’ footprint can be categorized by three development stages: license procurement (via application or acquisition), buildout and operational deployment. Cannabis is a young industry and Acreage Holdings currently has state-based operations in each of these development stages. The lead time to deploy a market can be substantial, especially on the cultivation and processing side of the business where structural build-outs are complex and generally involve compliance with complex and dynamic regulatory environments.

 

As noted in Section 3, beginning in April 2018, Acreage Holdings focused its business strategy on acquiring control over the Subsidiaries (i.e., entities other than Dixie, Kalyx, WPMC and NCCRE) in which it had an existing investment. With the exceptions noted in Section 3, all Subsidiaries are now 100% owned and controlled by Acreage Holdings. The Roll-Up, which, as discussed in Section 3, is substantially complete was necessary to realize the full opportunity for Acreage Holdings, creating corporate synergies for increased revenue growth and margins.

 

In anticipation of the Roll-Up, Acreage Holdings formed centralized operations and marketing teams that span across all markets in which it is involved with the objective of bringing economies of scale and operational consistency to the business. The team focuses on several important aspects of the business including construction, product development, retailing and marketing, in pursuit of a consistent and compelling experience within its stores and with its products. Acreage Holdings believes that its professional management team, recruited from adjacent industries, will be a differentiator in terms of its operational agility and ability to deliver on its vision.

 

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Acreage Holdings organizes its operations as follows:

Components of Acreage Holdings’ Cannabis Operations
Cultivation The growing of cannabis, typically conducted in controlled, indoor facilities or greenhouses. Outdoor cultivation occasionally occurs in certain markets in which regulations allow.
Processing The production of sellable cannabis products, most typically “derivative” products that require extraction of cannabinoids for use in vape pen oils, lotions, tinctures and extracts. Processing includes the formulations and packaging for all branded products.
Retail The dispensing of cannabis products to patients or adult-use customers via storefronts that are typically referred to as dispensaries.
Distribution The wholesaling of cultivated or processed cannabis products to third-party retailers.

 

Acreage Holdings has licenses which permit it to engage in any or all of cultivating, processing, retailing and/or distributing legal cannabis in 14 states, of which 11 are currently in operation.

 

Of the licenses held by Acreage Holdings, it has licenses to operate cultivation facilities in nine states, of which seven are currently operating and Acreage Holdings anticipates an eighth to be operational before the end of 2018.

 

In most states, Acreage Holdings’ processing facilities are co-located with its cultivation facilities. Acreage Holdings has licenses to process in nine states, of which seven are currently operational.

 

Acreage Holdings has licenses to operate 34 retail dispensaries in 11 states, of which 15 of such dispensaries are currently operational in seven states. By the end of 2018, Acreage Holdings anticipates opening an additional six dispensaries, including facilities in two additional states.

 

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The following table provides a summary of Acreage Holdings operations:

The Acreage Holdings Portfolio
# State Operating YE 2018 Vertically Integrated State Highlights
1 California Yes No Boutique grow and manufacturing as a hub for branded products and distribution
2 Connecticut Yes No Two of nine dispensaries operating in the state
3 Illinois Yes Yes One dispensary currently operating with cultivation coming online in 2019
4 Iowa No No One of two cultivator/manufacturers in the state
5 Maine Yes Yes Four of eight dispensaries in the market with a grow processor facility
6 Maryland Yes No One of 102 retail licenses, dispensary located in Baltimore
7 Massachusetts Yes Yes Licensed to open nine dispensaries (six via managed services relationship) with a 36,000 sq. ft cultivation and processing facility
8 Michigan No Yes Local commercial relationship with real estate approved for use in cannabis business. Commercial partner in the process of obtaining licenses for vertical operation with 3+ retailers
9 New Hampshire Yes Yes One dispensary located in Merrimack, densest portion of state
10 New Jersey Yes Yes Acreage owns one of six vertical licenses in the state, adult use bill expected in 2019
11 New York Yes Yes One of 10 vertical licenses with three retailers opening this year and one opening in early 2019.
12 North Dakota No No Won dispensary license to be located in Fargo
13 Pennsylvania Yes No High end indoor grow and manufacturing facility
14 Ohio Yes No Five of 60 authorized dispensaries. One of only three applicants to be granted the maximum five dispensaries. Processing license.
15 Oregon Yes Yes Five active dispensaries with a recently added cultivation facility
16 Rhode Island Yes Yes One of three vertically integrated operations in the state

 

In addition to the above, Acreage Holdings has entered into agreements to expand its operations into Rhode Island, Florida and Michigan, and to expand existing operations in Illinois. Of these pending agreements, only Rhode Island has facilities that are currently operational.

Pending Acquisitions
# State Operating YE ‘18 Vertically Integrated State Highlights
1 Rhode Island Yes Yes Signed agreement for one of the three vertical licenses in the state. Dispensary located in Portsmouth
2 Florida No Yes Signed agreement for one of the 13 vertical licenses in the state with the right to open up to 30 dispensaries
3 Illinois No Yes Pending acquisition of a cultivation license to create vertical integration with Acreage Holdings’ dispensary.

 

As noted in Section 3, in certain states, state regulations require that licenses be held by non-profit entities which are also responsible for the conduct of business under those licenses. In those states, Acreage Holdings or one of its wholly-owned Subsidiaries have entered into management agreements which require Acreage Holdings to provide certain management and operational services to those entities in exchange for participatory economics, in each case as described in Section 3.

 

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Acreage Holdings plans to continue its expansion, with active efforts underway to acquire new and existing licenses in states where it does not currently have operations, as well as to acquire additional capabilities and facilities within its existing states.

 

As at November 12, 2018, Acreage Holdings had approximately 280 full-time employees, on a consolidated basis with the Subsidiaries.

 

Market Overview

 

The legal U.S. cannabis industry is projected to reach $11 billion in 2018, rising to $23.4 billion in 2022 (The Arcview Group - The State of Legal Marijuana Markets (6th Edition)). Currently, 30 states and the District of Columbia in the U.S. have legalized and implemented a medical cannabis program. Nine states and the District of Columbia have also legalized the adult-use of cannabis.

 

Because states are independently legalizing cannabis use, almost every state has a different approach to its program. Patient conditions, market structures, consumption methods, product testing and packaging requirements are just a few of the variables that differentiate each program. The variances in the implementation of cannabis regulations can account for differences in patient adoption rates and per capita cannabis consumption.

 

Operating a cannabis business almost always requires a license from a state regulatory board and usually local municipality approval. Nearly all operations require some license from a state and/or a municipal regulatory body. While licensing rules vary from state to state, we generally seek to enter markets that have restrictions on the number of licenses available. Some markets (such as Ohio) have different licenses for each aspect of the business: cultivation, processing or retail dispensary establishment. Other states (such as New York) have issued combination licenses that incorporate two or more of these business activities into a single license. A core business strategy for Acreage Holdings is to operate as a vertically integrated enterprise, licensed to cultivate, process, and sell legal cannabis products. Acreage Holdings is vertically integrated in half of the states in which we are licensed to operate, and plans to transform virtually all of the others to vertically integrated markets as part of our strategic growth strategy.

 

Adult Use

 

Nine states, plus the District of Columbia, have legalized adult use cannabis, giving access to over 70 million Americans. Except for Vermont, Maine and the District of Columbia, adult use programs with regulations and taxation for cultivation, processing and dispensing have been implemented. Ballot initiatives or legislative actions are being widely discussed in numerous other states.

 

Medical Cannabis

 

Over half of the United States has legalized medical cannabis for its citizens, however, as noted above, these programs vary greatly. Some programs are robust with healthy regulations to give access to patients with a wide range of qualifying conditions. Other states are more restrictive, with a much more narrow set of qualifying conditions. The difference in qualifying conditions, among others, are the key factors influencing the adoption rate of a medical cannabis programs.

 

Not including the 10 markets that legalized adult use cannabis, there are 22 states that have medical cannabis utilizing THC and 16 others with restrictive low/no THC program.

 

Total Funds Available

Acreage Holdings has historically relied upon convertible debt and equity financings to satisfy its capital requirements and may require further capital to finance its development, expansion and acquisition activities moving forward.

The pro forma working capital position of the Resulting Issuer as of June 30, 2018, after giving effect to the RTO, as if it had been completed on that date, was approximately $387 million. This amount reflects the combined working capital of Acreage Holdings and Pubco as at June 30, 2018, as well as the RTO and related transactions discussed in further detail in the consolidated pro forma balance sheet of the Resulting Issuer, which is attached hereto as Schedule “G”. These transactions include the Acreage Holdings Note Financing as well as the Finco SR Financing.

 

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The Finco SR Financing

In connection with the RTO, Finco completed the Finco SR Financing at a price of $25.00 per Finco Subscription Receipt (the “SR Offering Price”) for gross proceeds of $314,153,600. On November 14, 2018, upon satisfaction of the Escrow Release Conditions, each Finco Subscription Receipt was automatically exchanged for one common share of Finco without payment of additional consideration or further action on the part of the holder in accordance with the Subscription Receipt Agreement. The common shares of Finco issued upon exercise of the Finco Subscription Receipts were exchanged for Subordinate Voting Shares pursuant to the RTO.

In connection with the Finco SR Financing, Acreage Holdings paid a cash fee to the Agents equal to 6.0% of the gross proceeds of the brokered portion of the Finco SR Financing in accordance with the terms and conditions of the Agency Agreement (such cash fee was reduced to 2.5% in respect of sales to subscribers on the president’s list) and a financial advisory fee in the amount of $3,000,000 in connection with the non-brokered portion of the Finco SR Financing. As additional consideration, the Agents were granted Compensation Options (“Compensation Options”) entitling the Agents to subscribe for that number of common shares of Finco as was equal to 2.0% of the number of Finco Subscription Receipts issued under the brokered portion of the Finco SR Financing (such number of Compensation Options was reduced to 1.5% in respect of sales to subscribers on the president’s list). Each Compensation Option is exercisable for one Subordinate Voting Share (subject to any necessary adjustments) at the SR Offering Price for a period of 24 months following the date the Escrow Release Conditions are satisfied.

 

Purpose of Funds

Upon completion of the RTO, the Resulting Issuer expects to have approximately $316.2 million available for the principal purposes of supporting ongoing mergers and acquisitions activities, capital expenditures and general corporate purposes. Notwithstanding the foregoing, there may be circumstances where, for sound business reasons, a reallocation of funds may be necessary for the Resulting Issuer to achieve its objectives. The Resulting Issuer may also require additional funds in order to fulfill its expenditure requirements to meet existing and any new business objectives and expects to either issue additional securities or incur debt to do so. There can be no assurance that additional funding required by the Resulting Issuer will be available, if required. It is anticipated that the available funds will be sufficient to satisfy the Resulting Issuer’s objectives for the forthcoming 12-month period. The amounts shown in the table below are estimates only and are based on the information available to the Resulting Issuer as of the date of this Listing Statement.

Forecast 12 Month Budget

Expected Funds Available to the Resulting Issuer (1) $387,211,000
Payment of Seller Notes (30,000,000)
Cost of Issuance (19,000,000)
Withholding Tax Payment(2) (22,042,075)
General and Administrative Expenses (20,000,000)
Committed Acquisition and Subsequent Build-Out (102,000,000)
Future Capital Expenditures (85,500,000)
Excess Funds Available to the Resulting Issuer for General Working Capital $108,668,925

 

Notes:

(1) The Resulting Issuer expects to have positive cash from operations over the next 12 months to contribute to funding its ongoing operations.

(2) In connection with the Reorganization, non-U.S. holders of Acreage Holdings Units will generally be subject to U.S. withholding tax under Code Section 1446(f) upon the disposition of Acreage Holdings Units equal to 10% of the fair market value of shares received in the exchange, or approximately $22 million, based on the SR Offering Price of Subordinate Voting Shares. The Resulting Issuer will withhold 10% of the Subordinate Voting Shares delivered to non-U.S holders, or approximately 900,000 Subordinate Voting Shares, and the Resulting Issuer may cancel such Subordinate Voting Shares. In the case of the cancellation of such shares, the Resulting Issuer will pay the resulting tax withholding tax obligation out of the use of proceeds from the Finco SR Financing. The Resulting Issuer reserves the right to facilitate the sale of such shares and, in such case, to remit the proceeds thereof in satisfaction of its withholding tax obligation.

 

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Ability to Access Public and Private Capital

Due to the present state of the laws and regulations governing financial institutions in the United States, certain banks refuse to provide banking services to businesses involved in the cannabis industry. Consequently, Acreage Holdings may not be able to obtain bank financing in the United States or financing from other United States federally regulated entities.

 

Commercial banks, private equity firms and venture capital firms have approached the cannabis industry cautiously to date. However, there are increasing numbers of high net worth individuals and family offices that have made meaningful investments in companies and projects similar to the Resulting Issuer. Although there has been an increase in the amount of private financing available over the last several years, there is neither a broad nor deep pool of institutional capital that is available to cannabis license holders and license applicants.

Acreage Holdings has historically, and continues to have, robust access to equity and debt financing from exempt markets in the United States. Acreage Holdings’ executive team and management have extensive relationships with sources of private capital (such as funds and high net worth individuals).

 

Acreage Holdings has historically, and continues to have, robust access to equity and debt financing from the markets in the U.S. and Canada. Specifically: (i) on November 15, 2017, Acreage Holdings issued convertible promissory notes for gross proceeds of $31 million; (ii) On August 2, 2018, Acreage Holdings issued 19,352,143 Class E Membership Units for gross proceeds of approximately $119 million; and (iii) in connection with the RTO, on November 13, 2018, Acreage Holdings closed the Finco SR Financing for gross proceeds of approximately $315 million. Additionally, Acreage Holdings expects to raise capital, both in the form of debt and new equity offerings, during the next fiscal year.

Acreage Holdings also expects to generate adequate cash to fund its continuing operations. Acreage Holdings’ business plan includes aggressive growth, both in the form of additional acquisitions and through facility expansion and improvements.

There can be no assurance that additional financing will be available to the Resulting Issuer when needed or on terms which are acceptable. The Resulting Issuer’s inability to raise financing to fund capital expenditures or acquisitions could limit its growth and may have a material adverse effect upon future profitability. See “Risk Factors - Risks Generally Related to the Resulting Issuer - Additional Financing”.

Principal Products and Services

Acreage Holdings focuses on the cultivating, processing, distributing and retailing of top quality cannabis, cannabis derivative products and branded products. Prior to the Roll-Up, the various Subsidiaries had different product portfolios. As Acreage Holdings obtained full operational control as the result of the Roll-Up, it has pursued a hybrid branding approach, leveraging the loyalty and trust of The Botanist, Acreage Holdings’ flagship retail brand, while acknowledging the power of a ‘House of Brands’ approach to target specific form factors and consumer demographics.

The Botanist retail concept was developed to bring a unique, consistent and scalable retail design and customer experience to cannabis, one that would appeal to a wide range of both adult-use and medicinal cannabis customers nationwide. Emphasizing the holistic and natural qualities of cannabis and delivered in an immersive retail experience that blends nature and science, The Botanist looks to deliver a level of education, sense of community, and welcoming experience Acreage Holdings believes is lacking in most cannabis dispensaries. The staff is highly trained and knowledgeable to help provide insight and guidance to customers and patients as they explore the far-reaching benefits of cannabis.

 

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The Botanist core set of products includes but is not limited to flower, pre-rolls, vape pens, tinctures and capsules. Acreage Holdings aims to sell as many product forms in its dispensaries as individual state regulations allow. The Botanist portfolio will be rolled out across all of Acreage Holdings’ assets, in conjunction with the implementation of strict standard operating procedures and robust quality control processes, allowing Acreage Holdings to provide consumers with nearly identical products across markets. This portfolio branding and standardization emphasizes The Botanist’s promise of consistent, reliable and effective products, regardless of location.

Acreage Holdings supplements these categories with a ‘House of Brands’ approach to target more specific consumer needs. Diverging consumption methods requires unique brands to fulfill differentiated value propositions in categories such as edibles, beverages, topicals and concentrates. A variety of extraction methods will be used ranging from CO2 to butane to ethanol depending on the product requirements. Acreage Holdings boasts one of the top extraction teams in the cannabis industry, holding over 30 Cannabis Cup medals and led by Bill Fenger, the creator of ‘Live Resin’, a popular extraction technique which maintains the full spectrum of cannabinoids and terpenes to create superior products. With this deep technical cannabis experience supported with a robust in-house data analytics team, Acreage Holdings will utilize an agile product development workflow to continuously produce, test and launch new products. Data-driven decision making will inform which products to scale in which markets across Acreage Holdings’ footprint, acknowledging the diversity of markets in the United States. Acreage Holdings’ brands all hold the same consumer promise, that across every price point, Acreage Holdings delivers the absolute highest quality cannabis product.

The Subsidiaries are actively cultivating, manufacturing, distributing or retailing products in 11 states. As Acreage Holdings continues to standardize operating procedures of its Subsidiaries, full branded suites of products will begin to enter the market in the fourth quarter of 2018.

Operational Integration

In anticipation of the Roll-Up, Acreage Holdings built an operations team to be focused on integrating the properties acquired during and after the Roll-Up into a nationwide platform. Acreage Holdings is intently focused on becoming the first nationwide cannabis company operating to exceptionally high standards of efficiency, quality-control and customer satisfaction.

Prior to the completion of the Roll-Up, many of the Subsidiaries were operating independently and now require integration into a single operating model. The primary points of integration will be as follows:

 

Rebranding of Retail Dispensaries: Currently, all but one of the Subsidiaries’ open dispensaries are being operated under their original retail flags. Over the next 18 months, Acreage Holdings plans to transition those brands to one consistent retail brand and customer experience model: “The Botanist.” This conversion will allow Acreage Holdings to build a national, trusted brand, leveraging Acreage Holdings’ growing voice to drive awareness and traffic.

 

Product Standardization: In order to fully capitalize on its geographic breadth and scale, Acreage Holdings needs to be able to consistently replicate branded products across its multiple markets. This requires the standardization of processes and equipment across the Subsidiaries’ cultivation and processing facilities. This exercise includes the conformity of equipment platforms as well as the adoption of universal standard operating procedures and formulations.

 

Systems Integration: A key focus for Acreage Holdings will be implementing consistent systems and technology across the businesses of the Subsidiaries. This integration exercise includes the unification of general ledger, enterprise resource planning and other software platforms. This initiative will allow for enhanced reporting capabilities, robust data collection and analysis.
 

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Growth Strategy

Acreage Holdings intends to expand into new markets as well as its existing markets with more retail dispensaries, operational capabilities and unique product offerings. Acreage Holdings intends to pursue growth in the following ways:

 

opening incremental dispensaries permitted under current licenses
expansion of cultivation and processing capabilities
expansion of vertically integrated capabilities
broad distribution of Acreage Holdings’ branded product portfolio
entering new markets via application or M&A

 

Opening Incremental Dispensaries Permitted Under Current Licenses

 

In many states, the Subsidiaries still have the opportunity to open up incremental dispensaries that are permitted under the current licensing structures. The rapid build out of dispensary locations will be the largest driver of Acreage Holdings’ revenue growth.

 

Massachusetts: The first three Massachusetts dispensaries are expected to be opened by year-end 2018. PWC has licenses (via management services contracts) to open six additional dispensaries.

 

Florida: If a potential acquisition in Florida is completed, Acreage Holdings will have the opportunity to open 30 dispensaries in Florida.

 

Michigan: Pending completion of the joint venture with BTH, Acreage Holdings, under a managed services agreement, aims to open and operate at least three The Botanist dispensaries next year focusing on top population centers in the state, including Detroit, Ann Arbor, Flint and Lansing. Real estate has already been secured. Acreage Holdings anticipates it will be able to begin managed services operations quickly upon BTH’s receipt of the licenses. Separately, Acreage Holdings is currently working through the local and state licensing approval process. Once approved, ownership of the assets under the managed services partnership will be transferred to Acreage Holdings.

 

New York: NYCANNA is licensed to open four stores throughout the state. Three are expected to open by the end of 2018 with the fourth expected to open in early 2019. In keeping with the terms of the license, NYCANNA will launch Botanist dispensaries in Buffalo, Middletown, Queens and Farmingdale.

 

North Dakota: After winning one of eight dispensary licenses, Acreage Holdings will locate The Botanist in Fargo and expects to be open in Q4 2019.

 

Ohio: Through a management services arrangement, Acreage Holdings has access to five dispensary licenses to be located in Cleveland, Akron, Columbus, Canton and Wickliff. With a new and rapidly growing market, speed to market will be vital and Acreage Holdings expects to open all five stores in the first quarter of 2019.

 

New Jersey: In addition to the one existing dispensary operating in New Jersey, Acreage Holdings believes that it has the ability under the current license held by CCF to open two additional dispensaries in the southern part of the state. Acreage Holdings is currently procuring locations for these two additional The Botanist dispensaries.

 

Expansion of Cultivation and Processing Capabilities

 

Acreage Holdings aims to build scalable cultivation and processing capabilities, bringing additional capacity online as justified by demand. Nearly all of Acreage Holdings’ facilities contain room for expansion on property either within an existing structure or in an adjacent structure. Usually the cost for expansion is substantially lower than the initial cost given scalability of the non-canopy space to accommodate additional throughput.

 

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Florida: Pending completion of the proposed Florida acquisition, Acreage Holdings will seek a development site for the location of a greenhouse and indoor cultivation facility. The Florida license has no restrictions on canopy (the area of a cultivation facility actually used to grow cannabis) and management’s expectation is to develop a property with the capacity for several hundred thousand square feet of cultivation space.

 

Illinois: Pending completion of the proposed Illinois acquisition, Acreage Holdings intends to finish construction on the cultivation and processing facility in Freeport, Illinois. Construction on the 80,000 square foot facility was started by the prior owner in Freeport and has additional land to scale, if needed.

 

Massachusetts: A 36,000 square foot facility in Sterling, Massachusetts, will be reserved for high quality indoor flower. In Rockland, a processing center is currently under construction which will create derivative products from wholesale cannabis.

 

Maine: Currently in a 40,000 square foot building with nearly 12,000 square feet of canopy, WCM expects to expand capacity in 2019 to a total of nearly 24,000 square feet reflecting the estimated incremental demand.

 

New Hampshire: PATCC operates 8,000 square feet of canopy with significant room for expansion within the 30,000 square foot building.

 

New Jersey: A small 3,600 square foot indoor grow was being utilized by the operator before Acreage Holdings acquired CCF. To prepare for the increased demand throughout the state, Acreage Holdings is retrofitting a 125,000 square foot commercial greenhouse to provide 96,000 square feet of canopy in addition to full processing capabilities. The full available canopy will not be utilized until demand ramps up in the state.

 

New York: With a 70,000 square foot cultivation and processing building, NYCANNA is prepared to scale up operations through an option to purchase adjacent land and construct a greenhouse which could support 100,000 square feet of greenhouse canopy. NYCANNA will monitor policy changes to inform estimated demand and build accordingly.

 

Oregon: With completion expected in November 2018, Cannabliss & Co. will have 9,000 square feet of indoor canopy in a 30,000 square foot building. High-end, proprietary strains will be grown to service the five-dispensary footprint with the remaining space to be allocated to manufacturing once a processing license is secured.

 

Pennsylvania: With its first harvest in May 2018, PWPA has 15,000 square feet of indoor capacity with adjacent land ready to build a greenhouse when demand in the market supports expansion. The Pennsylvania facility can support up to 100,000 square feet of greenhouse canopy.

 

California: An oversupply in raw cannabis is expected by management, thus Acreage Holdings is not focused on scaling cultivation. Acreage Holdings’ subsidiary, CWG, has 2,500 square feet of indoor canopy, housed in a 20,000 square foot building. CWG uses the remaining space for extraction, manufacturing and end product packaging.

 

Iowa: Acreage Holdings’ management is not expecting demand to ramp rapidly given the current constraints on demand in this market. Acreage Holdings expects to complete 1,200 square feet of canopy attached to a manufacturing lab to create end products in Q2 2019. This minimal implementation should allow us to cost-effectively await policy changes in that market that will allow more aggressive patient demand.
 

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Expansion of Vertically Integrated Capabilities

In order to maximize efficiencies, control product quality and manage distribution, Acreage Holdings aims to be vertically integrated in most of the states in which its Subsidiaries operate. Acreage Holdings continues to pursue acquisition of additional assets and/or businesses within the states in which the Subsidiaries operate to maintain or improve its overall market share. Examples include:

Connecticut: Acreage Connecticut, LLC, a wholly owned subsidiary of Acreage Holdings that does not currently have any operating assets or activity , has a pending application for two additional dispensary licenses in Connecticut. Additionally, Acreage Holdings anticipates that it may seek to acquire cultivation and processing capabilities in Connecticut.

 

Pennsylvania: PWPA has a pending application for two dispensary licenses in Pennsylvania.

 

Maryland: Acreage Holdings will continue to evaluate opportunities to potentially acquire cultivation and processing capabilities in Maryland; however, given the current state ownership limitation, with only one dispensary, Acreage Holdings believes the benefit of being vertically integrated in Maryland is marginal.

Broad Distribution of Acreage Holdings’ Branded Product Portfolio

 

Acreage Holdings’ product and marketing team is focused on developing branded cannabis products that will have substantial opportunity for wholesale market penetration. As U.S. markets mature, consumer choice will grow and buying patterns will be dictated more and more by brand affinity.

 

Entering New Markets via Application or M&A

 

Acreage Holdings has a proven ability to win limited licenses in emerging medical states such as Iowa, North Dakota and Pennsylvania. Acreage Holdings maintains a dedicated team focused on new license applications currently evaluating states such as Oklahoma, West Virginia and Virginia. In states where licenses have already been granted, Acreage Holdings anticipates that it will seek to acquire accretive operations and subsequently integrate those operations using its integration process.

 

Competition

 

Acreage Holdings and the Subsidiaries compete with a variety of different operators across the states in which they currently operate. In the majority of such states, there are specific license caps that create high barriers to entry. However, in some markets, such as California and Oregon, there are few caps on licenses creating a more open marketplace. Acreage Holdings views multi-state operators that have vertical operations as the most direct competition, including Green Thumb Industries, iAnthus, Medmen, and Curaleaf. Like Acreage Holdings, these companies can realize centralized synergies to produce higher margins when compared to single-state operators.

 

Additionally, Acreage Holdings competes with the unregulated black and grey markets. As the regulatory environment continues to be formalized and enforced, management believes there will be a major reduction of these operators.

 

Investment Strategy

 

Acreage Holdings intends to seek investment and acquisition opportunities in high-margin, fast-growth, cannabis-related businesses that are complementary to Acreage Holdings’ footprint and/or range of products and services, operating in sectors with strong barriers to entry, or having a significant first-mover or other distinctive competitive advantages, servicing a large addressable revenue-generating market. Acreage Holdings intends to invest in technology to optimize Acreage Holdings’ core business in addition to technologies that have the potential to be disruptive to the current industry. The viability of cannabis-related business models may be impacted by enforcement of federal drug laws against cannabis companies operating under state law, as well as by accelerated liberalization of cannabis regulation and enforcement on the federal and state level. Acreage Holdings intends to remain abreast of the latest regulatory and political developments impacting the space and seek to adjust its investment criteria accordingly.

 

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4.2       Market Information, Trends, Commitments, Events and Uncertainties Usage of Cannabis

Competition between companies in the cannabis industry revolves primarily around the ability to attract community support, understand government policies and their implications, adjust to changing regulations, market differentiated products and development of effective cannabis strains and alternative products.

United States Regulation Environment

United States Federal Overview

The United States federal government regulates drugs through the CSA which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I controlled substance. A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The DOJ defines Schedule I drugs, substances or chemicals as “drugs with no currently accepted medical use and a high potential for abuse.” The United States Food and Drug Administration has not approved cannabis as a safe and effective drug for any condition.

State laws that permit and regulate the production, distribution and use of cannabis for recreational or medicinal purposes are in direct conflict with the CSA, which makes cannabis use and possession federally illegal. Although certain states and territories of the U.S. authorize medical or recreational cannabis production and distribution by licensed or registered entities, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal and any such acts are criminal acts under federal law under any and all circumstances under the CSA. Although Acreage Holdings’ activities are compliant with applicable United States state and local law, strict compliance with state and local laws with respect to cannabis may neither absolve Acreage Holdings of liability under United States federal law, nor may it provide a defense to any federal proceeding which may be brought against Acreage Holdings.

As of the date of this Listing Statement, 30 U.S. states and the District of Columbia have now legalized the cultivation and sale of full-strength cannabis for medical purposes. In nine U.S. states, the sale and possession of cannabis is legal for both medical and adult-use, the District of Columbia has legalized adult-use but not commercial sale. Sixteen states have also enacted low-THC / high-CBD only laws for medical cannabis patients. All considered, approximately 95% of Americans now live in states where some form of medical cannabis is legal.

The prior U.S. administration attempted to address the inconsistencies between federal and state regulation of cannabis in a memorandum which then-Deputy Attorney General James Cole sent to all United States Attorneys in August 2013 (the “Cole Memorandum”) outlining certain priorities for the DOJ relating to the prosecution of cannabis offenses. The Cole Memorandum noted that in jurisdictions that have enacted laws legalizing cannabis in some form and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level. The DOJ did not provide (and has not provided since) specific guidelines for what regulatory and enforcement systems would be deemed sufficient under the Cole Memorandum.

 

On January 4, 2018, U.S. Attorney General Jeff Sessions formally issued a new memorandum (the “Sessions Memorandum”), which rescinded the Cole Memorandum. The Sessions Memorandum stated, in part, that current law reflects “Congress’ determination that cannabis is a dangerous drug and cannabis activity is a serious crime”, and Mr. Sessions directed all U.S. Attorneys to enforce the laws enacted by Congress by following well-established principles when pursuing prosecutions related to cannabis activities. There can be no assurance that the federal government will not enforce federal laws relating to cannabis in the future.

 

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Although the Cole Memorandum has been rescinded, one legislative safeguard for the medical cannabis industry remains in place: Congress adopted amendments to the fiscal years 2015, 2016 and 2017 Consolidated Appropriations Acts (currently referred to as the “Rohrabacher/Blumenauer Amendment”) to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. The Rohrabacher/Blumenauer Amendment was included in the fiscal year 2018 budget passed on March 23, 2018. The Rohrabacher/Blumenauer Amendment was included in the short term spending bill signed into legislation by President Trump in September 2018 and will remain in effect until December 7, 2018. At such time, it may or may not be included in the omnibus appropriations package or a continuing budget resolution for fiscal 2019.

The Cole Memorandum and the Rohrabacher/Blumenauer Amendment gave medicinal cannabis operators and investors in states with legal regimes greater certainty regarding federal enforcement as to establish cannabis businesses in those states. While the Sessions Memorandum has introduced some uncertainty regarding federal enforcement, the cannabis industry continues to experience growth in legal medical and adult-use markets across the U.S. The legal U.S. cannabis industry is projected to reach $11 billion in 2018, rising to $23.4 billion in 2022 (The Arcview Group - The State of Legal Marijuana Markets (6th Edition)). U.S. Attorney General Jeff Sessions resigned on November 7, 2018. As of his resignation, Matthew Whitaker is the acting U.S. Attorney General. It is unclear what impact this development will have on U.S. federal government enforcement policy.

 

Despite the expanding market for legal cannabis, traditional sources of financing, including bank lending or private equity capital, is lacking which is can be attributable to the fact that cannabis remains a Schedule I substance under the CSA. These traditional sources of financing are expected to remain scarce until the federal government legalizes cannabis cultivation and sales.

 

See “Risk Factors” for the risk of federal enforcement and other risks associated with the Resulting Issuer’s business.

State-Level Overview

While Acreage Holdings is in material compliance with the rules, regulations and license requirements governing each state in which its Subsidiaries operate, there are significant risks associated with Acreage Holdings’ business and the business of the Subsidiaries. Further, the rules and regulations as outlined below are not a full complement of all the rules that the Subsidiaries are required to follow in each applicable state.

Although each state has its own laws and regulations regarding the operation of cannabis businesses, certain of the laws and regulations are consistent across jurisdictions. As a general matter, to operate legally under state law, cannabis operators must obtain a license from the state and in certain states must also obtain local approval. In those states where local approval is required, local authorization is a prerequisite to obtaining state licenses, and local governments are permitted to prohibit or otherwise regulate the types and number of cannabis businesses allowed in their locality. The license application process and license renewal process is unique to each state. However, each states’ application process requires a comprehensive criminal history, regulatory history, financial and personal disclosures, coupled with stringent monitoring and continuous reporting requirements designed to ensure only good actors are granted licenses and that licensees continue to operate in compliance with the state regulatory program.

License applicants for each state must submit standard operating procedures describing how the operator will, among other requirements, secure the facility, manage inventory, comply with the state’s seed-to-sale tracking requirements, dispense cannabis, and handle waste, as applicable to the license sought. Once the standard operating procedures are determined compliant and approved by the applicable state regulatory agency, the licensee is required to abide by the processes described and seek regulatory agency approval before any changes to such procedures may be made. Licensees are additionally required to train their employees on compliant operations and are only permitted to transact with other legal and licensed businesses.

As a condition of each state’s licensure, operators must consent to inspections of the commercial cannabis facility as well as the facility’s books and records to monitor and enforce compliance with state law. Many localities have also enacted similar standards for inspections and have already commenced both site-visits and compliance inspections for operators who have received state temporary or annual licensure.

 

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To strengthen the communication and transparency between Acreage Holdings and its Subsidiaries, Acreage Holdings and its Subsidiaries utilize a third-party enterprise compliance platform, which facilitates a regulatory document control workflow for each state and issues alerts for time sensitive information requests for events such as license renewal an impending inspection. The software features a robust auditing system that allows for both internal as well as third-party compliance auditing, covering all state, municipal, facility and operational requirements. The third-party software facilitates the implementation and maintenance of compliant operations and tracks all required licensing maintenance criteria, which include countdown features and automatically generated reminders for initiating renewals and required reporting. Though Acreage Holdings complies with all aspects of the required state regulations, Acreage Holdings believes that the core to ensuring a comprehensive compliance program is to weigh the risk of each regulation and ensure on a regular basis that the operators are properly controlling these risks.

Prior to the 2018 midterm elections in the U.S., there were 30 states, in addition to Washington, D.C., with programs that administer and control the dispensary of medical cannabis. See the table below:

  State Date Effective     State Date Effective
1. Alaska March 4, 1999   17. Nevada October 1, 2001
2. Arizona November 2, 2010   18. New Hampshire July 23, 2013
3. Arkansas November 9, 2016   19. New Jersey July 18, 2010
4. California November 6, 1996   20. New Mexico July 1, 2007
5. Colorado June 1, 2001   21. New York July 5, 2014
6. Connecticut May 4, 2012   22. North Dakota November 8, 2016
7. Delaware July 1, 2011   23. Ohio September 8, 2016
8. Florida November 8, 2016   24. Oklahoma June 26, 2018
9. Hawaii December 28, 2000   25. Oregon December 3, 1998
10. Illinois January 1, 2014   26. Pennsylvania May 17, 2016
11. Maine December 22, 1999   27. Rhode Island January 3, 2006
12. Maryland June 1, 2014   28. Vermont July 1, 2004
13. Massachusetts January 1, 2013   29. Washington November 3, 1998
14. Michigan December 4, 2008   30. Washington, DC July 27, 2010
15. Minnesota May 30, 2014   31. West Virginia April 19, 2017
16. Montana November 2, 2004        

 

An additional 16 states have laws specifically related to the legal use of CBD, mainly in extract form, which contains a low amount of THC and is often used in the treatment of epilepsy or seizures. See the table below:

  State Date Legalized     State Date Legalized
1. Alabama April 1, 2014   9. North Carolina July 3, 2014
2. Delaware June 23, 2015   10. Oklahoma April 30, 2015
3. Florida June 16, 2014   11. South Carolina June 2, 2014
4. Georgia April 16, 2015   12. Tennessee May 16, 2014
5. Iowa May 30, 2014   13. Texas June 1, 2015
6. Kentucky April 10, 2014   14. Utah March 21, 2014
7. Mississippi April 17, 2014   15. Virginia February 26, 2015
8. Missouri July 14, 2004   16. Wisconsin April 16, 2014

 

 

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Furthermore, Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont, Washington and Washington D.C. have legalized cannabis for recreational adult-use. See the table below:

  State Date Legalized     State Date Legalized
1. Alaska November 4, 2014   6. Nevada January 1, 2017
2. California November 9, 2016   7. Oregon November 4, 2014
3. Colorado November 6, 2012   8. Vermont July 1, 2018
4. Maine January 30, 2017   9. Washington November 6, 2014
5. Massachusetts November 8, 2016   10. Washington DC February 24, 2015

 

Compliance Summary

Acreage Holdings monitors the applicable rules and regulations of each state in which it has, indirectly through its Subsidiaries, licenses, permits, or operations. Acreage Holdings maintains a database and tracks each license or permit held by its Subsidiaries, showing the renewal date, inspection schedules, and the results of any regulatory inspection reports. Acreage Holdings will also monitor any action taken by its Subsidiaries in response to a change of governing regulations or suggestions from regulators.

Acreage Holdings’ compliance team continually monitors and reviews correspondence and changes to, and updates of, rules or regulatory policies impacting the operation of the businesses carried on by its Subsidiaries in each U.S. state in which it has operations. Acreage Holdings requires its Subsidiaries to implement internal processes for compliance reviews as required by Acreage Holdings from time to time, with specific guidelines as to which reports shall be immediately sent to Acreage Holdings for review.

Acreage Holdings’ business is described in this Listing Statement under various headings, including “Corporate Structures”, “General Development of the Business”, “Narrative Description of the Business”, and “Risk Factors”. Acreage Holdings, through its Subsidiaries, has operations in 17 states in the U.S. Acreage Holdings, along with its U.S. legal counsel and the professional advisors which helped it obtain and maintain its state licenses and permits required for the operating of the business, will have monthly meetings to monitor compliance with internal and regulatory procedures and anticipates that such monthly meetings will continue.

The Regulatory Landscape on a U.S. State Level

California

Legislative History

In 1996, California voters passed Proposition 215, the Compassionate Use Act allowing physicians to legally recommend medical cannabis for patients who would benefit from cannabis. The Compassionate Use Act legalized the use, possession and cultivation of medical cannabis for a set of qualifying conditions including AIDS, anorexia, arthritis, cachexia, cancer and chronic pain. The law established a not-for-profit patient/caregiver system but there was no state licensing authority to oversee the businesses that emerged as a result.

In September 2015, the California legislature passed three bills, collectively known as the “Medical Marijuana Regulation and Safety Act”. The Medical Marijuana Regulation and Safety Act established a licensing and regulatory framework for the medical cannabis businesses in California. Multiple agencies oversee different aspects of the program and require businesses obtain a state license and local approval to operate.

In November 2016, voters in California passed Proposition 64, the Adult Use of Marijuana Act (“AUMA”) creating an adult-use cannabis program for individuals 21 years of age or older. AUMA contained conflicting provisions with the Medical Marijuana Regulation and Safety Act. Consequently, in June 2017, the California State Legislature passed Senate Bill No. 94, known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), which combined the Medical Marijuana Regulation and Safety Act and AUMA to provide a set of regulations to govern medical and adult-use licensing regime for cannabis businesses. The three agencies that regulate cannabis at the state level are: (a) the California Department of Food and Agriculture, via CalCannabis, which issues licenses to cannabis cultivators, (b) the California Department of Public Health, via the Manufactured Cannabis Safety Branch, which issues licenses to cannabis manufacturers and (c) the California Department of Consumer Affairs, via the Bureau of Cannabis Control, which issues licenses to cannabis distributors, testing laboratories, retailers, and micro-businesses. These agencies also oversee the various aspects of implementing and maintaining California’s cannabis landscape, including the statewide track and trace system. All three agencies released their emergency rulemakings at the end of 2017 and have started issuing temporary licenses.

 

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To legally operate a medical or adult-use cannabis business in California, the operator must have both local approval and a state license. This requires license holders to operate in cities with cannabis licensing and approval programs. Municipalities in California are authorized to determine the number of licenses they will issue to cannabis operators, or can choose to outright ban the cultivation, manufacturing or the retail sale of cannabis. MAUCRSA went into effect on January 1, 2018.

On May 18, 2018, the California Department of Consumer Affairs, the California Department of Public Health and the California Department of Food and Agriculture proposed to re-adopt their emergency cannabis regulations. The three licensing authorities proposed changes to the regulatory provisions to provide greater clarity to licensees and to address issues that have arisen since the emergency regulations went into effect in December 2017. Highlighted among the changes are that applicants may now complete one license application which will allow for both medicinal and adult-use cannabis activity. These emergency cannabis regulations were officially readopted on June 4, 2018 and came into effect on June 6, 2018. The readopted emergency regulations will remain in effect for 180 days. During this time, the three licensing authorities will engage in the regular rulemaking process to adopt its final non-emergency regulations. The final rules will be adopted in December 2018.

Licenses

Although vertical integration across multiple license types is allowed under the state regulations, it is not required. Acreage Holdings through CWG holds three licenses in the state and has received local approval. CWG holds cultivation/grow, manufacturing and distribution licenses. The manufacturing license is denoted as a Type 7 which provides CWG the authorization to manufacture cannabis products using volatile solvent as well as non-volatile extraction methods. Each license issued gives CWG the ability to operate as a medical and adult-use provider. The table below lists the licenses issued to the CWG cannabis operations in California.

Subsidiary License Number City Expiration Date Description
CWG Botanicals, Inc TML17-0000758 Oakland 12/21/2018 Grow
CWG Botanicals, Inc CDPH-T00000387 Oakland 11/2/2018 Manufacturing
CWG Botanicals, Inc M11-18-0000056-TEMP Santa Cruz 1/31/2019 Distribution

The California dispensary, grower and processing state and local licenses are renewed annually from the date of issuance. CWG holds temporary licenses and are awaiting the state to issue the annual licenses. CalCannabis is expected to go live on Franwell Inc.’s METRC solution (“METRC”) late 2018 and early 2019. The license holders are required to submit a renewal application per the guidelines under Text of Emergency Rules section 8203. An application for renewal of a cultivation license shall be submitted to the state at least thirty (30) calendar days prior to the expiration date of the current license. A license holder that does not submit a completed license renewal application to the state within thirty (30) calendar days after the expiration of the current license forfeits their eligibility to apply for a license renewal and, instead, would be required to submit a new license application. The license holders must ensure that no cannabis may be sold, delivered, transported or distributed by a producer from or to a location outside of this state.

 

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Record-keeping/Reporting

California has selected METRC as the track and trace (“T&T”) system used to track commercial cannabis activity. As of November 9, 2018, the implementation of METRC state-wide is still in progress and not yet released. CWG will use a third-party platform, QuantumLeap, which will feed data to METRC to meet all reporting requirements.

Licensees are required to maintain records for at least seven years from the date a record is created. These records include: (a) a cultivation plan, (b) all supporting documentation for data or information input into the T&T system, (c) all unique identifiers (“UID”) assigned to product in inventory and all unassigned UIDs, (d) financial records related to the licensed commercial cannabis activity, including bank statements, tax records, sales invoices and receipts, and records of transport and transfer to other licensed facilities, (e) records related to employee training for the T&T system, and (f) permits, licenses, and other local authorizations to conduct the licensee’s commercial cannabis activity.

Inventory/Storage

Each licensee is required to assign an account manager to oversee the T&T system. The account manager is fully trained on the system and is accountable to record all commercial cannabis activities accurately and completely. The licensee is expected to correct any data that is entered into the T&T system in error within three (3) business days of discovery of the error.

The licensee is required to report information in the T&T system for each transfer of cannabis or nonmanufactured cannabis products to, or cannabis or non-manufactured cannabis products received from, other licensed operators. Licensees must use the T&T system for all inventory tracking activities at a licensed premise, including, but not limited to, reconciling all on-premise and in-transit cannabis or non-manufactured cannabis product inventories at least once every 14 business days. The licensee must store cannabis and cannabis products in a secure place with locked doors.

Security

A licensee is required to maintain an alarm system capable of detecting and signaling the presence of a threat requiring urgent attention and to which law enforcement are expected to respond. A licensee must also ensure a professionally qualified alarm company operator or one of its registered alarm agents installs, maintains, monitors, and responds to the alarm system.

The manufacturing and cultivation of cannabis must use a digital video surveillance system which runs 24 hours a day, seven days a week and effectively and clearly records images of the area under surveillance. Each camera must be placed in a location that clearly records activity occurring within 20 feet of all points of entry and exit on the licensed premises. The areas that will be recorded on the video surveillance system should include the following: (a) areas where cannabis goods are weighed, packed, stored, loaded, and unloaded for transportation, prepared, or moved within the premises, (b) limited-access areas, (c) security rooms and, (d) areas storing a surveillance-system storage device with at least one camera recording the access points to the secured surveillance recording area. Surveillance recordings must be kept for a minimum of 90 days.

Transportation

Transporting cannabis goods between licensees and a licensed facility may only be performed by persons holding a distributor license. The vehicle or trailer used must not contain any markings or features on the exterior which may indicate or identify the contents or purpose. All cannabis products must be locked in a box, container, or cage that is secured to the inside of the vehicle or trailer. When left unattended, vehicles must be locked and secured. At a minimum, the vehicle must be equipped with an alarm system, motion detectors, pressure switches, duress, panic, and hold-up alarms.

 

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Connecticut

Connecticut’s Medical Marijuana Program (the “CT Program”) was enacted on June 1, 2012 with the signing into law of Act 12-55, the Act Concerning the Palliative Use of Marijuana (the “CT Act”). The CT Program protects patients and caregivers who hold valid medical cannabis registration cards from prosecution for possession of cannabis obtained from licensed dispensaries. Patients are eligible for a medical cannabis registration card if they have a qualifying debilitating medical condition, obtain a medical cannabis recommendation from a CT Program registered physician, and register as a qualified patient through the CT Program. In February 2016, the list of qualifying debilitating medical conditions was raised from 11 to 17 adding sickle cell disease, cerebral palsy, and cystic fibrosis to the list which already included, among others, cancer, HIV/AIDS, Parkinson’s disease, and Multiple Sclerosis. Caregivers may register with the CT Program if they are designated by a qualifying patient, receive certification from a registered physician, and pass a criminal background check. The good standing of patients, caregivers, and physicians under the CT Program is subject to timely reporting and annual renewal requirements.

In April 2014, Connecticut’s Department of Consumer Protection initially approved six dispensary licenses and in January 2016, Connecticut’s Department of Consumer Protection (the “CT DCP”) approved three additional applicants. Connecticut began accepting written certifications from physicians to qualify patients on October 1, 2012. As of November 4, 2018, there are approximately 30,048 patients certified to obtain cannabis through the CT Program.

Licenses

The CT DCP is responsible for the CT Program and is authorized to issue dispensary and producer/grower licenses. Currently, the CT DCP has issued nine dispensary and four producer/grower licenses. Two of the nine dispensary licenses have been issued to a Subsidiary.

On January 3, 2018 the CT DCP issued a Request for Application for additional medical cannabis dispensaries with plans to award at least three new licenses. Acreage Holdings through its subsidiary Acreage Connecticut, LLC submitted an application in response to the Request for Application and is awaiting the CT DCP’s review and award decision.

The below table lists the licenses issued to the Subsidiaries:

Subsidiary License number City Expiration Date Description
CCC-CT MMDF.0000003 Bethel 5/13/2019 Dispensary Facility
PWCT MMDF.0000004 South Windsor 4/10/2019 Dispensary Facility

Each license qualifies a dispensary to purchase medical cannabis in good faith from licensed medical cannabis producers and to dispense cannabis to qualifying patients or primary caregivers that are registered under the CT Program. Dispensary license holders are required to ensure that no cannabis is sold, delivered, transported, or distributed to a location outside of the state. Under the CT Program, dispensary licenses are renewed annually. Renewal applications must be submitted 45 days prior to license expiration and any renewal submitted more than 30 days after expiration will not be renewed.

Record-keeping/Reporting

Connecticut does not mandate use of any singular unified T&T system by which all dispensary license holders submit data directly to the state. Acreage Holdings’ license holders, CCC-CT and PWCT, use a third-party solution, THC BioTrack, to push data to the state to meet all reporting requirements.

The CT Program provides strict guidelines for reporting via the license holder’s third-party T&T system. Every cannabis sale must be documented at the point of sale including recording the date and purchaser’s signature. At least once per day, all sales must be uploaded via the T&T system to the Connecticut Prescription Monitoring Program which accumulates and tracks medical cannabis purchases across all Connecticut dispensaries. The CT Program requires that records are kept for a minimum of three years.

 

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Inventory

Upon receipt of a cannabis product, each product must be cataloged and entered in the dispensary’s T&T system. The information required by the CT Program includes the quantity of product received, its lot number, expiration date, and strain. Only registered dispensary pharmacists may accept delivery of cannabis and related products. A delivery receipt for cannabis and cannabis products must be signed by the accepting dispensary pharmacist and be attached to the delivery manifest. Each delivery manifest must be kept on file for three years. Once per week, a count of cannabis product stock is to be conducted by a dispensary pharmacist which includes tracking the producer’s name, type and quantity of cannabis, and a summary of inventory findings. Any discrepancies must be rectified and documented. Any unrectified discrepancy must be disclosed to the dispensary manager who, if necessary, will notify the CT DCP. Annual controlled substance inventories are required to be conducted on a date specified by the dispensary manager also to be kept on file for three years.

Storage/Security

The CT Program requires that dispensaries adhere to strict cannabis storage and security guidelines to maintain control against diversion, theft, and loss of cannabis or cannabis products. Each dispensary is required to (a) establish a security plan including approved safes for storage of all cannabis products, (b) maintain daily supplies of product in locked cabinets, (c) install safes accessible only to the dispensary pharmacist or manager, (d) utilize commercial grade motion detectors and video cameras in all areas that contain cannabis, and (e) install cameras directed at all safes, vaults, dispensing and sale areas, or any other area where cannabis is stored or handled.

Furthermore, the CT Act prescribes that dispensaries must retain and present all video upon request of the Connecticut Department of Public Health (“DPH”). Specifically, dispensaries must (a) make the latest 24 hours of video readily available for immediate viewing upon request of a state authorized representative, and (b) retain all videos for at least 30 calendar days. Additionally, dispensaries must install strategically placed duress and panic alarms, both silent and audible, that trigger a law enforcement response. Employees are also required to wear panic alarm buttons for an additional level of safety and security.

Training & Education

All dispensary staff pharmacists must go through a training program on cannabis and cannabis products. Such training must include covering the chemical components of cannabis and use of ancillary cannabis delivery devices. Pharmacist training should prepare pharmacists how to best assess the needs of qualified patients during required new-patient private consultations. During such consultations, pharmacists are required to educate new patients on their qualified debilitating medical condition, allergies, medication profile, cannabis use, and cannabis delivery methods. Pharmacists have sole responsibility to recommend products based on the patients’ individual needs.

Like dispensary staff pharmacists, dispensary technicians and employees also must meet training guidelines as set forth by the CT Program. Dispensary technicians must be trained on professional conduct, ethics, patient confidentiality, and developments in the field of medical cannabis use, among other pertinent topics commensurate with the technician’s professional responsibilities. Dispensary employees, among other things, must be trained on the proper use of security measures and controls, procedures for responding to an emergency, and patient confidentiality. A record of all staff training and patient education must be maintained and made available for review at the request of the DPH.

Florida

Legislative History

On June 16, 2014, the Florida state governor signed Senate Bill 1030, also known as the Compassionate Medical Cannabis Act of 2014 (“CMCA”). The CMCA legalized low THC for medical patients suffering from cancer or “a physical medical condition that chronically produces symptoms of seizures”, such as epilepsy, “or severe and persistent muscle spasms”. The CMCA requires physician approval and determination that no other satisfactory alternative treatment options exist for that patient. The CMCA also authorizes medical centers to conduct research on low THC cannabis.

 

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On November 8, 2016, Amendment 2 was added to Florida’s state constitution. Amendment 2 protects qualifying patients, caregivers, physicians, and medical cannabis dispensaries and their staff from criminal prosecutions or civil sanctions under Florida law. Amendment 2 also expanded the definition of debilitating diseases to include 13 conditions including HIV/AIDS, Crohn’s disease and post-traumatic stress disorder. Amendment 2 became effective on January 3, 2017. Act 2 provides a regulatory framework that requires licensed producers, which are statutorily defined as Medical Marijuana Treatment Centers (each, a “MMTC”), to cultivate, process and dispense medical cannabis in a vertically integrated marketplace.

Licenses

Licenses are issued by the Florida Department of Health (“FDH”). Applicants are required to provide comprehensive business plans with demonstrated knowledge and experience on execution, detailed facility plans, forecasted performance and robust financial resources. Technical ability on plant and medical cannabis cultivation, infrastructure, processing, dispensing and safety are also assessed.

License holders are permitted to maintain one license. However, the one license allows the licensee to open one cultivation/processing site and up to 25 dispensaries. The license permits the sale of derivative products produced from extracted cannabis plant oil as medical cannabis to qualified patients. The state does not allow the smoking of cannabis for medical use and does not permit the dispensing of whole flowers. As of July 6, 2018, there were 109,163 patients with an approved medical ID card, 13 approved medical cannabis treatment centers and 43 approved retail dispensing locations. Licensed medical cannabis treatment centers are authorized to cultivate, process and dispense medical cannabis.

Acreage Holdings, through FLW, formerly held an investment in SFN. SFN, which is doing business as the Green Solution, is the licensee. As Florida is a vertically integrated system, SFN is permitted to cultivate, harvest, process and sell/dispense/deliver its own medical cannabis products. As of July 25, 2018, SFN is cultivating cannabis, however, does not have an operational dispensary. In October 2018, Acreage Holdings withdrew as a member of FLW, and therefore is no longer a shareholder in SFN. As discussed in Section 3.1, Acreage Holdings has entered into a purchase agreement to acquire Nature’s Way, which is in the process of acquiring a license to operate as a medical cannabis treatment center in Florida.

Inventory Storage

The FDH requires that the MMTC license holder establish, maintain, and control a computer software tracking system that traces cannabis from seed to sale and allows real-time, 24-hour access by the department to data from all medical cannabis treatment centers and cannabis testing laboratories. At a minimum, the T&T system will track when cannabis seeds are planted, harvested and destroyed, and when cannabis is transported, sold, stolen, diverted, or lost. The FDH has not chosen a unified system. Therefore, the licensee can choose their own T&T system.

Security

With respect to security requirements for cultivation, processing and dispensing facilities, a MMTC must maintain a fully operational alarm system that secures all entry points and perimeter windows, and is equipped with motion detectors, pressure switches, duress, panic and hold-up alarms. The MMTC must also have a 24-hour video surveillance system with the following features: (a) cameras positioned for the clear identification of persons and activities in controlled areas including growing, processing, storage, disposal and point-of-sale rooms, (b) cameras fixed on entrances and exits to the premises, and (c) ability to record images clearly and accurately together with the time and date. Facilities may not display products or dispense cannabis or cannabis delivery devices in the waiting area and may not dispense cannabis from its premises between the hours of 9:00p.m. and 7:00a.m. However, it may perform all other operations and deliver cannabis to qualified patients 24 hours a day.

 

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Cannabis must be stored in a secured, locked room or a vault. A MMTC must have at least two employees, or two employees of a security agency, on the premises at all times where cultivation, processing, or storing of cannabis occurs. A cannabis transportation manifest must be maintained in any vehicle transporting cannabis or a cannabis delivery device. The manifest must be generated from the MMTC’s seed-to-sale tracking system. Further, a copy of the transportation manifest must be provided to the MMTC when receiving a delivery. Each MMTC must retain copies of all cannabis transportation manifests for at least three years. Cannabis and cannabis delivery devices must be locked in a separate compartment or container within the vehicle and employees transporting cannabis or cannabis delivery devices must always have their employee identification on them. Lastly, at least two people must be in a vehicle transporting cannabis, and at least one person must remain in the vehicle while the cannabis is physically delivered.

Illinois

Legislative history

The Compassionate Use of Medical Cannabis Pilot Program Act (the “IL Act”) was signed into law in August 2013 and took effect on January 1, 2014. The IL Act provides medical cannabis access to registered patients who suffer from a list of over 30 medical conditions including epilepsy, cancer, HIV/AIDS, Crohn’s disease and post-traumatic stress disorder. As of September 1, 2018, approximately 44,200 patients have been registered under the IL Act and are qualified to purchase cannabis and cannabis products from registered dispensaries. The program is expected to remain in a pilot stage through July 2020, at which point the IL Act will be re-evaluated for future implementation.

Licenses

Oversight and implementation under the IL Act are divided among three Illinois state departments: the Department of Public Health (the “IL DPH”), the Department of Agriculture (the “IL DA”), and the Department of Financial and Professional Regulation (the “IL DFPR”). The IL DPH oversees the following IL Act mandates: (a) establish and maintain a confidential registry of caregivers and qualifying patients authorized to engage in the medical use of cannabis, (b) distribute educational materials about the health risks associated with the abuse of cannabis and prescription medications, (c) adopt rules to administer the patient and caregiver registration program, and (d) adopt rules establishing food handling requirements for cannabis-infused products that are prepared for human consumption. It is the responsibility of the IL DA to enforce the provisions of the IL Act relating to the registration and oversight of cultivation centers. The IL DFPR enforces the provisions of the IL Act relating to the registration and oversight of dispensing organizations. The IL DPH, IL DA and IL DFPR may enter into intergovernmental agreements, as necessary, to carry out the provisions of the IL Act.

Illinois has issued a limited amount of dispensary, producer/grower, and processing licenses. There are currently 55 licensed dispensaries and 22 licensed cultivators. NCC was awarded one dispensary license.

The table below lists the license issued to NCC:

Subsidiary License number City Expiration Description
NCC 280-000024-DISP Rolling Meadows  1/22/2019 Dispensary Facility

The IL Act requires prospective cannabis business license holders to adhere to a thorough application process. Applicants for cannabis business licenses must meet, among others, the following requirements: (a) the proposed location for a dispensary must be suitable for public access, (b) the proposed location must not pose a detrimental impact to the surrounding community, (c) demonstrate compliance with safety procedures for dispensary employees, patients, and caregivers, and safe delivery and storage of cannabis and currency, (d) provide an adequate plan for recordkeeping, tracking and monitoring inventory, quality control, destruction and disposal of cannabis, and procedures to discourage unlawful activity, (e) develop a business plan specifying products to be sold and, (f) demonstrate knowledge of, experience, and proven record of ensuring optimal safety and accuracy in the dispensing and sale of cannabis. Once a license is granted, licensees have a continuing obligation to ensure no cannabis is sold, delivered, transported, or distributed to a location outside of the state.

 

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Under the IL Act, dispensary, grower, and processing licenses are valid for one year. After the initial term, licensees are required to submit renewal applications. Pursuant to the IL Act, registration renewal applications must be received 45 days prior to expiration and may be denied if the licensee has a history of non-compliance and penalties.

Record-keeping/Reporting

Illinois uses the BioTrack THC T&T system to manage the flow of reported data between each licensee and the state. NCC also uses the T&T system to ensure all reporting requirements are met. Information processed through the T&T system must be maintained in a secure location at the dispensing organization for five years.

Dispensing licensees are mandated by the IL Act to maintain records electronically and make them available for inspection by the IL DFPR upon request. Records that must be maintained and made available, as described in the IL Act, include: (a) operating procedures, (b) inventory records, policies, and procedures, (c) security records, and (d) staffing plans. All dispensing organization records, including business records such as monetary transactions and bank statements, must be kept for a minimum of three years. Records of destruction and disposal of all cannabis not sold, including notification to the IL DFPR and State Police, shall be retained at the dispensary organization for a period of not less than five years.

Inventory/Storage

A dispensing organization’s agent-in-charge has primary oversight of the dispensing organization’s medical cannabis inventory control system. Under the IL Act, a dispensary’s inventory control system must be real-time, web-based, and accessible by the IL DFPR 24 hours a day, seven days a week. The T&T system used by NCC complies with such requirements.

The inventory control system of a dispensing organization must record all cannabis sales, waste, and acquisitions. Specifically, the inventory system must track and reconcile through the T&T system each day’s cannabis beginning inventory, acquisitions, sales, disposal and ending inventory. Tracked information must include (a) product descriptions including the quantity, strain, variety and batch number of each product received, (b) the name and registry identification number of the permitted cultivation center providing the medical cannabis, (c) the name and registry identification number of the permitted cultivation center agent delivering the medical cannabis, (d) the name and registry identification number of the dispensing organization agent receiving the medical cannabis, and (e) the date of acquisition. Dispensary managers are tasked with conducting and documenting monthly audits of the dispensing organization’s daily inventory according to generally accepted accounting principles.

Storage of cannabis and cannabis product inventory is also regulated by the IL Act. Inventory must be stored on the dispensary’s licensed premises in a restricted access area. Appropriate storage temperatures, containers, and lighting are required to ensure the quality and purity of cannabis inventory is not adversely affected.

Security

Under the IL Act, dispensaries must implement security measures to deter and prevent entry into and theft from restricted access areas containing either cannabis or currency. Mandated security measures include security systems, panic alarms, and locked doors or barriers between the facility’s entrance and limited access areas. Admission to the limited access areas must be restricted to only registered qualifying patients, designated caregivers, principal officers, and agents conducting business with the dispensing organization. Visitors and persons conducting business with the dispensing organization in limited access areas must always wear identification badges and be escorted by a dispensary agent authorized to enter the restricted access area. A visitor’s log must not only be kept on-site but must also be maintained for five years.

 

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The IL Act states 24-hour video surveillance of both a dispensary’s interior and exterior are required to be taken and kept for at least 90 days. Unless prohibited by law, video of all interior dispensary areas, including all points of entry and exit, safes, sales areas, and storage areas must be kept. Unobstructed video of the dispensary’s exterior perimeter, including the storefront and the parking lot, must also be kept. Video surveillance cameras are required to be angled to allow for facial recognition and the capture of clear and certain identification of any person entering or exiting the dispensary area. Additionally, all video must be taken in lighting sufficient for clear viewing during all times of night or day. The IL Act also requires all security equipment to be inspected and tested within regular 30-day intervals.

Iowa

Legislative History

In May 2014, Governor Terry Branstad signed into law the Medical Cannabidiol Act, allowing possession of CBD with less than 3% THC with a neurologist’s recommendation for the treatment of intractable epilepsy in children. In May 2017, House File 524 was signed into law, expanding the number of health conditions eligible including cancer, chronic pain, HIV/AIDs, Crohn’s and Parkinson’s disease. Despite the expansion in eligible usage, patients will not have access to a dispensary until December 2018.

The Medical Cannabidiol Act authorizes the Iowa Department of Public Health (“IDPH”) to govern the selection of up to two growers/manufacturers and five dispensaries, oversee the cultivating and dispensary control processes, modify qualifying health conditions, and recommend changes in THC levels. The IDPH is responsible for developing and updating administrative rules and oversees the implementation of the Medical Cannabidiol Program. The 2017 Medical Cannabidiol Act directs the IDPH, in collaboration with the Iowa Department of Transportation, to administer a process to approve and generate Medical Cannabidiol Registration Cards (“CBD Cards”) for patients and their primary caregivers. Licensed medical CBD manufacturers must agree to begin supplying medical CBD to licensed dispensaries in Iowa no later than December 1, 2018. As of March 2018, fewer than 400 of Iowa’s 3 million residents have a CBD Card.

Licensing

The IDPH is responsible for selecting and issuing medicinal cannabis manufacturer licenses. The applicant owner is subject to various public safety reviews including criminal background checks, records against other licensed activity, and timeliness of his/her federal/local income tax filings. As part of the selection process, the IDPH considers the applicant’s technical expertise regarding medical CBD, qualifications of the manufacturer’s employees, the long-term financial stability, security measures on the premises, and the applicant’s ability to meet certain medical CBD needs such as range of recommended dosages, chemical compositions of a plant and the applicant’s projected assessment of wholesale product costs. The licenses are renewed on an annual basis.

The table below lists the license issued to Acreage Holdings’ Subsidiary, Iowa Relief, LLC:

Subsidiary License Number City Expiration Date Description
Iowa Relief, LLC 2018-M02 Cedar Rapids 11/30/2018 Manufacturing

Record-keeping/Reporting

Iowa uses BioMauris, LLC to manage their T&T system for medical cannabis. The state requires complete and accurate electronic sales transaction records in a secure sales and inventory tracking system that includes details such as: (a) the date of each sale or distribution, (b) inventory of plant material, medical CBD, and waste material, (c) transport of plant material, waste material, and laboratory samples, (c) sales of medical CBD from dispensaries to patients and primary caregivers and, (d) the sales price. Financial transaction records reflecting the financial condition of the business are also required and should be maintained at least five years and be readily available upon request by the state. Financial records include but are not limited to: (a) purchase invoices, (b) bank statements and canceled checks for all business accounts, and (c) records of all financial transactions, contracts and agreements for services performed or services received. The records must be maintained at least five years and readily available upon request by the state. Finally, a manufacturer shall use the state’s secure sales and inventory tracking system to maintain crop input records, production records, transportation records, and inventory records, including disposal of waste.

 

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Inventory/Storage

A manufacturer is required to store plant material and medical CBD during production, transport, and testing to prevent diversion, theft or loss. The manufacturer should ensure: (a) plant material and medical CBD are returned to a secure location immediately after completion of the process or at the end of the scheduled business day, and (b) tanks, vessels, bins, or bulk containers containing plant material or medical CBD are locked inside a secure area if a process is not completed at the end of a business day. Moreover, to prevent degradation, storage containers must protect the cannabis against physical, chemical and microbial contamination and deterioration. A separate secure storage area must be established to house material returned from a dispensary, including medical CBD that is outdated, damaged, deteriorated, mislabeled, or contaminated, or whose containers or packaging have been opened or breached, until the returned medical CBD is destroyed.

Security

A cannabis manufacturer is required to install and maintain a professionally monitored alarm system that provides intrusion and fire detection for all facility entrances and exits, rooms with exterior windows, rooms with exterior walls, roof hatches, skylights and storage rooms. The system must be able to summon law enforcement in an alarm situation and be hardwired with radio frequency methods such as cellular/private radio signals that transmit a remote or local audio, visual, or electronic signals, has motion detectors, pressure switches, duress, panic, and holdup alarms, an automatic voice dialer, and a failure notification system. The manufacturer must be able to provide documentation of the annual inspection and device testing to the state upon request.

A manufacturer must operate and maintain in good working order a video surveillance system on its premises that operates 24 hours per day, seven days a week. The surveillance system must be able to record all phases of medical CBD production, all areas that might contain plant material and medical CBD, including all safes and vaults, all points of entry and exit and parking areas. The videos must be maintained for one year.

Transportation

A manufacturer is authorized to transport medical CBD to and from a dispensary, a laboratory for testing and a waste facility for disposal.

Maine

Legislative history

Maine has allowed qualified patients with specific conditions to grow for their own usage and possess limited amount of medical cannabis since November 1999, but the law lacked any distribution mechanism. On November 3, 2009, Maine voters approved Question 5, which established dispensaries and caregivers are able to grow and dispense medical grade cannabis up to 2.5 oz. every two weeks to persons with one of 17 debilitating and chronic medical conditions including HIV/AIDS, Crohn’s disease, cancer and post-traumatic stress disorder. The registered dispensaries and caregivers were regulated by the Maine Department of Health and Human Services (“MDHHS”), but oversight was recently shifted to the Maine Department of Administrative and Financial Services (“MDAFS”).

In November 2016, Maine approved cannabis legalization at the ballot. On January 27, 2017, the legislature approved a moratorium on implementing parts of the law regarding retail sales and taxation until at least February 2018, giving time to resolve issues and promulgate rules. The portion of the law that allows persons over 21 years to grow six mature plants and possess, transport and gift up to 2.5 ounces became effective on January 30, 2017 (although this was limited to three mature plants in the 2018 legislation). A 17-member special legislative committee was formed to address the complex issues surrounding full implementation of the law. In April 2018, the Governor of Maine vetoed the bill to legalize cannabis for adult use. However, in May 2018 Maine lawmakers overrode the Governor’s veto clearing the way for adult use. As of August 2018, Maine is developing rules for adult use cannabis and have not yet allowed the commercial sale of adult use cannabis through retail outlets or delivery. Furthermore, a mandatory “opt-in” mechanism allows municipalities to control whether they want retail cannabis establishments in their communities. Social clubs are not allowed.

 

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Registration Certificates

The Maine Medical Use of Marijuana Program Rules and the enabling statute, Maine Medical Use of Marijuana Act, govern the Maine Medical Use of Marijuana Program (“MMUMP”). The MDHHS was originally responsible for administering the MMUMP to ensure qualifying patients’ access to safe cannabis for medical use and was responsible for issuing dispensary registration certificates as well as caregivers certificates. The MMUMP through the MDHHS issued eight dispensary registration certificates. However, the MMUMP was transferred to the MDAFS in May 2018, as part of LD 1719, which implemented the adult use program.

WCM holds four of the eight vertically integrated dispensary certificates of registration. As of December 31, 2017, approximately 41,858 patients were registered and have medical certifications allowing them to purchase cannabis products from a registered dispensary or caregiver.

The table below lists the certificates issued to WCM:

Subsidiary Certificate of Registration City Expiration Date Description
WCM Yes Portland 4/11/2019 Dispensary
WCM Yes Gardiner 12/28/2018 Dispensary
WCM Yes Brewer 6/15/2019 Dispensary
WCM Yes Bath 9/16/2019 Dispensary
WCM Yes Auburn 6/15/2019 Grow/Process

The Maine vertically integrated dispensary certificate of registration is valid for one year from the date of issuance. Each certificate of registration for dispensaries allows cultivation, processing and dispensing. WCM cultivates and processes at one centralized location for its four dispensaries. The cultivation facility and retail site of a dispensary must comply with all requirements and prohibitions of the Maine statutes and regulations. Failure to comply may result in enforcement action including, but not limited to, termination of the registration certificate. The dispensary must receive both state licensing and municipal approval.

The dispensary must submit an application for the renewal of a current registration certificate with all required documentation and the required fees 60 days prior to the expiration date. Failure to submit a timely, complete renewal packet may be grounds for denial of the renewal and may result in expiration of the registration certificate to operate the dispensary. Once the application is received and validated, an inspection is scheduled which is conditional for the renewal. The certificate of registration holders must ensure that no cannabis may be sold, delivered, transported or distributed by a producer from or to a location outside of this state. In fact, until LD 1539, An Act to Amend Maine’s Medical Marijuana Law, becomes effective later this year or early next year, registered dispensaries and caregivers cannot contract for the sale, delivery, transportation, or distribution of any cannabis or cannabis products between caregivers and dispensaries, except under very limited circumstances.

Record-keeping/Reporting

Maine does not yet have a unified, mandatory T&T solution, although one will be implemented through the development of the adult use program. However, WCM tracks seed-to-sale via an integrated platform. Required information is forwarded to the MMUMP through email. The operating documents of a registered dispensary must include procedures to ensure accurate record keeping. Registered dispensaries must maintain at least the following: business records, including records of assets and liabilities, tax returns, contracts, monetary transactions, checks, invoices and vouchers which the dispensary keeps as its books of accounts. Business records also include the sales record that indicates the name of the qualifying patient or primary caregiver to whom cannabis has been distributed, sold or donated, including the quantity and form. The registered dispensary must also keep on file and available for MDHHS (now MDAFS) inspection upon request, a copy of each current patient’s registry identification, a copy of the medical provider written certification and the MMUMP approved dispensary designation form. All business records must be available upon request by the MDHHS (now MDAFS) and maintained and retained for six years.

 

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Cultivator Inventory/Storage

All cultivation facilities for medical use are restricted to cultivating in an enclosed, locked facility or area on property. Cannabis at a registered dispensary must be kept under double lock and inventoried daily by two cardholders. Each patient’s transactions are recorded and controlled in the POS system to prevent any patient to access more than the allowed limit. WCM monitors inventory daily and reports inventory supply monthly.

Security

Cultivation of cannabis for medical use requires implementation of appropriate security measures to discourage theft of cannabis, ensure safety and prevent unauthorized entrance to a cultivation site in accordance with the MMUMP statute and rules. Requirements include but are not limited to an enclosed, locked facilities and enclosed outdoor areas must have durable locks to discourage theft and unauthorized entrance.

Registered dispensaries must implement appropriate security measures to deter and prevent unauthorized entrance into areas containing cannabis and the theft of cannabis at the registered dispensary and the grow location for the cultivation of cannabis. Security measures to protect the premises, the public, qualifying patients, primary caregivers and principal officers, board members and employees of the registered dispensary must include, but are not limited to (a) on-site parking, (b) exterior lighting sufficient to deter nuisance activity and facilitate surveillance, (c) devices or a series of devices, including, but not limited to, a signal system interconnected with a radio frequency method such as cellular, private radio signals, or other mechanical or electronic device to detect an unauthorized intrusion, and (d) interior electronic monitoring, video cameras, and panic buttons. Electronic monitoring and video camera recordings must be maintained by the dispensary and cultivation facility a minimum of 14 days.

Maryland

Legislative history

In May 2013, the then Governor of Maryland signed House Bill 1101, Chapter 403 which established the Natalie M. LaPrade Maryland Medical Cannabis Commission (“MMCC”). The MMCC is an independent commission that functions within the Department of Health and Mental Hygiene. The MMCC was created for investigational use of medical cannabis. MMCC develops policies, procedures, and regulations to implement programs that ensure medical cannabis is available to qualifying patients in a safe and effective manner.

On December 1, 2017, after close to a five-year delay, the Maryland Medical Marijuana program (“MMMP”) became operational and sales commenced. The program was written to allow access to medical cannabis for patients with conditions that are considered severe and for which other medical treatments have proven ineffective, including chronic pain, nausea, seizures, glaucoma and post-traumatic stress disorder. As of June 28, 2018, approximately 32,000 certified patients are registered and hold medical licenses allowing them to purchase cannabis and cannabis products from a dispensary. There are also approximately 13,000 patients awaiting medical licenses to be processed.

Licenses

The MMCC oversees all licensing, registration, inspection, and testing measures pertaining to the MMMP and provides relevant program information to patients, providers, caregivers, growers, processors, dispensaries and testing laboratories. A dispensary is licensed under Subtitle 33 Section § 13-3307 and a dispensary agent registered under § 13-3308.

 

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The MMCC have issued a limited number of dispensary, producer/growers and processing licenses. There are currently 65 state licensed dispensaries, 14 growers and 14 processors throughout Maryland.

The table below lists the license issued to Acreage Holdings’ Subsidiary, Maryland Medical Research & Caring, LLC:

Holding Entity License Number City Expiration Date Description
Maryland Medical Research & Caring, LLC D-18-00043 Windsor 7/26/2024 Dispensary

After the first expiration of the approved license, the dispensary, grower and processing licensee is required to renew every two years. Licensees are required to submit a renewal application per the guidelines published by the MMCC. 90 days prior to the expiration of a license, the MMCC notifies the licensee of the date on which the license expires, provides the instructions and fee required to renew the license and the consequences of failure to renew. At least 30 business days before a license expires, the licensee must submit the renewal application as provided by the MMCC. The license holders must ensure that no cannabis may be sold, delivered, transported or distributed by a producer from or to a location outside of this state.

Record-keeping/Reporting

Maryland uses METRC as the T&T system to track commercial cannabis activity. The Maryland Medical Research & Caring, LLC also uses METRC to push the data to the State to meet all reporting requirements. All cannabis products dispensed are documented at point of sale via the T&T system. Each dispensary must submit to the MMCC a quarterly report which includes (a) number of patients served, (b) county of residence of each patient served, (c) medical condition for which medical cannabis was recommended, (d) type and amount of medical cannabis dispensed, and (e) if available, a summary of clinical outcomes, including adverse events and any cases of suspected diversion.

A dispensary licensee shall maintain a secure, tamper-evident record of each purchase by a patient that contains the name and address of the patient, the quantity and name of the product purchased by the patient and specific identification number of the product. A dispensary licensee shall maintain a duplicate set of all records at a secure, off-site location. Unless otherwise specified, a licensee shall retain a record for a period of five years.

Inventory/Storage

The licensee must establish standard operating procedures for all aspects of the receipt, storage, packaging, labeling, handling, tracking and dispensing of products containing medical cannabis and waste. Upon receipt of a cannabis product, each product must be promptly cataloged into the T&T system. The licensee trains each registered dispensary agent on the standard operating procedure.

All medical cannabis inventory must be stored in a secure room which, among other requirements, is constructed of concrete or similar building material resilient enough to prevent and deter unauthorized entry.

Security

The licensee shall maintain a security alarm system that covers all perimeter entry points, windows and portals at the premises. Facilities must maintain a motion-activated video surveillance recording system at the premises that records all activity in images of high quality and high resolution and clearly reveals facial detail. The system must be able to operate 24 hours a day, seven days a week without interruption. Recordings are kept in a secure area with minimal access in an off-site location. The surveillance videos will be retained for a minimum of 30 calendar days.

 

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Massachusetts

Legislative history

The Massachusetts Medical Use of Marijuana Program (the “MA Program”) was pursuant to the Act for the Humanitarian Medical Use of Marijuana (the “MA ACT”). The MA Program allows registered persons to purchase medical cannabis and applies to any patient, personal caregiver, Registered Marijuana Dispensary (each, a “RMD”), and RMD agent that qualifies and registers under the MA Program. To qualify, patients must suffer from a debilitating condition as defined by the MA Program. Currently there are eight conditions that allow a patient to acquire cannabis in Massachusetts, including AIDS/HIV, ALS, cancer and Crohn’s disease. As of August 31, 2018, approximately 54,100 patients have been registered to purchase medical cannabis products in Massachusetts. The MA Program is administrated by the Department of Public Health, Bureau of Health Care Safety and Quality.

In November 2016, Massachusetts voted affirmatively on a ballot petition to legalize and regulate cannabis for adult recreational use. The Massachusetts legislature amended the law on December 28, 2016, delaying the date recreational cannabis sales would begin by six months. The delay allowed the legislature to clarify how municipal land-use regulations would treat the cultivation of cannabis and authorized a study of related issues. After further debate, the state House of Representatives and state Senate approved H.3818 which became Chapter 55 of the Acts of 2017, An Act to Ensure Safe Access to Marijuana, and established the Cannabis Control Commission (the “MA CCC”). The MA CCC consists of five commissioners and regulates the Massachusetts Recreational Marijuana Program. Adult use of cannabis in Massachusetts started in July 2018.

Licenses

Under the MA Program, RMD’s are heavily regulated. Vertically integrated RMDs grow, process, and dispense their own cannabis. As such, each RMD is required to have a retail facility as well as cultivation and processing operations, although retail operations may be separate from grow and cultivation operations. A RMD’s cultivation location may be in a different municipality or county than its retail facility. RMD’s are required to be Massachusetts non-profit corporations.

The MA Program mandates a comprehensive application process for RMDs. Each RMD applicant must submit a Certificate of Good Standing, comprehensive financial statements, a character competency assessment, and employment and education histories of the senior partners and individuals responsible for the day-to-day security and operation of the RMD. Municipalities may individually determine what local permits or licenses are required if an RMD wishes to establish an operation within its boundaries.

The table below lists the licenses issued to the Subsidiaries:

Subsidiary License Number City Expiration Date Description
Health Circle Preliminary Rockland Not applicable Cultivation/Processing/Dispensary
MMSP Preliminary Nantucket Not applicable Cultivation/Processing/Dispensary
PWC No. 043 Sterling 8/9/2019 Cultivation/Processing
PWC No. 043 Worcester 8/9/2019 Dispensary
PWC Preliminary Leominster Not applicable Dispensary
PWC Preliminary Shrewsbury Not applicable Dispensary

Each Massachusetts dispensary, grower and processor license is valid for one year and must be renewed no later than 60 calendar days prior to expiration . As in other states where cannabis is legal, the MA CCC can deny or revoke licenses and renewals for multiple reasons, including (a) submission of materially inaccurate, incomplete, or fraudulent information, (b) failure to comply with any applicable law or regulation, including laws relating to taxes, child support, workers compensation and insurance coverage, (c) failure to submit or implement a plan of correction (d) attempting to assign registration to another entity, (e) insufficient financial resources , (f) committing, permitting, aiding, or abetting of any illegal practices in the operation of the RMD, (g) failure to cooperate or give information to relevant law enforcement related to any matter arising out of conduct at an RMD, and (h) lack of responsible RMD operations, as evidenced by negligence, disorderly or unsanitary facilities or permitting a person to use a registration card belonging to another person. Additionally, license holders must ensure that no cannabis is sold, delivered, or distributed by a producer from or to a location outside of this state.

 

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Record-keeping/Reporting

Massachusetts uses METRC as the T&T system. Individual licensees, whether directly or through a third-party application programming interface (an “API”), are required to push data to the state to meet all reporting requirements. Each of Health Circle, MMSP and PWC use METRC to capture and send all required data points for cultivation, manufacturing, and retail as required by applicable law.

The MA Program requires that RMD records be readily available for inspection by the Department of Health upon request. Among the records that are required to be maintained and made available are: (a) operating procedures, (b) inventory records , and (c) seed-to-sale tracking records for all cannabis and cannabis infused products.

Inventory/Storage

Through the T&T system, RMDs are required to record all actions related to each individual cannabis plant. This robust inventorying requirement includes tracking how each plant is handled and processed from seed and cultivation, through growth, harvest and preparation of cannabis infused products, if any, to final sale of finished products. This system must chronicle every step, ingredient, activity, transaction, and dispensary agent, registered qualifying patient, or personal caregiver who handles, obtains, or possesses the product. To meet this tracking requirement, the inventory tracking process is mandated to utilize unique plant and batch identification numbers. Besides capturing all processes associated with each cannabis plant, RMDs must also establish and abide by inventory controls and procedures for conducting inventory reviews and comprehensive inventories of cultivating, finished, and stored cannabis products. To ensure inventories are accurate, RMDs are not only required to conduct monthly inventories but also to compare monthly inventories to the T&T system records.

The MA Program requires all cannabis and cannabis infused products be securely stored. RMDs must ensure that all safes, vaults, and other equipment or areas used for the production, cultivation, harvesting, processing, or storage of cannabis and cannabis infused products are securely locked and protected against unauthorized entry. The MA Program also specifies that limited access areas, accessible only to authorized personnel, must be established in each dispensary. Furthermore, only the minimum number of employees essential to business operations may be given access to the limited access areas.

Security

Adequate security systems that prevent and detect diversion, theft, or loss of cannabis are required of each RMD under the MA Program. Such security systems must utilize commercial grade equipment and are required to include (a) a perimeter alarm on all entry and exit points and perimeter windows, (b) a failure notification system that provides an audible, text, or visual notification of any failure in the surveillance system, and (c) a duress alarm, panic alarm, or holdup alarm connected to local public safety or law enforcement authorities.

To ensure RMDs meet the rigorous security standards laid out by the MA Program, use of surveillance cameras is mandated. RMDs must install video cameras in the following areas: (a) all areas that may contain cannabis, (b) all points of entry and exit, and (c) in any parking lot. Video cameras must be appropriate for the lighting conditions of the area under surveillance. Interior video cameras must be directed at all safes, vaults, sales areas, and areas where cannabis is cultivated, harvested, processed, prepared, stored, handled, or dispensed. Video surveillance is required to be operational 24 hours a day, seven days a week and all recordings must be retained for at least 90 calendar days.

 

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Transportation

The MA Program regulates the means and methods by which cannabis is transported. A RMD transporting cannabis must ensure the product is in a secure, locked storage compartment. If a cannabis establishment, pursuant to a cannabis transporter license is transporting cannabis products for more than one cannabis establishment at a time, the cannabis products for each cannabis establishment must be kept in separate locked storage compartments during transportation and separate manifests are required for each cannabis establishment. Vehicles transporting cannabis must be equipped with an approved alarm system and functioning heating and air conditioning systems appropriate for maintaining correct temperatures for storage of cannabis products. Additionally, cannabis products may not be visible from outside the vehicle and RMDs must ensure that all transportation times and routes are randomized. Cannabis and cannabis infused products may not be transported outside Massachusetts.

Michigan

In 2008, the Michigan Compassionate Care Initiative established a medical cannabis program for serious and terminally ill patients, was approved by the House but not acted upon, and defaulted to a public initiative on the November ballot. Proposal 1 was approved by 63% of voters on November 8, 2008. Proposal 1 was then written into law and approved by Michigan’s lawmakers in December 2008. The resulting Act, became the Michigan Medical Marihuana Act (“MMMA”).

 In 2016, the Michigan legislature passed two new acts and also amended the original MMMA. The first act establishes a licensing and regulation framework for medical marihuana growers, processors, secure transporters, provisioning centers, and safety compliance facilities. The second act establishes a “seed-to-sale” system to track marihuana that is grown, processed, transferred, stored, or disposed of under the Medical Marihuana Facilities Licensing Act.

 The Bureau of Medical Marihuana Regulation is responsible for the oversight of medical cannabis in Michigan and consists of the Medical Marihuana Facility Licensing Division and the Michigan Medical Marihuana Program Division. The MMMA provides access to state residents to cannabis and cannabis related products under one of 11 debilitating conditions, including epilepsy, cancer, HIV/AIDS, cancer and PTSD. In July 2018 the Medical Marihuana Facility Licensing Division approved 11 additional conditions to the list of aliments to qualify for medical cannabis. The additional 11 include Chronic pain, colitis and spinal cord injury.

Please see Section 3.1 of this Listing Statement for a summary of Acreage Holdings’ current operations in Michigan.

 

New Hampshire

Legislative history

New Hampshire’s Therapeutic Cannabis Program (the “NH Program”) was enacted on July 23, 2013, when the New Hampshire governor signed bill House Bill 573 into law allowing New Hampshire residents with qualifying medical conditions to use cannabis for medical purposes. Among the 18 qualifying medical conditions included in HB 573 are cancer, HIV/AIDS, ALS and Crohn’s disease. The New Hampshire legislature placed the responsibility for administering the NH Program within the New Hampshire Department of Health and Human Services (the “NHDH”). The first New Hampshire dispensary began serving patients on April 30, 2016. On June 28, 2017, the New Hampshire governor signed HB 160 which added post-traumatic stress disorder and other medical conditions to the law. On July 18, 2017, the governor of New Hampshire signed into law HB 640, a cannabis decriminalization bill. Under HB 640, effective September 16, 2017, penalties for non-registered and non-medicinal possession of three-quarters of an ounce or less of cannabis were reduced from a criminal misdemeanor to a civil violation punishable only by a fine.

Licenses

The NHDH oversees the issuance of licenses and the rules and regulations for cannabis businesses, known as Alternative Treatment Centers (each, an “ATC”). ATCs are not-for-profit entities registered under the New Hampshire Revised Statutes Annotated Section 126-X:7. ATCs are business entities that acquire, possess, cultivate, manufacture, deliver, transfer, transport, sell, supply, and dispense cannabis and related materials to qualified patients and other ATCs. ATCs are issued a notice of registration approval only after the NHDH has inspected and determined that the ATC is in full compliance with all regulatory and statute requirements. NHDH has issued licenses to four qualifying ATCs and in March 2018 lawmakers passed legislation calling for two additional dispensaries.

 

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As of December 31, 2017, approximately 3,500 patients were registered and licensed under the NH Program.

The table below lists the license issued to PATC:

Subsidiary License Number City Expiration Date Description
PATC ATC-001 Merrimack See Note Below Grow/ Manufacturing and Dispensary

On August 9, 2016, the New Hampshire Department of Health and Human Services issued a license in the form of a Registration Certificate, permitting PATC to operate. In the second quarter of 2018, PATC received a notice from the State of New Hampshire indicating that it needed to implement certain remedial measures before the state agreed to renew its license. PATC has submitted a remediation plan to the New Hampshire Office of Legal and Regulatory Services. PATC is currently implementing those matters and expects to resolve them promptly. Under New Hampshire law, a license does not expire if the licensee submits a timely and sufficient renewal application and the agency has yet to take final action on that renewal application. PATC submitted a timely and complete renewal application, and so its registration certificate is active, current and in good standing pending the resolution of the remediation plan, and has received correspondence from the state affirming this status.

ATC grower, processing, and dispensary licenses are valid for one year and expire on June 30th of the following year. License holders are required to submit a renewal application at least 120 days prior to the expiration of the current registration and include updates to the ATC’s original application as appropriate. Additionally, ATCs must ensure that no cannabis is transported outside of the state.

Record-keeping/Reporting

New Hampshire selected BioTrack THC as the T&T system for commercial cannabis activity. PATC currently uses a third-party platform that pushes the data to New Hampshire’s T&T solution to meet all reporting requirements.

Each ATC is required to maintain records in accordance with the records retention schedule established by the NHDH. As part of the records retention schedule, ATCs must keep a record of each transaction including the amount of cannabis dispensed, the amount paid, and the registry identification number of the qualifying patient, designated caregiver, or ATC and the qualifying patient’s provider. ATC’s are required to submit annual reports to the state that include (a) a description of efforts to educate qualifying patients and designated caregivers, (b) the annual financial report of the ATC including expenditures, liabilities, monetary reserves, and revenues received for sales of cannabis by strain and by type, (c) the total number of qualifying patients and designated caregivers served, and (d) reports on security issues including an aggregate account of all reportable incidents. Additionally, ATCs must maintain current and accurate records for each qualifying patient and designated caregiver registered with the ATC. The NH Program mandates all records be kept for a minimum of four years.

Inventory/Storage

Comprehensive inventory procedures and controls are required to be established and followed under the NH Program. Regular inventory counts and reviews designed to enable timely detection of any diversion, theft, or loss are specifically required by the NH Program. As part of the comprehensive inventory plan, ATCs must reconcile daily all on-premises and in-transit cannabis and be able to present such inventory records for review upon request of the state. In addition to daily inventories, monthly inventories are also mandated and must record all cannabis available for dispensing, mature cannabis plants, and seedlings at each authorized location.

Comprehensive storage guidelines are detailed under the NH Program. All cannabis and cannabis infused products, whether in the process of cultivation, processing, transport, testing, or available for sale, must be securely stored to prevent diversion, theft or loss. Additionally, cannabis must only be accessible by ATC agents who are specifically authorized to handle cannabis and to whom access is essential for efficient ATC operation. At the end of each business day, any cannabis or cannabis infused products must be returned to a secure storage location. Similarly, after cultivation and/or processing, all cannabis must be securely stored.

 

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Security

Protecting dispensary facility patients, employees, and safeguarding cannabis against theft are all goals of the NH Program. ATCs are required to have security systems designed to prevent and detect diversion, theft, or loss of cannabis as well as unauthorized intrusion. Such security systems must include: (a) a perimeter alarm at all entry points and perimeter windows, and (b) a duress, panic, and holdup alarm connected to local public safety or law enforcement authorities or to an alarm monitoring company. Additionally, two agents must be present at the premises during all hours of operations.

Like dispensary facilities, security of cultivation facilities is also highly regulated under the NH Program. All phases of cannabis cultivation are required to take place in specially designated, secure, limited access areas that are monitored by surveillance camera systems. Surveillance cameras must cover all points of facility entry and exit, the parking lot, the entrance to the video surveillance room, and any areas that may contain cannabis. Surveillance video must be active 24 hours a day, seven days a week. The NH Program mandates that all security equipment be maintained in good working order and shall be inspected and tested at regular intervals of at no more than 30 calendar days.

New Jersey

Legislative history

On January 18, 2010, the governor of New Jersey signed into law S.119, the Compassionate Use Medical Marijuana Act (the “NJ Act”), permitting the use of medical cannabis for persons with debilitating conditions including cancer, HIV/AIDS, ALS, Crohn’s disease and any terminal illness. The law permits the New Jersey Department of Health (“NJDH”) to create rules to add other illnesses to the permitted conditions. The NJ Law does not permit patients to grow their own cannabis but rather mandates that cannabis must be acquired through ATCs licensed by the State.

Caregivers for patients are permitted to collect cannabis on behalf of the patient. Under the NJ Act, six ATCs received licenses from the State. The ATCs are nonprofit entities and have the exclusive right to produce and sell medical cannabis in New Jersey.

On March 27, 2018 through executive order No. 6 (2018), Governor Phil Murphy expanded the medical cannabis program, announcing the 20-plus recommendations presented by the NJDH on March 23, 2018. The NJDH’s recommendations and next steps included certain measures that took effect immediately (e.g. the addition of debilitating conditions and the reduction of registration fees) and other recommendations (e.g. the home delivery model) that require further regulatory or statutory enactment.

Licenses

The NJDH is responsible for administering the NJ Act to ensure qualifying patients’ access to safe cannabis for medical use in New Jersey. The NJDH is responsible for issuing permits to entities who will operate an ATC. New Jersey is a vertical state where the dispensary needs to be in the same location as the growing and processing facilities. One of the recommendations in executive order No. 6 is to allow existing license holders to have up to two additional dispensaries not attached to the growing facility. The NJDH has issued six licenses and are now accepting applications for up to six additional permits.

ATC permits expire annually on December 31. A permit renewal application must be submitted at least 60 days prior to the expiration date. An ATC that seeks to renew its permit shall submit to the permitting authority an application for renewal with all required documentation and the required fees. An ATC shall update and ensure the correctness of all information submitted in previous applications for a permit or otherwise on file with the NJDH. Prior to the issuance of any permit , every principal officer, owner, director and board member of an ATC must certify stating that he or she submits to the jurisdiction of the courts of the State of New Jersey and agrees to comply with all the requirements of the laws of New Jersey pertaining to New Jersey’s Medicinal Marijuana Program. Failure to provide correct and current up-to-date information is grounds for denial of the application for renewal of the permit.

 

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As of December 31, 2017, approximately 26,806 patients were registered and have medical licenses allowing them to purchase cannabis products from an ATC.

On May 9, 2018, Acreage Holdings entered in the CCF Revolving Note with CCF which shall automatically convert into an equity stake in a newly-formed entity of Acreage Holdings upon enactment of legislative reform to permit the cultivation and sale of cannabis for recreational purposes or to allow a for-profit entity to dispense medical cannabis.

The table below lists the permit issued to CCF:

Subsidiary Permit Number City Expiration Date Description
CCF 10042013 Egg Harbor in Atlantic county 12/31/2018 Cultivate and Dispense

Record-keeping/Reporting

New Jersey does not have a unified T&T solution. All information is forwarded to the MMMP through email. The ATC collects and submits to the NJDH for each calendar year statistical data on (a) the number of registered qualified patients and registered primary caregivers, (b) the debilitating medical conditions of the qualified patients, (c) patient demographic data, (d) summary of the patient surveys and evaluation of services and (e) other information as the NJDH may require. The ATC must retain records for at least two years.

Inventory/Storage

The ATC will establish inventory controls and procedures for the conduct of inventory reviews and comprehensive inventories of cultivating, stored, usable and unusable cannabis. The ATC will conduct a monthly inventory of cultivating, stored, usable and unusable cannabis. Though a unified T&T system is not currently in place, an ATC is required to have a T&T for tracking inventory and dispensing cannabis products to patients. CCF uses MJ Freeway as its T&T system. An ATC is authorized to possess two ounces of usable cannabis per registered qualifying patient plus an additional supply, not to exceed the amount needed to enable the alternative treatment center to meet the demand of newly registered qualifying patients.

Per regulatory requirements an ATC, at a minimum, must (a) establish inventory controls and procedures for the conduct of inventory reviews and comprehensive inventories of cultivating, stored, usable and unusable cannabis, (b) conduct a monthly inventory of cultivating, stored, usable and unusable cannabis, (c) perform a comprehensive inventory inspection at least once every year from the date of the previous comprehensive inventory, and (d) promptly transcribe inventories taken by use of an oral recording device. If cannabis is disposed of, the ATC must maintain a written record of the date, the quantity disposed of, the manner of disposal and the persons present during the disposal, with their signatures. ATCs must keep disposal records for at least two years. Results of the inventory inspection should document the date of the inventory review, a summary of the inventory findings and the name, signature and title of the individuals who conducted the inventory inspection.

An ATC shall limit access to medicinal cannabis storage areas to the absolute minimum number of specifically authorized employees. In the event non-employee maintenance personnel, business guests or visitors to be present in or pass through medicinal cannabis storage areas, the ATC must have a dedicated person who is specifically authorized by policy or job description to supervise the activity. The ATC must ensure that the storage of usable cannabis prepared for dispensing to patients is in a locked area with adequate security.

 

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Security

An ATC is required to implement effective controls and procedures to guard against theft and diversion of cannabis including systems to protect against electronic records tampering. At a minimum, every ATC must (a) install, maintain in good working order and operate a safety and security alarm system that provides suitable protection 24 hours a day, seven days a week against theft and diversion, (b) immediately notifies the state or local police agencies of an unauthorized breach of security. An ATC must conduct maintenance inspections and tests of the security alarm system at intervals not to exceed 30 days from the previous inspection.

A video surveillance system must be installed and operated to clearly monitor all critical control activities of the ATC and must operate in good working order at all times. The ATC must provide two monitors for remote viewing via telephone lines to the NJDH offices. This security system must be approved by State of New Jersey’s Medicinal Marijuana Program prior to permit issuance. The original tapes or digital pictures produced by the system must be stored in a safe place for a minimum of 30 days.

New York

Legislative history

In July 2014, the New York Legislature and Governor enacted the Compassionate Care Act (the “CCA”) to provide a comprehensive, safe and effective medical cannabis program. The CCA bill which is part of the Title V-A in Article 33, Title 10, Chapter 13 of the Public Health Law is scheduled to sunset in seven (7) years, in 2021. The CCA provides access to the program to those who suffer from one of 12 qualifying serious conditions including, debilitating or life-threatening conditions including cancer, HIV/AIDS, ALS and chronic pain. Patients must also have one of the following associated or complicating conditions: cachexia or wasting syndrome, severe or chronic pain, severe nausea, seizures, or severe or persistent muscle spasms. In June 2018, the CCA provided medical cannabis access to individuals who have opioid addictions.

Pursuant to the CCA, only a limited number of product offerings are allowed including metered liquid or oil preparations, solid and semi-solid preparations (e.g. capsules, chewable and effervescent tablets), metered ground plant preparations, and topical forms and transdermal patches. Medical cannabis may not be incorporated into the food products unless approved by the Commissioner of Health and smoking of cannabis flower is prohibited.

Licenses

The New York Department of Health (“NYDOH”) has issued licenses to ten registered organizations which hold vertically integrated licenses. Each registered organization has one cultivation/processing license and four dispensary licenses.

As of June 18, 2018, there are 59,327 certified patients allowing them to purchase cannabis products from a dispensary. The table below lists the licenses approved to be issued to NYCANNA, including one growing/manufacturing license and four dispensary licenses. As of July 10, 2018, NYCANNA’s four dispensaries were not operational. The NYDOH has issued a formal license to NYCANNA to grow and manufacture, and will issue the four licenses to dispense upon completion of an inspection of the dispensaries, which is expected to occur in 2019.

Subsidiary License number City Expiration Date Description
NYCANNA MM0601M Dewitt 7/31/2019 Growing / Manufacturing
NYCANNA MM0602D Jamaica 7/31/2019 Dispensary Facility
NYCANNA MM0603D Farmingdale 7/31/2019 Dispensary Facility
NYCANNA MM0604D Buffalo 7/31/2019 Dispensary Facility
NYCANNA MM0605D Wallkill 7/31/2019 Dispensary Facility

 

 

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The New York dispensary, growing and processing licenses are valid for two years from the date of issuance and the license holders are required to submit a renewal application not be more than six months nor less than four months prior to expiration. License holders must ensure that no cannabis is sold, delivered, transported or distributed by a producer from or to a location outside of New York.

Record-keeping/Reporting

The NYDOH uses the BioTrack THC T&T system used to track commercial cannabis activity. NYCANNA also uses BioTrack THC to push the data to the NYDOH to meet all reporting requirements. Each month, each registered organization is required to file reports with the NYDOH which provides information showing all products dispensed during the month. All other data shall be pulled from the T&T system. The data must include (a) documentation, including lot numbers where applicable, of all materials used in the manufacturing of the approved medical cannabis product to allow tracking of the materials including but not limited to soil, soil amendment, nutrients, hydroponic materials, fertilizers, growth promoters, pesticides, fungicides, and herbicides, (b) cultivation, manufacturing, packaging and labeling production records, and (c) laboratory testing results. The records are required to be maintained for a period of five years.

Inventory/Storage

A record of all approved medical cannabis products that have been dispensed must be filed with the NYDOH electronically through BioTrack THC no later than 24 hours after the cannabis was dispensed to the certified patient or designated caregiver. The information filed must include (a) a serial number for each approved medical cannabis product dispensed to the certified patient or designated caregiver, (b) an identification number for the registered organization’s dispensing facility, (c) the patient’s name, date of birth and gender, (d) the patient’s address, including street, city, state and zip code, and (e) the patient’s registry identification card number.

All cannabis that is not part of a finished product must be stored in a secure area or location within the registered organization accessible only to a minimum number of employees essential for efficient operation and in such a manner as approved by the NYDOH in advance, to prevent diversion, theft or loss and against physical, chemical and microbial contamination and deterioration. Cannabis must be returned to its secure location immediately after completion of manufacture, distribution, transfer or analysis.

Security

All facilities operated by a registered organization, including any manufacturing facility and dispensing facility, must have a security system to prevent and detect diversion, theft or loss of cannabis and/or medical cannabis products, utilizing commercial grade equipment which include (a) a perimeter alarm, (b) a duress alarm, (c) a panic alarm, and (d) a holdup alarm.

The manufacturing and dispensing facilities must direct cameras at all approved safes, approved vaults, dispensing areas, cannabis sales areas and any other area where cannabis is manufactured, stored, handled, dispensed or disposed of. The manufacturing and dispensing facilities must angle the cameras to allow for the capture of clear and certain identification of any person entering or exiting the facilities. The surveillance cameras must record 24 hours, seven days a week. Recordings from all video cameras must be readily available for immediate viewing by a state authorized representative upon request and must be retained for at least 90 days. A registered organization must test the security and surveillance equipment no less than semi-annually at each manufacturing and dispensing facility that is operated under the registered organization’s registration. Records of security tests must be maintained for five years.

Transportation

Cannabis products must be transported in a locked storage compartment that is part of the vehicle transporting the cannabis and in a storage compartment that is not visible from outside the vehicle. An employee of a registered organization, when transporting approved medical cannabis products must (a) travel directly to his or her destination(s) and may not make any unnecessary stops in between, (b) ensure that all approved medical cannabis product delivery times are randomized, (c) appoint each vehicle with a minimum of two employees where at least one transport team member remains with the vehicle at all times, (d) possess a copy of the shipping manifest at all times when transporting or delivering approved medical cannabis products, and (e) keep the manifest in a safe compartment for a minimum of five years.

 

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North Dakota

In 2016, North Dakota voters approved Measure 5, otherwise known as the Compassionate Care Act, establishing a medical cannabis program for North Dakota. In 2017, both houses of the state legislature passed changes to Measure 5, including removal of a provision allowing medical users to grow their own cannabis. The changes also required that a medical professional specifically recommend smoking as a method of using cannabis for their patients. Effective April 18, 2017, the North Dakota Department of Health (NDDH) established and implemented a medical cannabis program to allow the production, processing, sale, dispensing, and medical use of cannabis by qualifying patients and caregivers. Measure 5 provides access to state residents to the program under one of the 14 debilitating conditions, including epilepsy, chronic pain, HIV/AIDS, cancer and PTSD.

Licenses

North Dakota’s Department of Health oversees the North Dakota Medical Marijuana Program and is authorized to issue dispensary and manufacturing licenses. The NDDH has selected two companies to each operate a dispensary and two companies to each operate a manufacturing facility. Acreage ND, one of the two awarded a dispensary license, will operate in Fargo, North Dakota. To receive a final license from the NDDH, Acreage ND must obtain a certificate of occupancy on its dispensary location. Acreage ND is expected to obtain its certificate of occupancy in Q1 2019.

The NDDH accepted dispensary applications for locations in Grand Forks and Williston through October 10, 2018 and is expected to award licenses by the end of November 2018.

Dispensary licenses are renewed every two years after issuance pursuant to Sec. 19-24.1-16 of the North Dakota Medical Marijuana program. Renewal applications must be submitted 60 days prior to license expiration to avoid suspension of the certificate.

Record-keeping/Reporting

North Dakota has selected BioTrack THC for its unified T&T system by which all dispensary license holders must submit their data directly to the state. As outlined in North Dakota Century Code section 19-24.1-30, a dispensary shall keep detailed financial reports of proceeds and expenses. A dispensary shall also maintain all inventory, sales, and financial records in accordance with generally accepted accounting principles. The dispensary shall maintain all reports and records for a period of seven years.

 

Inventory

A dispensary must conduct an inventory of cannabis once a week for at least six months after beginning business and upon department approval, at least monthly thereafter. The inventory shall be counted by at least two individuals. One of the two individuals may not be involved in dispensing of usable cannabis, or the preparation of the dispensary’s financial records. Further, one of the two individuals must be a supervisor or manager. The inventory documentation will include the date of the inventory, detailed inventory results, and the name, signature, and title of the individuals who conducted the inventory.

 

Storage/Security

All licensees shall have a security system that remains operational at all times and that uses a professionally monitored security alarm system to prevent and detect diversion, theft, or loss of medical cannabis. The alarm system must include (a) facility entrances and exits, (b) rooms with exterior windows, (c) rooms with exterior walls and (c) storage rooms. The alarm system should include motion detectors, duress and panic alarms or a holdup alarm. The alarm system that is place must summon law enforcement. The licensee must test the security alarm system and all devices on a monthly basis and maintain a record of all tests.

 

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To prevent unauthorized access to cannabis and usable cannabis, the dispensary shall have video surveillance equipment to deter the unauthorized entrance into restricted access areas. Video cameras shall be placed at each point of egress, at the point of sale location and in the storage facility. Video surveillance recording shall operate 24 hours a day, seven days a week. Recording from all video cameras during hours of operation shall be made available for immediate viewing and shall be retained for at least ninety days. The licensee shall maintain all security system equipment and recordings in a secure location to prevent theft, loss, destruction, corruption, and alterations.

 

Ohio

Legislative History

Effective September 8, 2016, House Bill 523 legalized the use of medical cannabis for 26 debilitating conditions as prescribed by a licensed physician. On implementation, the Ohio Medical Marijuana Control Program (“OMMCP”) will allow people with certain medical conditions including Alzheimer’s disease, HIV/AIDS, ALS, cancer, and traumatic brain injury to legally purchase medical cannabis. Though Ohio was required to implement a fully operational OMMCP by September 8, 2018 with a controlled system for cultivation, laboratory-testing, physician/patient registration and dispensing, the timeline was delayed until November 2018. Regulatory oversight is shared between three offices; (a) the Ohio Department of Commerce with respect to overseeing cultivators, processors and testing laboratories; (b) the Ohio Board of Pharmacy with respect to overseeing retail dispensaries and the registration of patients and caregivers, and (c) the State Medical Board of Ohio with respect to certifying physicians to recommend medical cannabis. The OMMCP will permit limited product types including oils, tinctures, plant materials and edibles. Adult-use and the smoking of cannabis flower are prohibited.

Licenses

Prior to September 8, 2018, the Ohio Board of Pharmacy was permitted to issue up to 60 dispensary provisional licenses. After September 8, 2018, additional provisional licenses are permitted to be issued if the population, the number of patients seeking to use medical cannabis products and the availability of all forms of cannabis products support additional licenses. To be considered for approval of a provisional dispensary or a processing license, the applicant must complete all mandated requirements. To obtain a certificate of operation for a medical cannabis dispensary or processing facility, the prospective licensee must be capable of operating in accordance with Chapter 3796 of the Revised Code, the Medical Marijuana Control Program. Certificates of operation carry two year terms.

A certificate of operation will expire on the date identified on the certificate. A licensee will receive written or electronic notice 90 days before the expiration of its certificate of operation. The licensee must submit the renewal information at least 45 days prior to the date the existing certificate expires. The information required for the license renewal includes, but is not limited to, the following: (a) a roster that includes the dispensary’s employees’ names, (b) the history of compliance with regulations, and (c) the number and severity of any violations. If a licensee’s renewal application is not filed prior to the expiration date of the certificate of operation, the certificate of operation will be suspended for a maximum of 30 days. After 30 days, if the dispensary has not successfully renewed the certificate of operation, including the payment of all applicable fees, the certificate of operations will be deemed expired. The original implementation deadline of September 8, 2018 was missed by Ohio, as noted above. Acreage expects patients will begin to be able to purchase medicinal cannabis beginning in November 2018.

GLA has been issued five dispensary licenses and GTL has been issued one provisional processing license. The table below lists the locations of the provisional licenses.

 

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The table below lists the licenses issued to GLA and GTL:

Holding Entity Application Number City Expiration Date Description
GLA ID 504 Akron 12/7/2018 Dispensary Facility
GLA ID 606 Cleveland 12/7/2018 Dispensary Facility
GLA ID 697 Canton 12/7/2018 Dispensary Facility
GLA ID 872 Wickliffe 12/7/2018 Dispensary Facility
GLA ID 808 Columbus 12/7/2018 Dispensary Facility
GTL ID TBD Middlefield 2/3/2019 Processing

Record-keeping/Reporting

A holder of a processing license must maintain the following records: (a) samples sent for testing, (b) disposal of products, (c) tracking of inventory, (d) form and types of medical cannabis maintained at the processing facility on a daily basis, (e) production records, including extraction, refining, manufacturing, packaging and labeling, (f) financial records, and (g) purchase invoices, bills of lading, manifests, sales records, copies of bills of sale, and any supporting documents, including the items and/or services purchased, from whom the items were purchased, and the date of purchase.

A holder of a dispensary license must maintain the following records: (a) confidential storage and retrieval of patient information or other medical cannabis records, (b) records of all medical cannabis received, dispensed, sold, destroyed, or used, (c) dispensary operating procedures, (d) a third-party vendor list, (e) monetary transactions, and (f) journals and ledgers. All records relating to the purchase or return, dispensing, distribution, destruction, and sale of medical cannabis must be maintained under appropriate supervision and control to restrict unauthorized access on the licensed premises for a five-year period.

Inventory/Storage

Ohio has selected METRC as the T&T system. Individual licensees, whether directly or through third-party APIs, are required to push data to the state to meet all reporting requirements. A holder of a processing license must track and submit through the inventory tracking system any information the Ohio Department of Commerce determines necessary for maintaining and tracking medical cannabis extracts and products.

A holder of a processing license must conduct weekly inventory of medical cannabis which includes (a) the date of the inventory, (b) net weight of plant material and the net weight and volume of medical cannabis extract, (c) net weight and unit count of medical cannabis products prepared or packaged for sale to a dispensary, and (d) a summary of the inventory findings. On an annual basis and as a condition for renewal of a processing license, a holder of a processing license shall conduct a physical, manual inventory of plant material, medical cannabis extract, and medical cannabis products on hand at the processor and compare the findings to an annual inventory report generated using the inventory tracking system. A holder of a processing license must store plant material, medical cannabis extract, and medical cannabis product inventory on the premises in a designated, enclosed, locked area and accessible only by authorized individuals.

A holder of a dispensary license must use the METRC T&T system to push data to the Ohio Board of Pharmacy on a real-time basis. The following data must be transmitted: (a) each transaction and each day’s beginning inventory, acquisitions, sales, disposal and ending inventory, (b) acquisitions of medical cannabis from a licensed processor or cultivator holding a plant-only processor designation, (c) name and license number of the licensed dispensary employee receiving the medical cannabis and, (d) other information deemed appropriate by the Ohio State Board of Pharmacy. A dispensary’s designated representative shall conduct the inventory at least once a week. Records of each day’s beginning inventory, acquisitions, sales, disposal and ending inventory shall be kept for a period of three years.

 

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The dispensary licensee must restrict access areas and keep stock of medical cannabis in secured area enclosed by a physical barrier with suitable locks and an alarm system capable of detecting entry at a time when licensed dispensary employees are not present. Medical cannabis must be stored at appropriate temperatures and under appropriate conditions to help ensure that its identity, strength, quality and purity are not adversely affected.

Security

All licensees must have a security system that remains operational at all times and that uses commercial grade equipment to prevent and detect diversion, theft or loss of medical cannabis, including (a) a perimeter alarm, (b) motion detectors, and (c) duress and panic alarms. A dispensary must also employ a holdup alarm, which means a silent alarm signal generated by the manual activation of a device intended to signal a robbery in progress.

Video cameras at a dispensary must be positioned at each point of egress and each point of sale. The cameras must capture the sale, the individuals and the computer monitors used for the sale. Video surveillance recording must operate 24 hours a day, seven days a week. Recording from all video cameras during hours of operation must be made available for immediate viewing by the Ohio State Board of Pharmacy upon request and must be retained for at least six months.

Video cameras at a processing facility must be directed at all approved safes, approved vaults, cannabis sales areas, and any other area where plant material, medical cannabis extract, or medical cannabis products are being processed, stored or handled. Video surveillance must take place 24 hours a day, seven days a week. Recordings from all video cameras during hours of operation must be readily available for immediate viewing by the Ohio regulatory bodies upon request and must be retained for at least six months.

Oklahoma

Legislative History

 

In April 2015, the governor of Oklahoma signed House Bill 2154 into law allowing the sale of CBD oil with less than 0.3% THC. On June 26, 2018, Oklahoma voters approved State Question 788 (“SQ 788”), which legalized medical cannabis. Oklahoma established the Oklahoma Medical Marijuana Authority (“OMMA”) to oversee the state’s medical cannabis program. The OMMA is responsible for licensing, regulating, and administering the program as authorized by state law. Operating under the Oklahoma State Department of Health, the primary goal of the OMMA is to ensure safe and responsible practices for the people of Oklahoma. On August 6, 2018, the governor of Oklahoma signed the revised emergency rules for the medical cannabis program.

While most medical cannabis state laws include a list of qualifying conditions, Oklahoma does not. According to SQ 788, doctors shall recommend patient licenses using the same judgment they would for prescriptions. In other words, a doctor can write a recommendation for any condition they see fit for medicinal cannabis treatment.

Licensing

The OMMA manages all licensing and registration for medicinal cannabis patients and their caregivers as well as grower, processor and dispensary operators. Applicants must be resident of Oklahoma with at least 75% ownership held by an Oklahoma resident. All owners must present an Oklahoma Secretary of State Certificate of Good Standing and demonstrate exemplary background checks. Non-violent felony convictions in the previous two years or other felony conviction in previous five years are grounds for disqualification. Licenses are valid for one year from the date issued unless revoked by the OMMA. A license may be renewed prior to expiration. Upon receipt of a license, the grower, processor or dispensary must immediately register with the Oklahoma Bureau of Narcotic and Dangerous Drugs Control and prior to any medical cannabis or medical cannabis products are present at the business. As described in Section 3, Acreage Oklahoma Holdings, LLC has been approved for one grower license and one processor license; both facilities will be located in Pocasset, Oklahoma.

 

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Holding Entity License Number City Expiration Date Description
Acreage OK Holdings, LLC GAAA-N1LP-BYSH Pocasset 10/21/2019 Grower
Acreage OK Holdings, LLC PAAA-4KSX-AVD9 Pocasset 10/15/2019 Processor

 

Transportation

A cannabis transportation license is issued to qualifying applicants for a commercial license at the time of approval. The transportation license allows the holder to transport cannabis from an Oklahoma licensed dispensary, grower, processor to an Oklahoma licensed dispensary, grower processor or researcher. All medical cannabis must be transported in a locked container shielded from public view and clearly labeled as “Medical Marijuana or Derivative.”

Inventory

Oklahoma leverages BioTrack THC as the central Trace and Tracking (T&T) system to oversee inventory of licensed cannabis operations across the state. All cultivation and manufacturing facilities and retail dispensaries are required to utilize an inventory management system to record certain information depending on the license type. For a grower, such information includes the amount of cannabis harvested, sold to a process or dispensary, or dried and on hand. For a processor, details on the amount of cannabis purchased from a grower, or sold to a researcher and the amount of cannabis waste must be accounted for in inventory. The licensee must also document with detailed explanations any discrepancies for cannabis that cannot be account for or is considered overage.

The licensee is required to document the ‘chain of custody’ of all cannabis and cannabis-related products with frequent on-going inventory reviews in order to detect any diversion, theft or loss in a timely manner. The system must be able to accurately trace the timeline from the time a cannabis plant is propagated to the time it is sold to a patient or caregiver. Traceability is a requirement in the event of a serious adverse event or recall to correctly source the cannabis product.

Record-keeping/Reporting

The state requires all commercial licensees to submit monthly reporting to the Oklahoma Department of Health. Reports are considered untimely if not received by the state by the 15th of each month for activity from the preceding month. The report must include the amount purchased from a licensed process and/or grower, the amount sold to a licensee and the type of licensee, total sales to patients and caregivers as well as taxes collected from sales. If necessary, detailed explanations of inventory discrepancies must be included. Inaccurate reporting may result in fines and failure to report timely or to correct deficiencies within 30 days of department notification may lead to license revocation.

Oregon

Legislative History

Oregon has both a medical and adult-use cannabis program. The Oregon Medical Marijuana Act (“OMM”) was established by Oregon Ballot Measure 67 in 1998 to allow for the cultivation, possession and use of cannabis by patients upon doctor recommendation. The OMM removed criminal penalties for medical cannabis for patients with debilitating medical conditions whose doctor verified the condition and determined medical cannabis may alleviate the condition. Qualifying conditions include cancer, chronic pain, glaucoma and HIV/AIDS. The Oregon Medical Marijuana Program (“OMMP”) administers the program within the Oregon Department of Human Services. Patients obtain permits through the Oregon Department of Human Services.

In 2014, Measure 91 was approved which legalized non-medical cultivation and uses of cannabis effective July 1, 2015. Oregon Governor Kate Brown signed an emergency bill declaring cannabis sales legal to recreational users from commercial dispensaries effective October 1, 2015. Effective January 1, 2017, cannabis was permitted to be sold for recreational use only by businesses that obtained a recreational retailer license from the Oregon Liquor Control Commission (“OLCC”). Medical cannabis dispensaries that did not obtain a retailer license were no longer permitted to sell cannabis for recreational use after 2016. Holders of retailer licenses are permitted to sell cannabis for medical use to an OMMP patient 18 years of age or older whereas the minimum age to purchase cannabis for recreational use is 21.

 

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Licenses

Oregon does not limit the number of retailer, grower or processing licenses. However, due to the overwhelming amount of new applications, the OLCC suspended all new applications after June 15, 2018 for short period of time. The OLCC regulates all retailer, producer, processor and lab license holders who have been approved to hold recreational licenses and all producers and retailers if they sell both medical and recreational cannabis. The Oregon Health Administration regulates all growers and dispensaries who hold only medical licenses. To operate legally under state law, cannabis operators must obtain a state license and local approval. Applicants for each license class are subject to the respective requirements and criteria of the OLCC which include but are not limited to criminal background checks, zoning requirements, readiness inspection, and state registration.

As of August 2018, there are approximately 1,102 recreational producer licenses, 180 recreational processor licenses and 581 recreational retailer licenses issued by the OLCC.

The table below lists the licenses issued to the Subsidiaries:

Subsidiary License Number City Expiration Date Description
East 11th 050 1004151A29E Eugene 01/02/2019 Dispensary Facility
22nd and Burn 050 100400192AC Portland 12/30/2018 Dispensary Facility
Firestation 050 1003660E75D Portland 01/03/2019 Dispensary Facility
Acreage HoldingsOR 050 1004152E8C9 Springfield 01/09/2019 Dispensary Facility
Acreage HoldingsOR 050 10026747951 Portland 3/09/2019 Dispensary Facility
Acreage HoldingsOR Pending Medford Pending Grow Facility

The retailer, producer and processer licenses are valid for one year and the licensees are required to submit a renewal application at least 20 days before the date of expiration. The license holders must ensure that no cannabis is sold, delivered, transported or distributed by a producer from or to a location outside of Oregon.

Record-keeping/Reporting

Oregon uses the METRC T&T system and allows other third-party system integration via an API to track cannabis . The Subsidiaries in Oregon use a third-party T&T system to push the data to the state through an API to meet all reporting requirements. All cannabis products dispensed are documented at point of sale via the T&T system. License holders must maintain the documentation from the T&T system in a secure locked location at each dispensing or growing location for three years as required by the OLCC.

The OLCC requires all cannabis licensees to have and maintain records that clearly reflect all financial transactions and the financial condition of the business. The following records may be kept in either paper or electronic form and must be maintained for a three year period and be made available for inspection if requested by the OLCC: (a) purchase invoices and supporting documents for items and services purchased for use in the production, processing, research, testing and sale of cannabis items that include from whom the items were purchased and the date of purchase, (b) bank statements for any accounts, (c) accounting and tax records, (d) documentation of all financial transactions, including contracts and agreements for services performed or received, and (e) all employee records, including training.

Inventory/Storage

OLCC licensees must report the following to CTS (a) a reconciliation of all on-premise and in-transit cannabis item inventories each day, (b) all information for seeds, usable cannabis, CBD concentrates and extracts by weight, (c) the wet weight of all harvested cannabis plants immediately after harvest, (d) all required information for CBD products by unit count, and (e) for retailer license holders, the price before tax and amount of each item sold to consumers and the date of each transaction. The data must be transmitted for each individual transaction before the retailer opens the next business day.

 

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All cannabis items on a licensed retailer’s premises must be held in a safe or vault. All usable cannabis, cut and drying mature cannabis plants, CBD concentrates, extracts or products on the licensed premises of a licensee other than a retailer are to be kept in a locked, enclosed area within the licensed premises that is secured with at a minimum, a steel door with a steel frame or equivalent, and a commercial grade, non-residential door lock.

All licensees must keep all video recordings and archived required records not stored electronically in a locked storage area. Current records may be kept in a locked cupboard or desk outside the locked storage area during hours when the licensed business is open.

Security

A licensed premise must have a fully operational security alarm system, activated at all times when the licensed premises is closed for business. Among other features the security alarm system for the licensed premises must (a) be able to detect unauthorized entry onto the licensed premises and unauthorized activity within any limited access area where mature cannabis plants, usable cannabis, CBD concentrates, extracts or products are present, (b) be programmed to notify the licensee, a licensee representative or other authorized personnel in the event of an unauthorized entry, and (c) either have at least two operational “panic buttons” located inside the licensed premises that are linked with the alarm system that immediately notifies a security company or law enforcement, or have operational panic buttons physically carried by all employees present on the licensed premises that are linked with the alarm system that immediately notifies a security company or law enforcement.

A licensed premise must have a fully operational video surveillance recording system. Among other requirements, a licensed premise must have cameras that continuously record, 24 hours a day, seven days a week: (a) in all areas where mature cannabis plants, usable cannabis, CBD concentrates, extracts or products may be present on the licensed premises; and (b) all points of ingress and egress to and from areas where mature cannabis plants, usable cannabis, CBD concentrates, extracts or products are present. A licensee must keep all surveillance recordings for a minimum of 90 calendar days and have the surveillance room or surveillance area with limited access.

Transportation

Licensed producers which transport cannabis to licensed retailers must comply with the following: (a) a licensee must keep cannabis items in transit shielded from public view, (b) the cannabis items must be of secured (locked-up) during transport, (c) the transport must be equipped with an alarm system, (d) the transport must be temperature controlled if perishable cannabis items are being transported, (e) the transport must provide arrival date and estimated time of arrival information, (f) all cannabis items must be packaged in shipping containers and labeled with a unique identifier, and (g) the transport must provide a copy of the printed manifest and any printed receipts for cannabis items delivered to law enforcement officers or other representatives of a government agency if requested to do so while in transit.

Pennsylvania

Legislative History

The Pennsylvania Medical Marijuana Program (the “PA Program”) was established by the Pennsylvania Medical Marijuana Act (the “PA Act”) on April 17, 2016. The PA Program provides access to medical cannabis for qualified state residents who suffer from 21 specific medical conditions including epilepsy, chronic pain, HIV, AIDS, cancer, and post-traumatic stress disorder. To qualify under the PA Program, medical cannabis patients must both register with the Pennsylvania Department of Health (the “PADOH”) and obtain either an identification card or authorization letter from the PADOH. As of May 2018, approximately 37,000 patients in Pennsylvania have been registered to purchase medical cannabis products. On February 15, 2018, dispensaries licensed under the PA Program began selling medical cannabis to qualified patients. Pennsylvania currently allows sale of medical cannabis to qualified patients in the following forms: pill, oil, topical forms including gels, creams, or ointments, tincture, and liquids. On August 1, 2018, the Pennsylvania Health Secretary approved the sale dry leaf cannabis.

 

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Permits

The PA Act allows the PADOH to issue up to 25 grower/processor permits and 50 dispensary permits (each dispensary permit allows the holder to open up to three separate dispensary sites). On June 29, 2017, the PADOH issued 12 cultivation/processing permits and 27 dispensary permits. Permits are granted to applicants who demonstrate, among other things: (a) the ability to implement and maintain effective security measures and controls to prevent diversion, (b) a clear criminal background free of illegal conduct, (c) compliance with municipality zoning requirements, (d) well-defined standard operating procedures, and (e) a verified diversity plan. Prior to awarding permits, the PA Program requires the PADOH to verify all applicant information including through interviews of principals, operators, financial backers, and employees engaged and to be engaged in the permit applicant’s cannabis operations.

On March 22, 2018, the PADOH announced it planned to issue an additional 13 grower/processor permits and 23 dispensary permits.

The table below lists the permit issued to PWPA. In addition to the below, PWPA applied for an additional dispensary permit. It is anticipated the PADOH will announce permit award decisions in the fourth quarter of 2018.

Holding Entity Permit City Expiration Date Description
PWPA GP- 1005-17 Sinking Spring 06/20/2019 Grow/Processing Facility

Dispensary, grower, and processing permits are valid for one year from the date of issuance and permit holders are required to submit renewal applications in accordance with the PA Act. The PADOH must renew a permit unless it determines the applicant is unlikely to maintain effective control against diversion of medical cannabis and the applicant is unlikely to comply with all laws as prescribed under the PA Act. Additionally, permit holders must ensure that no cannabis is sold, delivered, transported, or distributed outside of Pennsylvania.

Record keeping/Reporting

The PA Act requires each licensed medical cannabis grower/processor or dispensary to report information to the PADOH every three months including, but is not limited to, (a) the amount of medical cannabis sold by the grower/processor, (b) the total value and amounts of medical cannabis sold by the grower/processor, (c) the amount of medical cannabis purchased by each dispensary, (d) the cost and amounts of medical cannabis sold to each dispensary, and (e) the total amount and dollar value of medical cannabis sold by each dispensary.

To monitor reporting requirements under the PA Act, the PADOH selected MJ Freeway as the T&T to implement a seed-to-sale electronic tracking. PWPA also uses MJ Freeway to push data and ensure compliance with all reporting requirements.

Inventory/Storage

The PA Act requires each medical cannabis grower/processor maintains inventory and storage data in an electronic format through MJ Freeway. The following information is tracked to ensure a compliant cannabis business operation: (a) the number, weight, and type of seeds used, (b) the number of immature medical cannabis plants, (c) the number of mature medical cannabis plants, (d) the number of medical cannabis products ready for sale, and (d) the number of damaged, defective, expired, or contaminated seeds, immature medical cannabis plants, medical cannabis plants and medical cannabis products awaiting disposal.

Robust physical inventory controls and procedures are required of each medical cannabis grower/processor under the PA Act. The following procedures are mandated to ensure physical inventory counts match electronic records: (a) monthly inventory counts of both medical cannabis plants in the process of growing and medical cannabis products that are stored for future sale, (b) comprehensive inventory counts of seeds, immature medical cannabis plants and medical cannabis plants, and (c) written or electronic records created and maintained for each inventory count conducted.

 

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Additionally, each medical cannabis grower/processor must separately store in locked, limited access areas all seeds, immature medical cannabis plants, medical cannabis plants and medical cannabis that is expired, damaged, deteriorated, mislabeled or contaminated.

Security

The PA Act mandates each medical cannabis grower/processor must use security and surveillance systems including stringent video backup requirements to safeguard their medical cannabis and related products. Security requirements include: (a) alarm systems that cover all facility entrances, exits, areas that contain medical cannabis, safes, and the perimeter of the facility, and (b) professionally-monitored security and surveillance systems that operate 24 hours a day, 7 days a week and record all activity in images capable of clearly revealing facial detail. All images captured by each surveillance camera must be stored for a minimum of four years in a format that may be easily accessed for investigative purposes. Furthermore, all recordings must be kept in a locked cabinet, closet or other secure place to protect them from tampering or theft.

The PA Act also specifies requirements for the alarm system. The alarm system must include: (a) a silent security alarm signal, (b) an audible security alarm signal generated by the manual activation of a device intended to signal a life-threatening or emergency situation requiring law enforcement response, and (c) an electrical, electronic, mechanical, or other device capable of being programmed to send a prerecorded voice message requesting dispatch, when activated, over a telephone line, radio, or other communication system to a law enforcement, public safety, or emergency services agency.

Transportation

A medical cannabis grower/processor must transport and deliver medical cannabis to a medical cannabis organization or an approved laboratory within Pennsylvania in accordance with the following: (a) deliveries must be made between 7:00 a.m. and 9:00 p.m., (b) a global positioning system must be used to ensure safe and efficient delivery, (c) medical cannabis may not be visible from outside of the transport vehicle, (d) vehicles must be equipped with a secure cargo area, (e) each transport vehicle must be staffed with at least two individuals and at least one delivery team member must remain with the medical cannabis at all times, and (f) a printed or electronic transport manifest must accompany every delivery.

Rhode Island

 

Legislative History

In 2006, Rhode Island legalized medical cannabis and enacted the Edward O. Hawkins and Thomas C. Slater Medical Marijuana Act. Rhode Island had approved six qualifying debilitating Medical Conditions including but are not limited to cancer, glaucoma, HIV/AIDS, hepatitis C and epilepsy/agitation. In 2009, lawmakers in Rhode Island approved an amendment to the medical cannabis law allowing state-licensed medical cannabis dispensaries (“compassion centers”) to dispense medical cannabis. In June 2016, the Rhode Island legislature approved an article that creates significant reforms to the state’s medical cannabis program. The reforms included but were not limited to: (a) qualifying medical cannabis patients will no longer be required to designate compassion centers in order to enter and purchase products from those facilities, (b) the Department of Business Regulation will begin implementing additional regulations on compassion centers, such as stricter standards for product testing and requiring a government-accessible inventory tracking system, and (c) effective January 1, 2019, medical cannabis patients will be required to choose whether they wish to grow their own medicinal cannabis or appoint a natural person caregiver. They will no longer be able to cultivate their own medical cannabis and have a caregiver grow for them at the same time. Also in 2016, lawmakers approved legislation adding PTSD to the list of qualifying conditions for medical cannabis. As of March 31, 2018, there were 18,728 active patients certified to obtain cannabis through the states Rhode Island Medical Marijuana Program (“RIMMP”).

 

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Licensing

 

The Rhode Island Department of Health's (“RIDOH”) Medical Marijuana Program administers the provisions of the state's Medical Marijuana Act and related regulations. The Rhode Island Department of Business Regulation (“DBR”) is responsible for licensing and regulatory oversight of cultivators and the state’s medical cannabis plant tracking system. The DBR also licenses and oversees compassion centers. To date, Rhode Island has awarded licenses for three compassion care centers and 36 cultivators. A compassion center license allows the licensee to grow, manufacture and dispense cannabis and cannabis infused products.

 

The Medical Marijuana Program allows a qualifying patient, authorized purchaser or caregiver who is registered with the Rhode Island Department of Health to purchase medical cannabis from a registered compassion center. Licensed cultivators may sell medical cannabis and medical cannabis products to registered compassion centers in accordance with state law.

The table below lists the licenses issued to GCCC in Rhode Island:

Holding Entity License Number City Expiration Date Description
GCCC MMP CC 002 Portsmouth 5/25/2019 Compassion Center
GCCC MMP CC 002 Newport 5/25/2019 Grow/processing

 

In addition to providing a comprehensive business plan outlining scope of activities, budget, resource narratives, and timeline for initiating operations, an applicant must evidence compliance with the local zoning laws, provide a comprehensive diagram of the proposed facilities, including where within the facility the medical cannabis will be cultivated, stored, processed, packaged, manufactured and dispensed, and where security alarms and cameras and surveillance recording storage will be located. Principals of the management team must clear criminal background checks and are evaluated for their experience in managing a cannabis operation. Prior to granting the final license, the state will perform an inspection of the facility to ensure regulatory requirements are met.

 

Once the applicant has been authorized by the state, the applicant must take reasonable and documented efforts to launch compassion center activities with active medical cannabis cultivation, processing, packaging, manufacturing, authorized sales and/or other medical cannabis activities within a year. Compassion center registrations are issued for one-year terms. Registration renewal is based on whether the compassion center is adequately providing patients with access to medical cannabis at reasonable rates. To avoid potential conflicts, ‘key persons’ of the compassion center may not have any material financial interest or control in another compassion center, a cultivator, or a licensed cooperative cultivation or vice versa.

 

Security

 

Each compassion center must have a fully operational security alarm system at each authorized physical address that will provide suitable protection against theft and diversion, including alarms at all outside perimeter entry points and outside perimeter windows. A fully operational security alarm system should at a minimum include a combination of hard-wired systems and systems interconnected with a radio frequency method such as cellular or private radio signals that emit or transmit a remote or local audible, visual, or electronic signal; motion detectors, pressure switches, duress alarms, panic alarms and hold-up alarms (a silent system signal to indicate that a robbery is in progress). A fully operational security alarm system shall at a minimum provide for immediate automatic or electronic notification to alert municipal and/or state law enforcement agencies to an unauthorized breach or attempted unauthorized breach of security at the compassion center or any other authorized physical address and to any loss-of-electrical support backup system to the security alarm system. Each compassion center must test the security alarm system for each authorized location at intervals not to exceed thirty calendar days from the previous test.

 

Each compassion center must have a fully operational video surveillance and camera recording system which includes but is not limited to the following; all video surveillance systems must be equipped with a failure notification system that provides prompt notification of any surveillance interruption and/or the complete failure of the surveillance system, remote access to a continuous live feed video on a real time basis available at all times to the authorized compassion center personnel and the DBR upon request, and camera coverage set in all areas where cannabis and cannabis products are grown, cultivated, stored, weighed, packaged, processed, manufactured or sold, including all areas of ingress and egress thereto, point-of-sale areas, and security rooms.

 

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Camera views of required coverage areas shall be continuously recorded 24 hours a day, seven days per week. All surveillance recordings must be kept for a minimum of 60 days. Surveillance recording equipment and all video surveillance records and recordings must be housed in a designated, locked and secured room or other enclosure with access limited to compassion center personnel specifically authorized by management.

 

Inventory Control

 

An authorized compassion center is required to utilize the state approved Medical Marijuana Program Tracking System, Agrisoft, to document and monitor compliance with seed to sales inventory tracking. This includes point of sales, dispensing limits, patient information privacy protections, inventory supply, restrictions on third party supply and sources of cannabis and cannabis products and transfers off the premises. A compassion center must limit its Inventory of seedlings, plants, and usable cannabis to reflect the projected needs of qualifying patients.

A compassion center should be equipped to conduct an initial comprehensive inventory of all medical cannabis, including usable cannabis, cannabis plants and seedlings, unusable cannabis, and wet cannabis, and perform subsequent comprehensive inventories at intervals at least every 24 months. On a monthly basis, a compassion center must be able to assess its inventory in these same categories.

All cannabis product must be tagged and assigned a unique identifier through each stage of cultivation from seed propagation to packaging via the Medical Marijuana Program Tracking System and marked with a registration number, barcodes and/or alphanumeric code, and registered premises location. Once assigned a unique identifier tag within the Medical Marijuana Program Tracking System, tags may not be altered or duplicated. An identifier tag is to be assigned only when affixed to cannabis plants, wet cannabis, or usable cannabis which is ready to be sold or transferred.

Record-keeping

 

The DBR requires compassion centers retain hard-copy and electronic records to document all cultivation and dispensing activities of the center. Records to be maintained for a period of at least 5 years include real-time logs of all acquisitions, dispensing, and sales of cannabis in the Medical Marijuana Program Tracking System, applicable limits applied to all dispensing and sales transactions, training procedures and training attendee logs, specifically, on use of the Medical Marijuana Program Tracking System and any other tracking system used by the compassion center. Records pertaining to transaction activity occurring within the previous six months must be stored on the center premises. Records dating beyond six months may be stored off the premises with the state’s approval.

 

Other records to be retained include personnel records, purchase orders with licensed cultivators, including any canceled or voided contracts or purchased orders, invoices and supporting documentation of all cannabis purchases, acquisitions, transfers, payments and third-party vendor contracts. Activity pertaining to security including the security alarm and video surveillance systems, testing, upgrades site inspections and visitor logs must be stored digitally on the premises for at least 24 months after the event.

 

Compassion centers must keep detailed records of any pesticide products used and application regiments, including video recording during pesticide applications which must cease if there is a failure or disruption of the video surveillance system. The record-keeping requirement is independent of that required of commercial pesticide applicators by the state’s Department of Environmental Management.

 

Assessing the Markets/Business

 

The Subsidiaries operate in a large, fragmented marketplace. There are certain large cannabis growers as well as a large segment of small and local cannabis product firms who provide a variety of different products and services. See Section 4.1 for additional details on cannabis market and business.

 

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Competitive Conditions and Environment

See Section 4.1 for a discussion of the competitive conditions in the cannabis market and business.

5.       SELECTED CONSOLIDATED FINANCIAL INFORMATION

5.1       Annual Information

Pubco

The following table provides a brief summary of Pubco’s financial operations for the each of the two most recently completed financial years. Refer to Schedule “A” for a complete copy of Pubco’s audited financial statements for the years ended August 31, 2018 and 2017. See also, Schedule “G” for pro-forma financial statements of the Resulting Issuer as at June 30, 2018.

Description

Year Ended
August 31, 2018
(audited)

(C$)

Year Ended
August 31, 2017
(audited)

(C$)

Revenue $ 0   $ 0  
Loss from continuing operations $ (16,684 ) $ (187,380 )
Loss per share from continuing operations $ (0.002 ) $ (0.058 )
Net loss $ (16,684 ) $ (187,380 )
Net loss per share basic and diluted $ (0.002 ) $ (0.058 )
Total assets $ 29,042   $ 599  
Total long-term financial liabilities $ 304,348   $ 0  

 

Acreage Holdings

The following table provides a brief summary of Acreage Holdings’ consolidated financial operations for the each of the two most recently completed financial years, and the six month period ended June 30, 2018. Refer to Schedules “C” and “E” for complete copies of Acreage Holdings’ financial statements for the years ended December 31, 2017 and 2016, and the unaudited interim financial statements for the six months ended June 30, 2018. See also, Schedule “G” for pro-forma financial statements of the Resulting Issuer as at June 30, 2018.

Description

Year Ended
December 31, 2017
(audited)

($000s)

Year Ended
December 31, 2016
(audited)

($000s)

Six Months Ended
June 30, 2018
(unaudited)

($000s)

Revenue $ 7,743   $ 3,771   $ 5,148  
Income (loss) from continuing operations (1) $ (6,810 ) $ (1,999 ) $ 2,405  
Net income (loss) $ (7,616 ) $ (2,408 ) $ 1,922  
Total assets $ 73,009   $ 31,486   $ 224,060  
Total long-term financial liabilities $ 32,470   $ 655   $ 47,930  

 

Notes:

(1) Income from continuing operations is prior to income tax expense.

 

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Resulting Issuer

As the Resulting Issuer will be formed as a result of the RTO, it does not have historical financial statements presented on a consolidated basis. The following table provides a brief summary of financial information of the Resulting Issuer as at June 30, 2018. See also, Schedule “G” for pro-forma financial statements of the Resulting Issuer as at June 30, 2018.

Description

Six Months Ended

June 30, 2018
(pro forma)

($000s)

Revenue $ 14,126  
Net operating loss $ (27,941 )
Net loss $ (16,937 )
Total assets $ 549,315  
Total long-term financial liabilities $ 13,317  

 

The financial statements included in this Listing Statement have been, and the future financial statements of the Resulting Issuer will be, prepared in accordance with IFRS.

 

5.2       Dividends

The Resulting Issuer does not intend, and is not required, to pay any dividends on the Resulting Issuer Shares. Any future determination to pay dividends will be at the discretion of the Resulting Issuer Board and will depend, among other things, on the financial condition, earnings, business environment, operating results, capital requirements, any contractual restrictions on the payment of dividends and any other factors that the Resulting Issuer Board deems relevant. The Resulting Issuer’s ability to pay dividends may be affected by U.S. state and federal regulations. See “Risk Factors”.

Notwithstanding the foregoing, pursuant to the Tax Receivable Agreement and the Tax Receivable Bonus Plan, certain Acreage Holdings Members are entitled to payments of certain tax benefits . See “Description of Securities - description of Share Capital of the Resulting Issuer - Tax Receivable Agreement - Tax Receivable Bonus Plan”.

5.3       Foreign GAAP

Not applicable.

6.       MANAGEMENT’S DISCUSSION AND ANALYSIS

Please refer to Schedule “B” for Pubco’s MD&A for the fiscal years ended August 31, 2018 and 2017.

Please refer to Schedule “D” for Acreage Holdings’ MD&A for the fiscal years ended December 31, 2017 and 2016 and to Schedule “F” for the three and six months ended June 30, 2018 and 2017.

7.       MARKET FOR SECURITIES

On February 20, 2001, Pubco’s shares ceased trading OTC on the Canadian Dealing Network (AIMC.A / AIMC.B) when the Ontario Securities Commission issued a cease trade order on Pubco’s securities as a result of Pubco’s failure to meet certain filing requirements. The Ontario Securities Commission revoked the cease trade order on August 26, 2011. The Resulting Issuer has applied to list the Subordinate Voting Shares on the CSE under the symbol “ACRG.U”.

 

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8.       CONSOLIDATED CAPITALIZATION

The following table sets forth the expected capitalization of the Resulting Issuer, as at November 13, 2018, after giving pro forma effect to the RTO.

Description Number Outstanding Prior to Giving Effect to the SR Financing and the RTO Number Outstanding After Giving Effect to the SR Financing and the RTO

Number Outstanding After Giving Effect to the SR Financing and the RTO on an as converted to Subordinate Voting Shares(3)

 

Acreage Holdings:
Class A Units 20,000,000  -  -
Class A PIK 455,127  -  -
Class B Units 20,000,000 15,957,908  -
Class C Units 6,000,000 5,059,719  -
Class C-1 Units 6,475,000 5,875,000  -
Class D Units 17,018,390  -  -
Class E Units 19,352,143 142,903  -
Acreage Holdings Notes 6,473,521  -  -
Acreage Holdings Warrants 1,877,607  -  -
   
Pubco:(2)
Class A subordinate voting shares 5,738,435  -  -
Class B multiple voting shares 7,839,599  -  -
Class C preference shares  -  -  -
   
Resulting Issuer:
Subordinate Voting Shares  - (1) (1)(2)
21,443,042 108,400,017
Proportionate Voting Shares  - 1,445,879  -
Multiple Voting Shares  - 168,000  -
Resulting Issuer Warrants (Subordinate Voting Shares)  - 1,877,607  -
Resulting Issuer Warrants (Proportionate Voting Shares)  - 5,575  -
Options(4)  - 4,254,500  -
RSUs(5)   2,285,850  -
Stock Awards(6)   15,900  -
Compensation Options  - 157,512  -

 

Notes:

(1) reflects gross proceeds under the Finco SR Financing of $314,153,600 and a SR Offering Price of $25.00 per Finco Subscription Receipt.

(2) assumes a pre-RTO valuation of Pubco at C$1,250,000.

(3) assumes conversion of 1,445,879 Proportionate Voting Shares on a 40:1 basis and the conversion, redemption and exchange, as applicable, of 168,000 Multiple Voting Shares, 15,957,908 Class B Membership Units, 5,059,719 Class C Membership Units, 142,903 Class E Membership Units, 5,875,000 Class C-1 profit interests and 1,918,285 Class B Non-Voting Common Shares of USCo2 on a 1:1 basis.

(4) assumes issuance of 4,254,500 Options to certain officers, directors and employees immediately following completion of the RTO.

(5) assumes issuance of 2,285,850 RSUs to certain officers, directors and employees immediately following completion of the RTO.

(6) assumes issuance of 15,900 Stock Awards to Mr. Doherty immediately following completion of the RTO.

 

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9.       OPTIONS TO PURCHASE SECURITIES

The following table sets forth the aggregate number of Options of the Resulting Issuer that will be outstanding immediately following completion of the RTO. The Options will be subject to the New Omnibus Equity Plan, the principal terms of which are described below.

Category of Option holder Subordinate Voting Shares Under Options Granted Exercise Price ($) Date of Grant  
All executive officers and past executive officers of the Resulting Issuer as a group and all directors and past directors of the Resulting Issuer who are not also executive officers as a group 2,560,000 25.00 November 14, 2018  
 
All executive officers and past executive officers of all subsidiaries of the Resulting Issuer as a group and all directors and past directors of those subsidiaries who are not also executive officers of the subsidiary as a group, excluding individuals referred to in (a) above Nil N/A N/A  
 
All other employees and past employees of the Resulting Issuer as a group 1,694,500 25.00 November 14, 2018  
 
All other employees and past employees of subsidiaries of the Resulting Issuer as a group Nil N/A N/A  
 
All consultants of the Resulting Issuer as a group Nil N/A N/A  
 

Summary of New Omnibus Equity Plan

The principal features of the New Omnibus Equity Plan are summarized below.

Purpose

Pursuant to the New Omnibus Equity Plan, the Resulting Issuer will be able to issue equity-based compensation in the form of stock options (“Options”), stock appreciation rights, stock awards (“Stock Awards”), unrestricted shares or restricted shares, deferred share units, restricted share units (“RSUs”), performance shares, performance units, and other stock-based awards to eligible participants, which are referred to herein collectively as “Awards” as more fully described below.

The purpose of the New Omnibus Equity Plan is to enable the Resulting Issuer and certain of its Subsidiaries to obtain and retain services of the eligible participants, which is essential to the Resulting Issuer’s long-term success.

The granting of Awards under the New Omnibus Equity Plan is intended to promote the long-term financial interests and growth of the Resulting Issuer and its Subsidiaries by attracting and retaining management and other personnel and key service providers with the training, experience and ability to enable them to make a substantial contribution to the success of the Resulting Issuer’s business. Moreover, the New Omnibus Equity Plan aims to align the interests of eligible participants with those of the shareholders of the Resulting Issuer through opportunities of increased equity-based ownership in the Resulting Issuer.

The maximization of shareholder value is encouraged by the granting of incentives under the New Omnibus Equity Plan. An objective of the New Omnibus Equity Plan is to reward and retain NEOs. The program is designed to reward NEOs for maximizing shareholder value in a volatile commodity-based business in a regulatory compliant and ethical manner. Increasing the value of Subordinate Voting Shares increases the value of the stock options. This incentive closely links the interests of the officers and directors to shareholders of the Resulting Issuer and encourages a long-term commitment to the Resulting Issuer.

 

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Eligibility

Eligible participants under the plan include directors, officers (including the NEOs), employees and consultants of the Resulting Issuer and its Subsidiaries (the “Participants”).

Administration

The New Omnibus Equity Plan will be administered by the Compensation and Corporate Governance Committee while the specific granting of Awards will be authorized by the Resulting Issuer Board. The following discussion is qualified in its entirety by the text of the New Omnibus Equity Plan.

The terms and conditions attaching to the Awards will be determined by Compensation and Corporate Governance Committee and will be set forth in grant agreements. The Compensation and Corporate Governance Committee will have the power and discretionary authority to determine the terms and conditions of the Awards, including the individuals who will receive the Awards, the type and number of awards subject to each Award, the terms of settling the Awards, the form of consideration payable on settlement of Awards and the timing of the Awards.

Options

The exercise price of any Options shall be determined by the Compensation and Corporate Governance Committee, subject to CSE approval (if required), at the time such Options are granted. In no event shall such exercise price be lower than the greater of the closing market prices of the underlying securities on: (a) the trading day prior to the date of grant of the Options; and (b) the date of grant of the Options. Subject to any vesting restrictions imposed by the CSE, the Compensation and Corporate Governance Committee may determine the time during which Options shall vest and the method of vesting, or that no vesting restriction shall exist. If an Option is canceled prior to its expiry date, the Resulting Issuer must post notice of the cancellation and shall not grant new Options to the same person until 30 days have elapsed from the date of cancellation.

The outstanding Options and stock appreciation rights that will terminate upon the effective time of the change in control (as such term is defined in the New Omnibus Equity Plan) of the Resulting Issuer shall, immediately before the effective time of such change in control, become fully exercisable and the holders of such Awards, as applicable, will be permitted, immediately before the change in control, to exercise such awards.

 

General

Subject to adjustment provisions as provided in the New Omnibus Equity Plan, the maximum number of Subordinate Voting Shares that may be issued under the New Omnibus Equity Plan shall be equal to 10% of the number of issued and outstanding Subordinate Voting Shares from time to time, on an as converted to Subordinate Voting Shares basis. Such Awards may be made in any form permitted under the New Omnibus Equity Plan, in any combinations approved by the Compensation and Corporate Governance Committee.

The Compensation and Corporate Governance Committee may impose restrictions on the grant, exercise or payment of an Award as it determines appropriate. Generally, Awards granted under the New Omnibus Equity Plan shall be non-transferable except by will or by the laws of descent and distribution. Except as explicitly provided in an Award, no Participant shall have any rights as a shareholder with respect to Subordinate Voting Shares covered by Awards, unless and until such Awards are settled in Subordinate Voting Shares.

No Option (or, if applicable, RSUs) shall be exercisable, no Subordinate Voting Shares shall be issued, no certificates for Subordinate Voting Shares shall be delivered and no payment shall be made under the New Omnibus Equity Plan except in compliance with all applicable laws.

Effective upon the closing of the RTO, it is anticipated that the Resulting Issuer Board will issue 2,285,850 RSUs, 4,254,500 Options and 15,900 Stock Awards to certain directors, officers and employees, each pursuant to the New Omnibus Equity Plan to acquire an aggregate of 6,556,250 Subordinate Voting Shares (representing 6.05% of the issued and outstanding Subordinate Voting Shares on an as converted to Subordinate Voting Shares basis). Immediately after completion of the RTO, 4,329,493 Subordinate Voting Shares (representing 3.99% of the issued and outstanding Subordinate Voting Shares on an as converted to Subordinate Voting Shares basis) will remain available for Awards pursuant to the New Omnibus Equity Plan.

 

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Tax Withholding

The Resulting Issuer may take such action as it deems appropriate to ensure that all applicable federal, state, local and/or foreign payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. Participants will be required to pay any withholding tax obligations to the Resulting Issuer or any of its Subsidiaries.

 

10.       DESCRIPTION OF THE SECURITIES

10.1       Description of the Securities

Description of Share Capital of the Resulting Issuer

The authorized share capital of the Resulting Issuer will consist of an unlimited number of Subordinate Voting Shares, an unlimited number of Proportionate Voting Shares and an unlimited number of Multiple Voting Shares. Upon completion of the RTO, the Subordinate Voting Shares will represent approximately 3.7% of the voting rights attached to outstanding securities of the Resulting Issuer, the Proportionate Voting Shares will represent approximately 9.9% of the voting rights attached to outstanding securities of the Resulting Issuer and the Multiple Voting Shares will represent approximately 86.4% of the voting rights attached to outstanding securities of the Resulting Issuer.

The following is a summary of the rights, privileges, restrictions and conditions attached to the proposed Subordinate Voting Shares, the Proportionate Voting Shares and the Multiple Voting Shares.

Subordinate Voting Shares

Holders of Subordinate Voting Shares will be entitled to notice of and to attend at any meeting of the shareholders of the Resulting Issuer, except a meeting of which only holders of another particular class or series of shares of the Resulting Issuer will have the right to vote. At each such meeting, holders of Subordinate Voting Shares will be entitled to one vote in respect of each Subordinate Voting Share held.

As long as any Subordinate Voting Shares remain outstanding, the Resulting Issuer will not, without the consent of the holders of the Subordinate Voting Shares by separate special resolution, prejudice or interfere with any right or special right attached to the Subordinate Voting Shares.

Holders of Subordinate Voting Shares will be entitled to receive as and when declared by the directors of the Resulting Issuer, dividends in cash or property of the Resulting Issuer. No dividend will be declared or paid on the Subordinate Voting Shares unless the Resulting Issuer simultaneously declares or pays, as applicable, equivalent dividends (on an as-converted basis, assuming conversion of all Proportionate Voting Shares and Multiple Voting Shares into Subordinate Voting Shares at the applicable conversion ratio) on the Proportionate Voting Shares and Multiple Voting Shares.

In the event of the liquidation, dissolution or winding-up of the Resulting Issuer, whether voluntary or involuntary, or in the event of any other distribution of assets of the Resulting Issuer among its shareholders for the purpose of winding up its affairs, the holders of Subordinate Voting Shares will, subject to the prior rights of the holders of any shares of the Resulting Issuer ranking in priority to the Subordinate Voting Shares, be entitled to participate rateably along with all other holders of Subordinate Voting Shares, Proportionate Voting Shares and Multiple Voting Shares (on an as-converted basis, assuming conversion of all Proportionate Voting Shares and Multiple Voting Shares into Subordinate Voting Shares at the applicable conversion ratio).

Holders of Subordinate Voting Shares will not be entitled to a right of first refusal to subscribe for, purchase or receive any part of any issue of Subordinate Voting Shares, or bonds, debentures or other securities of the Resulting Issuer now or in the future.

 

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No subdivision or consolidation of the Subordinate Voting Shares, Proportionate Voting Shares or Multiple Voting Shares shall occur unless, simultaneously, the Subordinate Voting Shares, Proportionate Voting Shares or Multiple Voting Shares are subdivided or consolidated in the same manner or such other adjustment is made so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

Proportionate Voting Shares

Holders of Proportionate Voting Shares will be entitled to notice of and to attend at any meeting of the shareholders of the Resulting Issuer, except a meeting of which only holders of another particular class or series of shares of the Resulting Issuer will have the right to vote. At each such meeting, holders of Proportionate Voting Shares will be entitled to one vote in respect of each Subordinate Voting Share into which such Proportionate Voting Share could ultimately then be converted (initially 40 votes per Proportionate Voting Share held).

As long as any Proportionate Voting Shares remain outstanding, the Resulting Issuer will not, without the consent of the holders of the Proportionate Voting Shares and Multiple Voting Shares by separate special resolution, prejudice or interfere with any right or special right attached to the Proportionate Voting Shares. Consent of the holders of a majority of the outstanding Proportionate Voting Shares and Multiple Voting Shares shall be required for any action that authorizes or creates shares of any class having preferences superior to or on a parity with the Proportionate Voting Shares. In connection with the exercise of the voting rights in respect of any such approvals, each holder of Proportionate Voting Shares will have one vote in respect of each Proportionate Voting Share held.

Holders of Proportionate Voting Shares will be entitled to receive, as and when declared by the directors of the Resulting Issuer, dividends, out of any cash or other assets legally available therefor, pari passu (on an as converted basis, assuming conversion of all Proportionate Voting Shares and Multiple Voting Shares into Subordinate Voting Shares at the applicable conversion ratios) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares. No dividend will be declared or paid on the Proportionate Voting Shares unless the Resulting Issuers simultaneously declares or pays, as applicable, equivalent dividends on the Subordinate Voting Shares and Multiple Voting Shares.

In the event of the liquidation, dissolution or winding-up of the Resulting Issuer, whether voluntary or involuntary, or in the event of any other distribution of assets of the Resulting Issuer among its shareholders for the purpose of winding up its affairs, the holders of Proportionate Voting Shares will, subject to the prior rights of the holders of any shares of the Resulting Issuer ranking in priority to the Proportionate Voting Shares, be entitled to participate rateably along with all other holders of Proportionate Voting Shares, Subordinate Voting Shares and Multiple Voting Shares (on an as-converted basis, assuming conversion of all Proportionate Voting Shares and Multiple Voting Shares into Subordinate Voting Shares at the applicable conversion ratios).

Holders of Proportionate Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part of any issue of Subordinate Voting Shares, or bonds, debentures or other securities of the Resulting Issuer now or in the future.

No subdivision or consolidation of the Subordinate Voting Shares, Proportionate Voting Shares or Multiple Voting Shares shall occur unless, simultaneously, the Subordinate Voting Shares, Proportionate Voting Shares or Multiple Voting Shares are subdivided or consolidated in the same manner or such other adjustment is made so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

Each Proportionate Voting Share shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Resulting Issuer or any transfer agent for such shares, into a number of fully paid and non-assessable Subordinate Voting Shares which shall represent the equivalent voting power of the converted Proportionate Voting Share and as shall be adjusted from time to time for distributions, recapitalizations and stock splits. The ability to convert the Proportionate Voting Shares is subject to a restriction that, unless the Board determines otherwise, the aggregate number of Subordinate Voting Shares, Proportionate Voting Shares and Multiple Voting Shares held of record, directly or indirectly, by residents of the United States (as determined in accordance with Rules 3b-4 and 12g3-2(a) under the Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”), may not exceed forty percent (40%) of the aggregate number of Subordinate Voting Shares, Proportionate Voting Shares and Multiple Voting Shares issued and outstanding after giving effect to such conversions.

 

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Multiple Voting Shares

Holders of Multiple Voting Shares are entitled to notice of and to attend at any meeting of the shareholders of the Resulting Issuer, except a meeting of which only holders of another particular class or series of shares of the Resulting Issuer will have the right to vote. At each such meeting, holders of Multiple Voting Shares will be entitled to 3,000 votes in respect of each Multiple Voting Share held. Each Multiple Voting Share shall automatically convert, without any action on the part of the holder thereof, into Subordinate Voting Shares on the basis of one Subordinate Voting Share for one Multiple Voting Share upon the earliest of the date that (i) the aggregate number of Multiple Voting Shares held by the holders of Multiple Voting Shares together with the affiliates thereof are reduced to a number which is less than fifty per cent (50%) of the aggregate number of Multiple Voting Shares held by such holder together with the affiliates on the date of completion of the RTO, (ii) the aggregate number of Acreage Holdings Units held by the holders of Multiple Voting Shares together with its affiliates are reduced to a number which is less than fifty per cent (50%) of the aggregate number of Acreage Holdings Units held by such holders together with the affiliates on the date of completion of the RTO, and (iii) is five years following completion of the RTO.

Multiple Voting Shares are intended to provide voting control to Mr. Murphy. As long as any Multiple Voting Shares remain outstanding, the Resulting Issuer will not, without the consent of the holders of the Multiple Voting Shares by separate special resolution, prejudice or interfere with any right or special right attached to the Multiple Voting Shares. Additionally, consent of the holders of a majority of the outstanding Multiple Voting Shares will be required for any action that authorizes or creates shares of any class having preferences superior to or on a parity with the Multiple Voting Shares. In connection with the exercise of the voting rights in respect of any such approvals, each holder of Multiple Voting Shares will have one vote in respect of each Multiple Voting Share held.

 

Holders of Multiple Voting Shares will be entitled to receive, as and when declared by the directors of the Resulting Issuer, dividends out of any cash or other assets legally available therefor, pari passu (on an as-converted basis, assuming conversion of all Multiple Voting Shares into Proportionate Voting Shares and then into Subordinate Voting Shares, and the conversion of all Proportionate Voting Shares into Subordinate Voting Shares at the applicable conversion ratios) as to dividends and any declaration or payment of any dividend on the Subordinate Voting Shares. No dividend will be declared or paid on the Multiple Voting Shares unless the Resulting Issuer simultaneously declares or pays, as applicable, equivalent dividends on the Subordinate Voting Shares and Proportionate Voting Shares.

In the event of the liquidation, dissolution or winding-up of the Resulting Issuer, whether voluntary or involuntary, or in the event of any other distribution of assets of the Resulting Issuer among its shareholders for the purpose of winding up its affairs, the holders of Multiple Voting Shares will, subject to the prior rights of the holders of any shares of the Resulting Issuer ranking in priority to the Multiple Voting Shares, be entitled to participate rateably along with all other holders of Multiple Voting Shares, Proportionate Voting Shares and Subordinate Voting Shares (on an as-converted basis, assuming conversion of all Proportionate Voting Shares and Multiple Voting Shares into Subordinate Voting Shares at the applicable conversion ratio).

Holders of Multiple Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part of any issue of Subordinate Voting Shares, Proportionate Voting Shares or bonds, debentures or other securities of the Resulting Issuer now or in the future.

No Multiple Voting Share will be permitted to be transferred by the holder thereof without the prior written consent of the Resulting Issuer Board.

 

No subdivision or consolidation of the Subordinate Voting Shares, Proportionate Voting Shares or Multiple Voting Shares shall occur unless, simultaneously, the Subordinate Voting Shares, Proportionate Voting Shares or Multiple Voting Shares are subdivided or consolidated in the same manner or such other adjustment is made so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

 

FORM 2A - LISTING STATEMENT

 

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Each Multiple Voting Share shall automatically convert, without any action on the part of the holder thereof, into Subordinate Voting Shares on the basis of one Subordinate Voting Share for one Multiple Voting Share upon the earliest of the date that (i) the aggregate number of Multiple Voting Shares held by the holder of Multiple Voting Shares together with its Affiliates are reduced to a number which is less than fifty per cent (50%) of the aggregate number of Multiple Voting Shares held by such holder together with its Affiliates on the date of completion of the RTO, (ii) the aggregate number of Acreage Holdings Units held by the holder of Multiple Voting Shares together with its Affiliates are reduced to a number which is less than fifty per cent (50%) of the aggregate number of Acreage Holdings Units held by such holder together with its Affiliates on the date of completion of the RTO, and (iii) is five (5) years following completion of the RTO.

 

Coattail Provisions

 

In the event that an offer is made to purchase Proportionate Voting Shares, and such offer is:

(a)required, pursuant to applicable securities legislation or the rules of, or as a condition of listing on, any stock exchange on which: (i) the Proportionate Voting Shares; or (ii) the Subordinate Voting Shares which may be obtained upon conversion of the Proportionate Voting Shares; may then be listed, to be made to all or substantially all of the holders of Proportionate Voting Shares in a province or territory of Canada to which the requirement applies (such offer to purchase, an “Offer”); and

 

(b)not made to the holders of Subordinate Voting Shares for consideration per Subordinate Voting Share equal to 0.025 of the consideration offered per Proportionate Voting Share;

 

each Subordinate Voting Share shall become convertible at the option of the holder into Proportionate Voting Shares on the basis of 40 Subordinate Voting Shares for one Proportionate Voting Share; at any time while the Offer is in effect until one day after the time prescribed by applicable securities legislation or stock exchange rules for the offeror to take up and pay for such shares as are to be acquired pursuant to the Offer (the “Subordinate Voting Share Conversion Right”). For avoidance of doubt, fractions of Proportionate Voting Shares may be issued in respect of any amount of Subordinate Voting Shares in respect of which the Subordinate Voting Share Conversion Right is exercised which is less than 40.

 

The Subordinate Voting Share Conversion Right may only be exercised for the purpose of depositing the Proportionate Voting Shares acquired upon conversion under such Offer, and for no other reason. If the Subordinate Voting Share Conversion Right is exercised, the Resulting Issuer will procure that the transfer agent for the Subordinate Voting Shares shall deposit under such Offer the Proportionate Voting Shares acquired upon conversion, on behalf of the holder.

Coattail Agreement

In connection with the RTO, the holder of Multiple Voting Shares will enter into a coattail agreement (the “Coattail Agreement”) with Acreage Holdings and the transfer agent for the Subordinate Voting Shares pursuant to which the holders of Subordinate Voting Shares will be granted rights similar those to be granted to them in connection with the Proportionate Voting Shares as described above under “-- Coattail Provisions”.

Description of Capital of USCo

The authorized share capital (together, the “USCo Shares”) of USCo consists of (i) 100,000,000 shares of Class A voting common stock, (ii) 100,000,000 shares of Class B voting common stock, and (iii) 100,000,000 shares of Class C voting common stock.

 

Holders of USCo Shares are entitled to receive notice of, attend and vote at meetings of the securityholders of USCo, and vote together as a single class. Each USCo Share entitles the holder thereof to one vote on all matters upon which holders of USCo Shares are entitled to vote.

 

FORM 2A - LISTING STATEMENT

 

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Following completion of the RTO, the Founder and certain executive employees will retain their interest in Acreage Holdings and enter into a tax receivable agreement with USCo, Acreage Holdings and certain of the Acreage Holdings members (the “Tax Receivable Agreement”). USCo will be the sole manager of Acreage Holdings and will have the exclusive right, power and authority to manage, control, administer and operate the business and affairs, and to make decisions regarding the undertaking and business, of Acreage Holdings in accordance with the amended and restated limited liability company agreement of Acreage Holdings, which shall become effective as of the Closing (the “A&R LLC Agreement”). Following the completion of the RTO, all outstanding USCo Shares will be held by the Resulting Issuer.

 

A&R LLC Agreement

 

The following is a summary of the material provisions set forth in the A&R LLC Agreement, which amended, restated and superseded the Prior LLC Agreement in its entirety upon consummation of the RTO.

 

Acreage Holdings will have perpetual existence and will continue as a limited liability company until and unless Acreage Holdings is terminated or dissolved in accordance with the A&R LLC Agreement and the Delaware Limited Liability Company Act, as may be amended or restated from time to time (the “DLLCA”).

 

The principal purpose and business of Acreage Holdings shall be to engage in any lawful act or activity for which a limited liability company may be organized under the DLLCA and to conduct such other activities as may be necessary, advisable, convenient or appropriate to promote or conduct the business of Acreage Holdings as set forth herein, including, but not limited to, operating in the legal cannabis sector, which includes making and holding investments in equity and debt securities of cannabis related businesses, and operating cultivation, processing and dispensing activities with respect to cannabis products.

 

USCo is the sole manager of Acreage Holdings and will manage all of Acreage Holdings’ operations and activities in accordance with the A&R LLC Agreement. USCo has the capacity and authority to act as the manager of Acreage Holdings.

 

Subject to the terms of the A&R LLC Agreement and the DLLCA, USCo has the full and exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of Acreage Holdings. Among other things, USCo is empowered to negotiate, execute and perform all agreements, conveyances or other instruments on behalf of Acreage Holdings, and to mortgage, charge or otherwise create a security interest over any or all of the property of Acreage Holdings or its subsidiaries, and to sell property subject to such a security interest.

 

The A&R LLC Agreement provides that, where USCo is permitted or required to take any action or to make a decision in its “sole discretion”, “discretion”, with “complete discretion” or any other grant of similar authority and latitude under the A&R LLC Agreement in managing Acreage Holdings’ operations and activities, USCo shall be entitled to consider only such interests and factors as it desires, including its own interests and shall, to the fullest extent permitted by the DLLCA, have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of, or factors affecting, Acreage Holdings or the other Acreage Holdings members.

 

Despite the foregoing, USCo will only be able to take certain types of actions (as set forth in the A&R LLC Agreement) if the same are approved, consented to or directed by a majority of the Acreage Holdings Members.

 

Upon Closing, the capital of Acreage Holdings shall initially consist of two classes of Acreage Holdings Units: Common Units and Class C-1 Membership Units. The interest of USCo is to be represented by Common Units with the number of issued Common Units immediately following the Closing to be equal to the respective number of Subordinate Voting Shares, Proportionate Voting Shares and Multiple Voting Shares issued and outstanding prior to the completion of the RTO, provided; however, that such Common Units held by each of USCo and USCo2 shall not entitle USCo or USCo2, respectively, to any exchange or redemption rights with respect to such Common Units; the interests of other Acreage Holdings Members will be represented by Common Units, pursuant to which all such other members shall be entitled to certain exchange rights and redemption rights, as provided in the A&R LLC Agreement. The A&R LLC Agreement shall also authorize the issuance of Class C-1 Membership Units to persons who provide services for or on behalf of Acreage Holdings or any of its subsidiaries, which such Class C-1 Membership Units shall entitle the holder to certain rights and privileges, including the right to convert such Class C-1 Membership Units to Common Units, subject to certain restrictions, qualifications and limitations, each as provided in the A&R LLC Agreement.

 

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When the Resulting Issuer issues Subordinate Voting Shares, it may contribute all or a portion of the net proceeds to USCo in exchange for additional USCo Shares. Upon receipt of any such net proceeds from the Resulting Issuer, USCo will generally contribute such net proceeds to Acreage Holdings as a capital contribution on account of its Common Units. In the event that a new class of shares in the capital of the Resulting Issuer is created, USCo may create a corresponding new class of Acreage Holdings units that has corresponding distribution rights to such new class of the Resulting Issuer Shares and will cause Acreage Holdings to issue new units of such class to USCo. The Resulting Issuer may contribute all or a portion of the net proceeds from the issuance of any such shares to USCo and USCo, upon receipt of such proceeds, will generally contribute such net proceeds to Acreage Holdings in exchange for such Acreage Holdings units.

If the Resulting Issuer proposes to redeem, repurchase or otherwise acquire any Subordinate Voting Shares for cash, the A&R LLC Agreement requires that USCo cause Acreage Holdings to redeem a corresponding number of Common Units held by USCo at an aggregate redemption price equal to the aggregate purchase or redemption price of the Subordinate Voting Shares being repurchased or redeemed by the Resulting Issuer (plus any expenses related thereto) and upon such other terms as are the same for the redemption by the Resulting Issuer, and the A&R LLC Agreement further requires that USCo, immediately prior to such redemption, repurchase or acquisition by the Resulting Issuer, but immediately following the redemption by Acreage Holdings, to redeem a corresponding number of USCo Shares held by the Resulting Issuer at an aggregate redemption price equal to the aggregate purchase or redemption price of the Subordinate Voting Shares being repurchased or redeemed by the Resulting Issuer (plus any expenses related thereto) and upon such other terms as are the same for the redemption by the Resulting Issuer.

 

In the event that any change is effected in the share capital of the Resulting Issuer, Acreage Holdings shall undertake all actions requested by USCo, including a reclassification, distribution, division or recapitalization of the Common Units to maintain at all times the same ratios between the number of Subordinate Voting Shares, the number of USCo Shares and USCo2 shares, and the number of Common Units issued and outstanding immediately prior to any such reclassification, consolidation, split, dividend of securities or other recapitalization including, without limitation, also effecting a reclassification, consolidation, split, dividend of securities or other recapitalization with respect to, as applicable, the Subordinate Voting Shares and Common Units.

 

A holder of Common Units (other than USCo and USCo2, respectively) will have the right to cause Acreage Holdings to redeem its Common Units. If a holder of Common Units (other than USCo and USCo, respectively) exercises its exchange right, Acreage Holdings will repurchase for cancellation each such Common Unit submitted for exchange in consideration for either one Subordinate Voting Share or a cash amount equal to the cash settlement amount applicable to such Common Unit, as determined by USCo; provided that USCo shall have the right to complete such exchange directly with the redeeming holder or may assign to the Resulting Issuer its rights and obligations to effect an exchange directly with the redeeming holder.

Any holder that causes Acreage Holdings to redeem its Common Units pursuant to the terms of the A&R LLC Agreement and otherwise fails to comply with the documentation requirements of Code Section 1446, including the requirement that such holder provide to Acreage Holdings a properly completed IRS Form W-9 or satisfy another exception as permitted within Code Section 1446, prior to the effective time of any such redemption or exchange, will generally be subject to U.S. withholding tax equal to ten percent (10%) of the fair market value of the Subordinate Voting Shares or the cash, as applicable, to be delivered to such holder pursuant to such redemption or exchange.

 

Except as described above, the A&R LLC Agreement authorizes USCo to cause Acreage Holdings to issue additional Common Units and securities convertible or exchangeable into Common Units on any terms and conditions of offering and sale as USCo in its discretion may determine, including with respect to acquisitions by Acreage Holdings of additional assets or equity interests in corporations, partnerships, limited liability companies and other entities and with respect to executive compensation. Unless otherwise determined by USCo, no person or entity shall have preemptive, preferential or any other similar right with respect to the issuances of any interest in Acreage Holdings.

 

FORM 2A - LISTING STATEMENT

 

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Except as permitted by the A&R LLC Agreement, no holder of Common Units may transfer any interest in such Common Units. The A&R LLC Agreement permits a transfer of Common Units pursuant to (i) the prior written approval of USCo, (ii) the exercise of exchange or redemption rights by any holder of Common Units, or (iii) certain other limited circumstances. Prior to transferring any Common Units, the transferring holder of Common Units will cause the transferee to execute a joinder to the A&R LLC Agreement and any other agreements required pursuant to the terms of the A&R LLC Agreement. Any transfer or attempted transfer of any Common Units in violation of any provision of the A&R LLC Agreement shall be void and Acreage Holdings shall not record such transfer on its books or treat any purported transferee as the owner of such Common Units for any purpose.

 

In no event shall any transfer of Common Units be effective to the extent such transfer could, in the reasonable determination of USCo:

 

result in a violation of the United States Securities Act of 1933, as amended, or any other applicable federal, state or foreign laws;
cause an assignment under the United States Investment Company Act of 1940, as amended;
be a violation of or a default (or an event that, with notice or the lapse of time or both, would constitute a default) under, or result in an acceleration of any indebtedness under, any promissory note, mortgage, loan agreement, indenture or similar instrument or agreement to which Acreage Holdings or USCo is a party; provided that the payee or creditor to whom Acreage Holdings or USCo owes such obligation is not an affiliate of Acreage Holdings or USCo;
cause Acreage Holdings to lose its status as a partnership for federal income tax purposes or, without limiting the generality of the foregoing, be effected on or through an “established securities market” or a “secondary market or the substantial equivalent thereof,” as such terms are used in Section 1.7704-1 of United States Treasury Regulations;
be a transfer to a person who is not legally competent or who has not achieved his or her majority under applicable law (excluding trusts for the benefit of minors);
cause Acreage Holdings or any Acreage Holdings member or USCo to be treated as a fiduciary under the United States Employee Retirement Income Security Act of 1974, as amended;
cause Acreage Holdings (as determined by USCo in its sole discretion) to be treated as a “publicly traded partnership” or to be taxed as a corporation pursuant to Section 7704 of the Code or successor provision of the Code; or
result in Acreage Holdings having more than one hundred (100) partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1) (determined pursuant to the rules of Treasury Regulations section 1.7704-1(h)(3)) in any taxable year that is not a “restricted taxable year” (as defined in the A&R LLC Agreement).

Any holder that transfers its Common Units pursuant to the terms of the A&R LLC Agreement and otherwise fails to comply with the documentation requirements of Code Section 1446, including the requirement that such holder provide to Acreage Holdings a properly completed IRS Form W-9 or satisfy another exception as permitted within Code Section 1446, prior to the effective time of any such transfer, will generally be subject to U.S. withholding tax equal to ten percent (10%) of the fair market value of the consideration to be delivered to such holder pursuant to such redemption or exchange.

 

Each Acreage Holdings member who is an individual, including those persons who become Acreage Holdings members in connection with receiving any Common Units, automatically and irrevocably will appoint USCo, with full power of substitution, as that Acreage Holdings member’s agent to execute and file documents or instruments required for, among other things, but subject in each case to the other provisions of the A&R LLC Agreement, the A&R LLC Agreement (or a joinder thereto), all instruments that USCo deems appropriate or necessary to reflect any amendment, change, modification or restatement of the A&R LLC Agreement, all conveyances and other instruments or documents which USCo deems appropriate or necessary to reflect the dissolution or liquidation of Acreage Holdings pursuant to the terms of the A&R LLC Agreement, all instruments relating to the admission, withdrawal or substitution of an Acreage Holdings member pursuant to the terms of the A&R LLC Agreement, and any other ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the reasonable judgment of USCo, to evidence, confirm or ratify any vote, consent, approval, agreement, or other action made or given by the Acreage Holdings members in accordance with the terms of the A&R LLC Agreement.

 

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Following the issuance of the Common Units to the Acreage Holdings members pursuant to the adoption of the A&R LLC Agreement, the Acreage Holdings members will not be required to make further contributions to Acreage Holdings.

 

Neither Acreage Holdings nor USCo is liable for the return of any capital contribution made by an Acreage Holdings member to Acreage Holdings.

 

Subject to the provisions of the DLLCA and of similar legislation in other jurisdictions of the United States and the A&R LLC Agreement: (i) the liability of each Acreage Holdings member for the debts, liabilities and obligations of Acreage Holdings will be limited to the Acreage Holdings member’s capital contribution, plus the Acreage Holdings member’s share of any undistributed income of Acreage Holdings; and (ii) following payment of an Acreage Holdings member’s capital contribution, such Acreage Holdings member may be required to return amounts previously distributed to such Acreage Holdings member in accordance with the DLLCA and the laws of the State of Delaware.

 

The A&R LLC Agreement states that an Acreage Holdings member (in its capacity as an Acreage Holdings member) does not have the authority or power to do any of the following:

 

act for or on behalf of Acreage Holdings;
to do any act that would be binding upon Acreage Holdings;
make any expenditure on behalf of Acreage Holdings;
seek or obtain partition by court decree or operation of law of any Acreage Holdings property; or
own or use particular or individual assets of Acreage Holdings.

The A&R LLC Agreement provides that Acreage Holdings will indemnify each Acreage Holdings member for all liabilities incurred by the Acreage Holdings member that arise solely by reason of such Acreage Holdings member being a member of Acreage Holdings.

 

Subject to the provisions set forth in the A&R LLC Agreement, USCo will cause distributions to be made by Acreage Holdings as follows: (i) “distributable cash” (as defined in the A&R LLC Agreement) or other funds or property legally available to the extent permitted by the DLLCA and applicable law, to the Acreage Holdings members pro rata to each Acreage Holdings member’s proportionate ownership interest in Acreage Holdings in amounts on terms as USCo will determine, and (ii) not less than five business days prior to the due date of a U.S. federal income tax return for an individual calendar year taxpayer, cash in an amount equal to the excess of each Acreage Holdings member’s “assumed tax liability” (as defined in the A&R LLC Agreement) over distributions previously made to such Acreage Holdings member with respect to each such taxable period.

 

In no case will Acreage Holdings be required to make a distribution if such distribution would violate the DLLCA or any other applicable law.

 

The A&R LLC Agreement may be amended or modified by USCo as determined to be necessary or advisable, in the sole discretion of USCo, in connection with the adoption, implementation, modification or termination of certain equity plans by the Resulting Issuer. Subject to the right of USCo to amend the A&R LLC Agreement in connection with the adoption, implementation, modification or termination of certain equity plans by the Resulting Issuer, unless otherwise specified in the A&R LLC Agreement that a specific amendment requires the approval or action of certain persons, the A&R LLC Agreement may only be amended with the consent of USCo and Acreage Holdings members holding a majority of the outstanding Common Units.

 

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USCo shall have the power and authority to effectuate the sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of Acreage Holdings (including the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by Acreage Holdings) or the merger, consolidation, reorganization or other combination of Acreage Holdings with or into another entity.

 

The Acreage Holdings Members intend that Acreage Holdings be treated as a partnership for U.S. federal and, if applicable, state or local income tax purposes. Each Acreage Holdings Member and Acreage Holdings will file all tax returns and will otherwise take all tax and financial reporting positions in a manner consistent with such treatment.

Acreage Holdings will dissolve, and its affairs will be wound up, upon the occurrence of any of the following events:

 

the decision of USCo together with the holders of a majority of the then-outstanding Common Units entitled to vote to dissolve Acreage Holdings;
a dissolution of Acreage Holdings under the DLLCA; or
the entry of a decree of judicial dissolution of Acreage Holdings under the DLLCA.

Except as otherwise provided in the A&R LLC Agreement, Acreage Holdings is intended to have perpetual existence. The withdrawal of an Acreage Holdings member shall not cause a dissolution of Acreage Holdings and Acreage Holdings shall continue in existence subject to the terms and conditions of the A&R LLC Agreement.

 

Upon dissolution of Acreage Holdings, the procedure is as follows:

 

the liquidators shall cause a proper accounting to be made by a recognized firm of certified public accountants of Acreage Holdings’ assets, liabilities and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable;

 

the liquidators shall cause the notice described in the DLLCA to be mailed to each known creditor of and claimant against Acreage Holdings in the manner described thereunder;

 

the liquidators shall pay, satisfy or discharge from Acreage Holdings funds, or otherwise make adequate provision for payment and discharge thereof (including the establishment of a cash fund for contingent liabilities in such amount and for such term as the liquidators may reasonably determine): first, all expenses incurred in liquidation; and second, all of the debts, liabilities and obligations of Acreage Holdings; and

 

all remaining assets of Acreage Holdings shall be distributed to the Acreage Holdings members in accordance with the terms of the A&R LLC Agreement by the end of the taxable year during which the liquidation of Acreage Holdings occurs (or, if later, by ninety (90) days after the date of the liquidation), which shall constitute a complete return to the Acreage Holdings members of their capital contributions to Acreage Holdings, a complete distribution to the Acreage Holdings members of their interest in Acreage Holdings and all of Acreage Holdings’ property. To the extent that an Acreage Holdings member returns funds to Acreage Holdings, it has no claim against any other Acreage Holdings member for those funds.

 

USCo may resign as the sole manager of Acreage Holdings at any time by giving written notice to the Acreage Holdings Members. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Acreage Holdings Members, and the acceptance of the resignation shall not be necessary to make it effective. The Acreage Holdings Members have no right under the A&R LLC Agreement to remove or replace USCo as the sole manager of Acreage Holdings. Vacancies in the position of manager occurring for any reason will be filled by USCo (or, if USCo has ceased to exist without any success or assign, then by the holders of a majority in interest of the voting capital stock of USCo immediately prior to such cessation).

 

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Under the A&R LLC Agreement, in most circumstances, Acreage Holdings will indemnify and hold harmless any person to the fullest extent permitted under the DLLCA, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits Acreage Holdings to provide broader indemnification rights than Acreage Holdings is providing immediately prior to such amendment, substitution or replacement), against all expenses, liabilities and losses (including attorneys’ fees, judgments, fines, excise taxes or penalties) reasonably incurred or suffered by such person (or one or more of such person’s affiliates) by reason of the fact that such person is or was an Acreage Holdings member or is or was serving at the request of Acreage Holdings as the manager, an officer, an employee or another agent of Acreage Holdings or is or was serving at the request of Acreage Holdings as a manager, member, employee or agent of another limited-liability company, corporation, partnership, joint venture, trust or other enterprise; provided, however, that no such person shall be indemnified for actions against Acreage Holdings, the Manager or Managers or any other Acreage Holdings members, or which are not made in good faith and not or in a manner which he or she reasonably believed to be in or not opposed to the best interests of Acreage Holdings, or, with respect to any criminal action or proceeding other than by or in the right of Acreage Holdings, had reasonable cause to believe the conduct was unlawful, or for any present or future breaches of any representations, warranties or covenants by such person or its affiliates as provided in the A&R LLC Agreement or other agreements to which Acreage Holdings is a party.

 

Expenses, including attorneys’ fees, incurred by any such person in defending a proceeding, shall be paid by Acreage Holdings as they are incurred and in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined by a court of competent jurisdiction that such person is not entitled to be indemnified by Acreage Holdings.

 

Acreage Holdings will maintain directors’ and officers’ liability insurance, or make other financial arrangements, at its expense, to protect any person indemnified pursuant to the A&R LLC Agreement against certain expenses, liabilities or losses described in the A&R LLC Agreement whether or not Acreage Holdings would otherwise have the power to indemnify such person against such expenses, liabilities or losses under the provisions of the A&R LLC Agreement. Acreage Holdings shall use its commercially reasonable efforts to purchase directors’ and officers’ liability insurance (including employment practices coverage) with a carrier and in an amount determined necessary or desirable as determined in good faith by USCo.

 

Acreage Holdings shall keep, or cause to be kept, appropriate books and records with respect to Acreage Holdings’ business, including all books and records necessary to provide any information, lists and copies of documents required to be provided to each person who was an Acreage Holdings member during each fiscal year of Acreage Holdings as is reasonably necessary for the preparation of such person’s U.S. federal and applicable state income tax returns.

 

All decisions to make or refrain from making any tax elections will be determined by USCo. USCo is authorized to represent Acreage Holdings, at Acreage Holdings’ expense, in connection with all examinations of Acreage Holdings’ affairs by tax authorities, including resulting administrative and judicial proceedings. Each Acreage Holdings member agrees to cooperate with USCo and to do or refrain from doing any or all things with regard to all things reasonably required by USCo to conduct such proceedings. USCo shall keep all Acreage Holdings members fully advised on a current basis of any contacts by or discussions with the tax authorities, and the Acreage Holdings members shall have the right to observe and participate through representatives of their own choosing (at their sole expense) in any tax proceedings.

 

Tax Receivable Agreement

In connection with the RTO, USCo will enter into a tax receivable agreement with Acreage Holdings and the Founder, certain executive employees and profit interests holders (the “Tax Receivable Agreement”). USCo expects to obtain an increase in its share of the tax basis of the assets of Acreage Holdings when an Acreage Holdings member receives cash or Subordinate Voting Shares in connection with a redemption or exchange of such Acreage Holdings Member’s Common Units or profit interests in Acreage Holdings for Subordinate Voting Shares or cash (such basis increase, the “Basis Adjustments”).

 

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The Tax Receivable Agreement provides for the payment by USCo to Acreage Holdings Members of 65% of the amount of tax benefits, if any, that USCo actually realizes, or in some circumstances is deemed to realize, as a result of the redemption and exchange transactions described above, including increases in the tax basis of the assets of Acreage Holdings arising from such transactions, tax basis increases attributable to payments made under the Tax Receivable Agreement and deductions attributable to imputed interest and other payments of interest pursuant to the Tax Receivable Agreement. USCo expects to benefit from 15% of tax benefits, if any, that USCo may actually realize, with the remaining 20% paid to the Tax Receivable Bonus Plan, the material terms of which are summarized below.

 

The actual Basis Adjustments, as well as any amounts paid to the Acreage Holdings Members under the Tax Receivable Agreement, will vary depending on a number of factors, including:

 

the timing of any subsequent redemptions or exchanges - for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of USCo at the time of each redemption or exchange;

 

the price of Subordinate Voting Shares at the time of redemptions or exchanges - the Basis Adjustments, as well as any related increase in any tax deductions, is directly related to the price of Subordinate Voting Shares at the time of each redemption or exchange;
the extent to which such redemptions or exchanges are taxable - if a redemption or exchange is not taxable for any reason, increased tax deductions will not be available; and

 

the amount and timing of USCo income - the Tax Receivable Agreement generally will require USCo to pay 65% of the tax benefits as and when those benefits are treated as realized under the terms of the Tax Receivable Agreement. If USCo does not have taxable income, it generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the Tax Receivable Agreement for that taxable year because no tax benefits will have been actually realized. However, any tax benefits that do not result in realized tax benefits in a given taxable year will likely generate tax attributes that may be utilized to generate tax benefits in previous or future taxable years. The utilization of any such tax attributes will result in payments under the Tax Receivable Agreement.

 

The Tax Receivable Agreement will provide that if: (i) USCo materially breaches any of its material obligations under the Tax Receivable Agreement; (ii) certain mergers, asset sales, other forms of business combination, or other changes of control were to occur; or (iii) USCo elects an early termination of the Tax Receivable Agreement, then USCo’s obligations, or its successor’s obligations, under the Tax Receivable Agreement would accelerate and become due and payable, based on certain assumptions, including an assumption that USCo would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement. As a result: (i) USCo could be required to make cash payments that are greater than the specified percentage of the actual benefits it ultimately realizes in respect of the tax benefits that are subject to the Tax Receivable Agreement; and (ii) if USCo elects to terminate it will be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.

Acreage Holdings intends to treat such acquisition of Acreage Holdings Units as a direct purchase by Acreage Holdings of Acreage Holdings Units from an Acreage Holdings member for U.S. federal income and other applicable tax purposes, regardless of whether such Acreage Holdings Units surrendered by an Acreage Holdings member to Acreage Holdings, USCo or the Resulting Issuer upon the exercise by USCo of its election to acquire such Acreage Holdings Units directly or the exercise by USCo to assign its rights to acquire such Acreage Holdings Units directly to the Resulting Issuer. Basis Adjustments may have the effect of reducing the amounts that USCo may otherwise owe in the future to various tax authorities.

 

In its capacity as the sole manager of the Acreage Holdings, USCo will ensure that Acreage Holdings will have in effect an election under Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law) for each taxable year in which a redemption or exchange of Acreage Holding Units for Subordinate Voting Shares or cash occurs.

 

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To the extent any Acreage Holdings member sells, exchanges, distributes, or otherwise transfers Acreage Holdings Units to any person, the Acreage Holdings member shall have the option to assign to the transferee of such Acreage Holdings Units its rights under the Tax Receivable Agreement with respect to such transferred Acreage Holdings Units. If an Acreage Holdings member transfers Acreage Holdings Units but does not assign to the transferee of such Acreage Holdings Units its rights under the Tax Receivable Agreement with respect to such transferred Acreage Holdings Units, such Acreage Holdings member shall continue to be entitled to receive the tax benefit payments arising in respect of a subsequent exchange of such Acreage Holding Units for Subordinate Voting Shares.

 

The payment obligations under the Tax Receivable Agreement are obligations of USCo and not of the Resulting Issuer or Acreage Holdings. The actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary. Any payments made by USCo to Acreage Holdings members under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to USCo (or to the Resulting Issuer or Acreage Holding) and, to the extent that USCo is unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by USCo.

Within 75 calendar days after the filing of the U.S. federal income tax return of USCo (or, if USCo becomes a member of an affiliated or consolidated group of corporations that files a consolidated U.S. federal income tax return pursuant to Section 1501 of the Code or any provision of U.S. state or local law, then such consolidated U.S. federal income tax return) for any taxable year in which there is a taxable benefit or detriment is realized, USCo shall provide to the Acreage Holdings member a schedule showing, in reasonable detail, the calculation of the realized tax benefit or detriment, as applicable, for such taxable year (the “Tax Benefit Schedule”). Within three business days following the date on which each Tax Benefit Schedule becomes final in accordance with the terms of the Tax Receivable Agreement, USCo shall pay to each relevant Acreage Holdings member the tax benefit payment as determined, as applicable. Any late payments that may be made under the Tax Receivable Agreement will continue to accrue interest until such payments are made, including any late payments that USCo may subsequently make because USCo did not have enough available cash to satisfy its payment obligations at the time at which they originally arose.

 

Tax Receivable Bonus Plan

In connection with the Tax Receivable Agreement, USCo established a tax receivable bonus plan (the “Tax Receivable Bonus Plan”). The principal features of the Tax Receivable Bonus Plan are summarized below.

Eligibility and Participation

Participants in the Tax Receivable Bonus Plan shall only include each individual who is classified as a member of the senior executive team of the Resulting Issuer and its affiliated entities, as identified therein (each, a “Tax Receivable Bonus Plan Participant”). A Tax Receivable Bonus Plan Participant who is terminated for cause from the Resulting Issuer or any of its affiliated entities shall be automatically precluded from any participation in the Tax Receivable Bonus Plan. Further, additional Tax Receivable Bonus Participants may not be added to the Tax Receivable Bonus Plan.

Participants must remain members of Acreage Holdings on the date on which a payment is made in order to receive a payout from the Tax Receivable Bonus Plan, unless granted an exception. Payments may be recommended to and approved in the case of death, disability, retirement, or transfer during the Tax Receivable Bonus Plan year. Any such payment, if made, shall be made on the same date as all other payments of the Tax Receivable Bonus Plan.

Bonus Pool

The “Total Bonus Pool” available for distribution each year under the Tax Receivable Bonus Plan shall be equal to 20% of the realized tax benefit for that year to USCo under that Tax Receivable Agreement.

 

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Prior to distribution, the Total Bonus Pool shall be divided between all eligible Tax Receivable Bonus Plan Participants for the relevant year. No individual Tax Receivable Bonus Plan Participant is guaranteed any payment under the Tax Receivable Bonus Plan, regardless of his classification as a Tax Receivable Bonus Plan Participant for any given year. Total payments to all Tax Receivable Bonus Plan Participants under the Tax Receivable Bonus Plan any given year shall equal the Total Bonus Pool for that year.

Distribution

Payments to Tax Receivable Bonus Plan Participants under the Tax Receivable Bonus Plan shall be made in a single lump sum as soon as reasonably possible after USCo has determined the amount of the realized tax benefit for a given year but in all cases no later than December 1st of the year in which USCo’s filing which results in the realized tax benefit is due without regard to extensions. A Tax Receivable Bonus Plan Participant must be an employee of USCo, an affiliate, or a subsidiary thereof as of the date on which the payment is actually made in order to receive a payment, subject to certain exemptions. In the event a Tax Receivable Bonus Plan Participant terminates employment after his or her bonus is determined, but prior to distribution, such payment shall be forfeited and retained by USCo or redistributed to eligible Tax Receivable Bonus Plan Participants.

Change in Control

Upon a Change of Control (as defined herein), a final distribution (the “Final Distribution”) under the Tax Receivable Bonus Plan shall be made. The Final Distribution shall be in place of, not in addition to, any other distribution for such year. The Total Bonus Pool for distribution for the year in which the Change in Control occurs shall be equal to the realized tax benefit for such year. For purposes of this paragraph, a “Change in Control” shall only occur upon: (i) a change in the ownership or effective control of USCo, or a change in the ownership of a substantial portion of the assets of USCo as described in Treasury Regulations Section 1.409A-3(i)(5) and (ii) the termination of the Tax Receivable Agreement according to its terms within the same taxable year as the event described in subparagraph (i).

Tax Withholding

USCo shall have the authority to withhold amounts necessary for payment of any taxes.

 

Description of Capital of Acreage Holdings

Following completion of the RTO, holders of Class B Membership Units, with respect to a portion of such Class B Membership Units, and holders of Class C Membership Units and Class C-1 Membership Units shall retain their interest in Acreage Holdings and be granted redemption and exchange rights by the Resulting Issuer to permit the future redemption or exchange of the units they hold for Subordinate Voting Shares or cash pursuant to the Acreage Support Agreement (as defined herein).

 

A summary of the material provisions set forth in the Acreage Support Agreement is outlined below.

 

Acreage Support Agreement

The Resulting Issuer, USCo and Acreage Holdings will enter into the Acreage Support Agreement, pursuant to which the Resulting Issuer will agree that, so long as any Acreage Holdings Units which are redeemable or exchangeable for Subordinate Voting Shares and not owned by USCo or USCo2 are outstanding, the Resulting Issuer shall:

 

take all such actions and do all such things as are reasonably necessary or desirable to enable and permit the Resulting Issuer, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of a redemption or exchange of Acreage Holdings Units by a holder thereof upon a redemption or exchange of such Acreage Holdings Units by the Resulting Issuer and, without limiting the generality of the foregoing, take all such actions and do all such things as are necessary or desirable to enable and permit the Resulting Issuer to cause to be delivered Subordinate Voting Shares and/or amounts in cash, as applicable, to the holders of Acreage Holdings Units in accordance with the provisions of the A&R LLC Agreement, together with an amount in cash sufficient to pay any amount to be paid in respect of unpaid distributions with respect to such Acreage Holdings Units (if any); and
 

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take all such actions and do all such things as are reasonably necessary or desirable to enable and permit USCo, if it elects to effect a redemption or exchange of the Acreage Holdings Units directly with the holder thereof, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of a redemption or exchange of the Acreage Holdings Units by a holder thereof.

 

The Acreage Support Agreement will provide that in the event that a tender offer, share exchange offer, issuer bid, take-over bid or similar transaction with respect to Subordinate Voting Shares is proposed by the Resulting Issuer or is proposed to the Resulting Issuer or its shareholders and is recommended to the Resulting Issuer Board, or is otherwise effected or to be effected with the consent or approval of the Resulting Issuer Board, and the Acreage Holdings Units are not redeemed by USCo or purchased by USCo or the Resulting Issuer pursuant to the terms of the A&R LLC Agreement, the Resulting Issuer will use its reasonable efforts in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit holders of Acreage Holdings Units (other than USCo or USCo2) to participate in such offer to the same extent and on an economically equivalent basis as the holders of Subordinate Voting Shares, without discrimination. Without limiting the generality of the foregoing, the Resulting Issuer will use its reasonable efforts in good faith to ensure that holders of Acreage Holdings Units may participate in each such offer.

 

The Acreage Support Agreement will provide that while any Acreage Holdings Units (or other rights pursuant to which Acreage Holdings Units may be acquired upon the exercise thereof) which are redeemable or exchangeable for Subordinate Voting Shares, other than Acreage Holdings Units held by USCo or USCo2 are outstanding, the Resulting Issuer will make available such number of Subordinate Voting Shares (or other shares or securities into which Subordinate Voting Shares may be reclassified or changed) without duplication sufficient to satisfy the issuance of Subordinate Voting Shares upon redemption of all currently outstanding Acreage Holdings Units or such Acreage Holdings Units which may be issuable upon the exercise of all rights to acquire such Acreage Holdings Units, in addition to any additional Subordinate Voting Shares as may be required to enable and permit the Resulting Issuer to meet its obligations under the A&R LLC Agreement, the Tax Receivable Agreement and under any other security or commitment pursuant to which the Resulting Issuer may be required to deliver Subordinate Voting Shares to any person.

Description of Capital of USCo2

 

The authorized share capital of USCo2 consists of 1,000,000,000 Class A Voting Common Shares and 1,000,000,000 Class B Non-Voting Common Shares.

 

Holders of Class A Voting Common Shares are entitled to receive notice of, attend and vote at meetings of the securityholders of USCo2 (other than meetings at which only holders of another class or series of shares are entitled to vote separately as a class or series). Each Class A Voting Common Share entitles the holder thereof to one vote on all matters upon which holders of Class A Voting Common Shares are entitled to vote.

 

Class B Non-Voting Common Shares do not entitle the holders thereof to receive notice of, attend or vote at meetings of the securityholders. A holder of Class B Non-Voting Common Shares (other than Acreage Holdings) has the right to cause USCo2 to redeem its Class B Non-Voting Common Shares. If a holder of Class B Non-Voting Common Shares (other than Acreage Holdings) exercises its redemption or exchange right, USCo2 will repurchase for cancellation each such Class B Non-Voting Common Share submitted for redemption or exchange in consideration for either one Subordinate Voting Share or a cash amount equal to the cash settlement amount applicable to such Class B Non-Voting Common Shares, as determined by USCo2; provided that USCo2 may assign to Acreage Holdings its rights and obligations to effect a redemption or exchange directly with the redeeming holder.

 

USCo2 Support Agreement

 

The Resulting Issuer and USCo2 will enter into a USCo2 Support Agreement (the “USCo2 Support Agreement”), pursuant to which the Resulting Issuer will agree that, so long as any shares of USCo2 which are redeemable or exchangeable for Subordinate Voting Shares and not owned by the Resulting Issuer are outstanding, the Resulting Issuer shall:

 

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take all such actions and do all such things as are reasonably necessary or desirable to enable and permit the Resulting Issuer, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of a redemption or exchange of USCo2 shares by a holder thereof upon a redemption or exchange of such USCo2 shares by the Resulting Issuer and, without limiting the generality of the foregoing, take all such actions and do all such things as are necessary or desirable to enable and permit the Resulting Issuer to cause to be delivered Subordinate Voting Shares and/or amounts in cash, as applicable, to the holders of USCo2 shares in accordance with the provisions of USCo2’s Articles of Incorporation, together with an amount in cash sufficient to pay any amount to be paid in respect of unpaid distributions with respect to such USCo2 shares (if any); and

 

take all such actions and do all such things as are reasonably necessary or desirable to enable and permit USCo2, if it elects to effect a redemption or exchange of USCo2 shares directly with the holder thereof, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of a redemption or exchange of USCo2 shares by a holder thereof.

The USCo2 Support Agreement will provide that in the event that a share exchange offer, issuer bid, take-over bid or similar transaction with respect to Subordinate Voting Shares is proposed by the Resulting Issuer or is proposed to the Resulting Issuer or its shareholders and is recommended to the Resulting Issuer Board, or is otherwise effected or to be effected with the consent or approval of the Resulting Issuer Board, and the USCo2 shares are not redeemed by USCo2 or purchased by USCo2 or the Resulting Issuer pursuant to the terms of the USCo2 Articles of Incorporation, the Resulting Issuer will use its reasonable efforts in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit holders of USCo2 shares (other than the Resulting Issuer) to participate in such offer to the same extent and on an economically equivalent basis as the holders of Subordinate Voting Shares, without discrimination. Without limiting the generality of the foregoing, the Resulting Issuer will use its reasonable efforts in good faith to ensure that holders of USCo2 shares may participate in each such offer.

 

The USCo2 Support Agreement will provide that while any USCo2 shares (or other rights pursuant to which USCo2 shares may be acquired upon the exercise thereof) which are redeemable or exchangeable for Subordinate Voting Shares, other than USCo2 shares held by the Resulting Issuer, are outstanding, the Resulting Issuer will make available such number of Subordinate Voting Shares (or other shares or securities into which Subordinate Voting Shares may be reclassified or changed) without duplication sufficient to satisfy the issuance of Subordinate Voting Shared upon redemption of all currently outstanding USCo2 shares or such USCo2 shares which may be issuable upon the exercise of all rights to acquire such shares, in addition to any additional Subordinate Voting Shares as may be required to enable and permit the Resulting Issuer to meet its obligations under any security or commitment pursuant to which the Resulting Issuer may be required to deliver Subordinate Voting Shares to any person.

 

10.2 - 10.6 Miscellaneous Securities Provisions

See Section 10.1 above.

 

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10.7       Prior Sales

In the 12 months preceding the date of this Listing Statement, Pubco has issued the following securities of Pubco:

Date of Issue Security Type Description of Consideration Number of Securities

Price Per Security

(C$)

10/5/2018 Class A Subordinate Voting Shares Cash 750,000   $ 0.05  
10/15/2018 Class A Subordinate Voting Shares Cash 2,300,000   $ 0.06  
10/15/2018 Class A Subordinate Voting Shares Conversion of outstanding debenture in the principal amount of C$115,000 2,300,000   $ 0.05  

In the 12 months preceding the date of this Listing Statement, Acreage Holdings has issued the following securities of Acreage Holdings:

Date of Issue Security Type Description of Consideration Number of Units

Price Per Unit

($)

11/15/2017 Convertible Notes Cash 6,473,521(1) $ 4.83  
12/28/2017 Profit Interests Service Grant 3,250,000(2) $ 0.47  
3/15/2018 Profit Interests Service Grant 3,838,000(2) $ 0.43  
5/4/2018 Class D Units Purchase of SSBP 291,157   $ 6.20  
5/16/2018 Class D Units Purchase of MMRC 96,997   $ 6.20  
5/18/2018 Class D Units Cash 5,079   $ 6.20  
5/25/2018 Class D Units Purchase of WPMC 1,806,451   $ 6.20  
5/31/2018 Class D Units Purchase of CCC-CT 500,000   $ 6.20  
6/20/2018 Class D Units Purchase of Cannabliss 40,322   $ 6.20  
6/24/2018 Class D Units Purchase of Impire 403,266   $ 6.20  
7/1/2018 Class D Units Purchase of PCG 3,394,466   $ 6.20  
7/2/2018 Class D Units Management Contract with GL Apothecaries 671,371   $ 6.20  
7/3/2018 Class D Units Purchase of PATCC 2,413,568   $ 6.20  
7/3/2018 Class D Units Purchase of MA-RMD 161,290   $ 6.20  
7/18/2018 Class D Units Professional Services 14,113   $ 6.20  
8/2/2018 Class E Units Cash 19,352,143   $ 6.20  
8/6/2018 Class D Units Professional Services 241,935   $ 6.20  
8/7/2018 Class D Units Professional Services 13,440   $ 6.20  
8/15/2018 Class D Units Professional Services 45,309   $ 6.20  
8/15/2018 Class D Units Purchase of NYCANNA 3,479,820   $ 6.20  
8/16/2018 Class D Units Management Contract with GL Therapeutics 214,839   $ 6.20  
8/31/2018 Class D Units Professional Services 7,225   $ 6.20  
8/31/2018 Class D Units Purchase of WPMC 100,806   $ 6.20  
9/13/2018 Class D Units Purchase of PWCT 1,148,630   $ 6.20  
9/19/2018 Class D Units Purchase of WPMC 96,774   $ 6.20  
9/21/2018 Class D Units Professional Services 6,612   $ 6.20  
9/21/2018 Class D Units Professional Services 3,225   $ 6.20  
9/21/2018 Class D Units Professional Services 4,556   $ 6.20  
9/21/2018 Class D Units Professional Services 9,036   $ 6.20  
9/21/2018 Class D Units Professional Services 4,435   $ 6.20  

 

 

 

 

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Date of Issue Security Type Description of Consideration Number of Units

Price Per Unit

($)

9/21/2018 Class D Units Professional Services 82,233   $ 6.20  
9/21/2018 Class D Units Professional Services 52,436   $ 6.20  
9/28/2018 Class D Units Professional Services 161,290   $ 6.20  
9/28/2018 Class D Units Professional Services 161,290   $ 6.20  
9/28/2018 Class D Units Professional Services 161,290   $ 6.20  
9/28/2018 Class D Units Professional Services 161,290   $ 6.20  
10/15/2018 Class D Units Professional Services 8,065   $ 6.20  
10/31/2018 Class D Units Purchase of WPMC 40,322   $ 6.20  
10/31/2018 Class D Units Purchase of WPMC 40,322   $ 6.20  

 

Notes:

(1) Price per unit represents conversion rate for the Acreage Holdings Note.

(2) Price per unit represents grant date fair market value of profit interests awards issued for services.

  

10.8       Stock Exchange Price

Not applicable.

11.       ESCROWED SECURITIES

The securities of the Resulting Issuer will not be subject to escrow. Each holder of Acreage Holdings Units (including holders of Acreage Holdings Units received upon the conversion of Acreage Holdings Notes) immediately prior to the completion of the RTO and each director and officer of the Resulting Issuer, entered into lock-up agreements (each, a “Lock Up”) pursuant to which such parties have agreed, subject to customary carve-outs and exceptions, to certain restrictions on the resale of their Resulting Issuer Shares. Such Lock Up will limit the percentage of each such holder’s Resulting Issuer Shares that such holder may sell as set forth in the table immediately below.

Months Following the Closing of the RTO Maximum Percentage of Resulting Issuer Shares Held on Closing of the RTO that May be Sold (cumulative)
0-2 Nil
2-4 5%
4-6 15%
6+ 100%

 

For the avoidance of doubt, Subordinate Voting Shares acquired in the Finco SR Financing or in the open market by any such holder after completion of the RTO will not be subject to the Lock Up.

 

12.       PRINCIPAL SHAREHOLDERS

Following the completion of the RTO, to the best of the knowledge of the Resulting Issuer, except as set out below, no person will beneficially own, directly or indirectly, or exercise control or direction over voting securities carrying more than 10% of the voting rights attached to any class of voting securities of the Resulting Issuer:

 

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Name, Jurisdiction of Residence Number of Shares (1)(2)(3) Class of Shares Method of Ownership

Percentage of Class

(1)(2)(3)

Percentage of Voting Rights of the Resulting Issuer Shares

Kevin Murphy

(New York, United States)

168,000 Multiple Voting Shares

Record and

Beneficially

100% 86.4%
113,102(4) Proportionate Voting Shares Beneficial 7.8% 0.8%

 

Notes:

(1) The information as to shares beneficially owned or over which such person exercises control or direction has been furnished by the principal shareholder.

(2) On an issued and undiluted basis, not giving effect to the exercise of the Awards or Resulting Issuer Warrants held by such person, as applicable.

(3) Assumes redemption of all Acreage Holdings Units held by such principal holder following completion of the RTO.

(4) 16,250 of the Proportionate Voting Shares are registered in the name of Murphy Capital, LLC, an entity over which Mr. Murphy exercises direction or control, and 96,852 Proportionate Voting Shares are registered in the name of The Kevin Murphy 2018 Annuity Trust.

 

13.       DIRECTORS AND OFFICERS

13.1       Directors and Executive Officers

The following table sets forth the names of all proposed directors and officers of the Resulting Issuer, their municipalities of residence, their proposed positions with the Resulting Issuer, their principal occupations during the past five years, the number and percentage of Resulting Issuer Shares expected to be beneficially owned, directly or indirectly, or over which control or direction will be exercised following completion of the RTO, and, if such person was an existing director or officer of Acreage Holdings prior to the RTO, the date on which such person became a director or officer, as applicable. The Resulting Issuer’s proposed directors were elected as such at the Pubco Meeting or will be appointed by the Board following completion of the RTO and are expected to hold office until its next annual general meeting of shareholders unless they resign prior thereto or are removed by the shareholders of the Resulting Issuer. The Resulting Issuer’s directors will be elected annually and, unless re-elected, will retire from office at the end of the next annual general meeting of shareholders.

Name, Municipality of Residence (1) Proposed Position with the Resulting Issuer Acreage Holdings Director or Officer Since Principal Occupation for the Past Five Years

Number (2), Class and Percentage of Resulting Issuer Shares Beneficially

Owned or Controlled after the RTO (3)

Number (2) and Percentage of Subordinate Voting Shares Beneficially

Owned or Controlled after the RTO on a Fully Diluted Basis (6)

 

John Boehner (5)

Marco Island, Florida

Director N/A Former Speaker of the U.S. House of Representatives  -

625,000

(0.54%)

 
 
 

William F. Weld (5)

Canton, Massachusetts

 

Director N/A Former Governor of Massachusetts  -

625,000

(0.54%)

 
 
 

 

 

FORM 2A - LISTING STATEMENT

 

102 -

 

 

 

 

 

 

 

Name, Municipality of Residence (1)

 

Proposed Position with the Resulting Issuer Acreage Holdings Director or Officer Since Principal Occupation for the Past Five Years

Number (2), Class and Percentage of Resulting Issuer Shares Beneficially

Owned or Controlled after the RTO (3)

Number (2) and Percentage of Subordinate Voting Shares Beneficially

Owned or Controlled after the RTO on a Fully Diluted Basis (6

 

Kevin P. Murphy (4)(5)(8)

New York, New York

 

 

Director & Chief Executive Officer

April 2014 Chief Executive Officer, Acreage Holdings

168,000 Multiple Voting Shares (100.00%)

 

113,102 Proportionate Voting Shares

(7.80%)

21,189,988

(18.44%)

 

Larissa L. Herda (5)

Castle Rock, Colorado

 

 

Director

N/A Consultant -

160,000

(0.14%)

 

Douglas Maine (4)

Bedford Corners, New York

 

 

Lead Independent Director

N/A Director of Ablemarle Corporation -

160,000

(0.14%)

 

Brian Mulroney(5)

Montreal, Quebec

 

 

Director

N/A Senior Partner and Consultant, Norton Rose Fulbright -

280,000

(0.24%)

 

William C. Van Faasen(4)

Boston, Massachusetts

 

 

Director

N/A Chair Emeritus of Blue Cross Shield of Massachusetts; Chair of the Board of Directors of Blue Cross Shield of Massachusetts -

160,000

(0.14%)

 

George Allen

Clinton Corners, New York

 

 

President

September 2017 President, Acreage Holdings -

2,300,000

(2.00%)

 

Glen Leibowitz

New York, New York

 

 

Chief Financial Officer

March 2018 Chief Financial Officer, Acreage Holdings -

615,000

(0.54%)

 

Robert Daino

Manlius, New York

 

 

Chief Operating Officer

August 2018 Chief Operating Officer, Acreage Holdings -

840,000

(0.73%)

 

James A. Doherty

Scranton, Pennsylvania

 

 

General Counsel & Secretary

 

October 2017 General Counsel, Acreage Holdings -

585,900

(0.51%)

 

 

 

 

 

 

FORM 2A - LISTING STATEMENT

 

103 -

 

 

 

 

Name, Municipality of Residence (1) Proposed Position with the Resulting Issuer Acreage Holdings Director or Officer Since Principal Occupation for the Past Five Years

Number (2), Class and Percentage of Resulting Issuer Shares Beneficially

Owned or Controlled after the RTO (3)

Number (2) and Percentage of Subordinate Voting Shares Beneficially

Owned or Controlled after the RTO on a Fully Diluted Basis (6)

Harris Damashek

Greenwich, Connecticut

 

Chief Marketing Officer

 

November 2017 Chief Marketing Officer, Acreage Holdings

1,209 Proportionate Voting Shares

(0.08%)

488,387

(0.43%)


 


 


 


 


 


Notes:

(1) The information as to municipality of residence and principal occupation has been furnished by the respective proposed directors and officers of the Resulting Issuer individually.

(2) The information as to shares beneficially owned or over which a proposed directors and officers of the Resulting Issuer exercises control or direction has been furnished by the respective directors and officers individually.

(3) On an issued and undiluted basis, not giving effect to the exercise of the Awards or Resulting Issuer Warrants held by such person, as applicable.

(4) Proposed member of the Audit Committee.

(5) Proposed member of the Compensation and Corporate Governance Committee.

(6) Assumes redemption of all Acreage Holdings Units held by the directors or officers, as applicable, from time to time following completion of the RTO and exercise of all outstanding options and other convertible securities of the Resulting Issuer.

(7) Reflects gross proceeds under the Finco SR Financing of $314,153,600 and a SR Offering Price of $25.00 per Finco Subscription Receipt.

(8) 16,250 of the Proportionate Voting Shares are registered in the name of Murphy Capital, LLC, an entity over which Mr. Murphy exercises direction or control, and 96,852 Proportionate Voting Shares are registered in the name of The Kevin Murphy 2018 Annuity Trust.

 

Upon completion of the RTO, it is anticipated that all directors and officers of the Resulting Issuer, as a group, will beneficially own, directly or indirectly, the following shares of the Resulting Issuer: (i) nil Subordinate Voting Shares on an undiluted basis; (ii) 114,311 Proportionate Voting Shares or approximately 7.91% on an undiluted basis; and (iii) 168,000 of the Multiple Voting Shares or approximately 100% on an undiluted basis.

 

Under NI 52-110, an independent director is one who is free from any direct or indirect relationship which could, in the view of the Resulting Issuer Board, be reasonably expected to interfere with such director’s exercise of independent judgment. All of the directors of the Resulting Issuer are considered independent other than Mr. Murphy, given that Mr. Murphy will be the Chief Executive of the Resulting Issuer and each of Mr. Boehner and Mr. Weld, given they have each received more than $75,000 in direct compensation from Acreage Holdings for advisory services and related matters.

The following are brief biographies of the Resulting Issuer’s proposed executive officers and directors:

John A. Boehner, Proposed Director (age 68): John A. Boehner is a former Speaker of the U.S. House of Representatives. Mr. Boehner served in the U.S. House of Representatives from 1991 to October 2015 and served as Speaker of the U.S. House of Representatives from January 2011 to October 2015. Prior to entering public service, Speaker Boehner spent years running a small business representing manufacturers in the packaging and plastics industry. He championed a number of major reform projects as a Member of Congress. During his nearly five years as Speaker, Mr. Boehner developed a reputation for bringing Republicans and Democrats together in support of major policy initiatives.

William F. Weld, Proposed Director (age 73): William F. Weld served as Governor of Massachusetts from January 1991 to July 1997. Mr. Weld was the Vice Presidential nominee for the Libertarian Party during the 2016 U.S. Presidential campaign. Prior to serving as governor of Massachusetts, Mr. Weld served as the U.S. Attorney for Massachusetts from 1981 until 1986, when he was appointed by President Reagan to lead the Criminal Division of the Department of Justice in Washington, D.C., where he served until 1988. Prior to his service as a U.S. Attorney, Mr. Weld served as a staff member of the U.S. House of Representatives (during which time he participated in the Nixon impeachment proceedings) and the U.S. Senate. Governor Weld is a member of the Council on Foreign Relations in New York and served by appointment of the President on the U.S. Holocaust Memorial Council. He serves as an associate member of the InterAction Council, a working society of former heads of state from throughout the world, which reports on issues of global concern such as energy, food, water, nuclear proliferation, and religious sectarianism.

 

FORM 2A - LISTING STATEMENT

 

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Kevin P. Murphy, Proposed Director and Chief Executive Officer (age 56): Kevin P. Murphy is currently a Managing Member of High Street Capital Partners Management, the Managing Member of Acreage Holdings, and Chief Executive Officer of Acreage Holdings. Prior to his role at Acreage Holdings, Mr. Murphy was most recently a Founding Member and Managing Partner of Tandem Global Partners, a boutique investment firm focused on the emerging markets. Previously Mr. Murphy was Managing Partner at Stanfield Capital Partners, where he served as a member of the Operating and Management team that oversaw all aspects of Stanfield’s business, including risk management, sales and distribution, client services, legal, compliance and operations. Mr. Murphy also previously worked at Gleacher NatWest (Partner and Dir. of Marketing), Schroders (Sr. VP of Sales), Lazard Freres (VP) and Cantor Fitzgerald (VP). Mr. Murphy graduated with a B.A. from Holy Cross College.

Larissa L. Herda, Proposed Director (age 60): Larissa L. Herda served as the Chairman of TW Telecom Inc. (formerly, Time Warner Telecom Inc.) from June 2001 to November 2014 and as its Chief Executive Officer from June 1998 to November 2014. Prior to her appointment as Chief Executive Officer, Ms. Herda served as Senior Vice President of Sales and Marketing at TW Telecom Inc. from March 1997. Ms. Herda served as a member of the President’s National Security Telecommunications Advisory Committee, and chair of the Federal Communications Commission’s Communications, Security, Reliability and Interoperability Council. Ms. Herda was also Chairman of the Denver Branch of the Federal Reserve of Kansas City and served as a member of the Colorado Innovation Network advisory board, appointed by Colorado Gov. John Hickenlooper, and as a Member of the Advisory Board at University of Colorado Leeds School of Business. Ms. Herda is a graduate of the University of Colorado.

 

The Right Honorable Brian Mulroney, Proposed Director (age 79): Brian Mulroney is a senior partner and international business consultant for Norton Rose Fulbright. Prior to joining Norton Rose Fulbright, Mr. Mulroney was the eighteenth Prime Minister of Canada from 1984 to 1993 and leader of the Progressive Conservative Party of Canada from 1983 to 1993. He served as the Executive Vice President of the Iron Ore Company of Canada and President beginning in 1977. Prior to that, Mr. Mulroney served on the Cliché Commission of Inquiry in 1974. Mr. Mulroney is the Chairman of Quebecor Inc. and serves as a director of the Blackstone Group L.P. and Wyndham Worldwide Corporation. Mr. Mulroney also serves as chairman of the International Advisory Board of Barrick Gold Corporation and is a member of the advisory group of Lion Capital LLP.

 

Douglas L. Maine, Proposed Director (age 70). Douglas L. Maine joined International Business Machines Corporation (“IBM”) in 1998 as Chief Financial Officer following a 20-year career with MCI (now part of Verizon) where he was Chief Financial Officer from 1992-1998. He was named General Manager of ibm.com in 2000 and General Manager, Consumer Products Industry in 2003 and retired from IBM in 2005. Mr. Maine currently serves as a director of Albemarle Corporation and previously served as a director of the following public companies: Orbital-ATK, Inc. from 2006-2017, BroadSoft, Inc. from 2006-2017 and Rockwood Holdings, Inc. from 2005-2015.

 

William C. Van Faasen, Proposed Director (age 70): William C. Van Faasen served as Chairman of Blue Cross Blue Shield of Massachusetts from 2002 to 2007, interim President and Chief Executive Officer from March 2010 to September 2010 and Chair of the Board of Directors from September 2010 to March 2014 when he was named, and currently serves as, Chair Emeritus. Mr. Van Faasen joined Blue Cross in 1990 as Executive Vice President and Chief Operating Officer and served as President from 1992 to 2004 and Chief Executive Officer from 1992 to 2005. Mr. Van Faasen has served in operational, marketing, and health care capacities for over 20 years and has been engaged in numerous civic and community activities, including Chair of the Initiative for a New Economy, Chair of Greater Boston Chamber of Commerce and Chair of United Way Massachusetts Bay. Mr. Van Faasen currently serves as a board member of Eversource Energy and the lead director of Liberty Mutual Group. Previously, Mr. Van Faasen served on the boards of Boston Private Industry Council, the Boston Minuteman Council, Boy Scouts of America, the BCBSMA Foundation, BankBoston, Citizens Bank of Massachusetts, IMS Health, PolyMedica Corporation and Tier Technologies.

 

FORM 2A - LISTING STATEMENT

 

105 -

 

 

 

 

George M. Allen, Proposed President (age 43): George Allen is currently the President of Acreage Holdings and previously served as Acreage Holdings’ Chief Financial Officer. Mr. Allen was previously Chief Investment Officer of Cambridge Information Group (“CIG”), a large, multi-strategy, New York-based family office where he managed a portfolio of private and public direct investments as well as a collection of indirect investments. Prior to CIG, Mr. Allen spent nine years at Warburg Pincus where he managed investments in the communication, media and technology sectors. Before that, Mr. Allen was an associate at Goldman Sachs in New York and Hong Kong, where he invested capital in distressed securities. Mr. Allen has a B.S. in Mechanical Engineering from Yale University.

Glen S. Leibowitz, Proposed Chief Financial Officer (age 48): Glen Leibowitz joined Acreage Holdings in 2018 as its Chief Financial Officer. Prior to joining Acreage Holdings, Mr. Leibowitz spent nine years at Apollo Global Management, LLC, where he held various key roles within the finance organization, including the accounting lead in taking the organization public in 2011. Prior to Apollo, Mr. Leibowitz spent almost ten years at PricewaterhouseCoopers focused on multiple complex foreign registrant financial statements and client IPO documents across sectors including: alternative asset managers, Internet/software, telecommunications, pharmaceutical, and mining. Mr. Leibowitz serves on the board of directors and is the audit committee chair for PowerPlay NYC, a not-for-profit organization dedicated to inspiring and educating girls through one-of-a kind sports and academic enrichment programs. Mr. Leibowitz has a B.S. in Accounting from Queens College.

Robert J. Daino, Proposed Chief Operating Officer (age 54): Robert Daino is currently the Chief Operating Officer of Acreage Holdings. Prior to joining Acreage Holdings, Mr. Daino was President and Chief Executive Officer of WCNY Public Media, a New York area public media company with five broadcast television stations and three digital radio stations. Before that, Mr. Daino was President and Chief Executive Officer of Promergent, a management software and services provider to utilities and governmental entities. From 1982 to 1995, Mr. Daino served in various roles at General Electric, including software engineer, project manager and also in a management role.

James A. Doherty, Proposed General Counsel & Secretary (age 39): James A. Doherty, III is currently the General Counsel of Acreage Holdings. Prior to joining Acreage Holdings, Mr. Doherty was an attorney at Scanlon, Howley & Doherty, P.C. While at Scalon, Howley & Doherty, Mr. Doherty represented a variety of clients in the highly regulated gaming and casino industry before both courts of competent jurisdiction along with regulatory agencies. In addition, his practice also had an emphasis in professional liability cases, specifically corporate defense, medical malpractice, general liability, products liability, civil rights, and employment and labor disputes. Mr. Doherty also acted as special counsel to a number of public entities and municipal entities. Mr. Doherty maintained an active appellate practice having successfully argued cases before the Superior Court, Commonwealth Court and Supreme Court of Pennsylvania. Mr. Doherty served as a law clerk for the Honorable Thomas I. Vanaskie, United States Court of Appeals for the Third Circuit. Mr. Doherty also served as special counsel to the Executive Director of the Pennsylvania Gaming Control Board. Mr. Doherty graduated from the Holy Cross College with B.A. in History and received his J.D. from Georgetown University.

Harris Damashek, Proposed Chief Marketing Officer (age 43): Harris Damashek is currently the Chief Marketing Officer of Acreage Holdings with 20 years marketing experience. Mr. Damashek joined Acreage Holdings from Anheuser-Busch InBev’s Disruptive Growth Group, where he launched several global e-commerce pilots and stewarded marketing and brand efforts for the team’s 20+ global craft beer acquisitions. Previously, Mr. Damashek founded and managed his own design agency, Damashek Consulting, for almost 15 years, working with spirits, fashion, CPG, automotive, tech and luxury clients. He also founded Underground Eats - a ground-breaking experiential dining start-up working with some of the top culinary talents and brands in the country.

Each of Messrs. Daino, Allen, Leibowitz and Doherty have entered into non-disclosure agreements with Acreage Holdings and each of Messrs. Daino, Allen and Leibowitz have entered into non-competition agreements with Acreage Holdings. Other than as stated above, no proposed director or officer of the Resulting Issuer has entered into a non-competition or non-disclosure agreement with Acreage Holdings or the Resulting Issuer.

 

 

FORM 2A - LISTING STATEMENT

 

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13.2       Board Committees

Pubco Board Committee

 

Pubco currently has an audit committee (the “Pubco Audit Committee”). The Pubco Audit Committee assists the Pubco Board in its oversight of: (i) the integrity of the financial reporting of Pubco; (ii) the independence and performance of Pubco’s external auditors; and (iii) Pubco’s compliance with legal and regulatory requirements.

 

Prior to completion of the Reorganization, the members of the Pubco Audit Committee were Messrs. Nachman (Chairman), Hariton and Polisuk. Messrs. Hariton and Polisuk being “independent” within the meaning of NI 51-102. Members of the Pubco Audit Committee did not receive compensation for sitting on the committee or attending meetings of the committee.

 

The audit committee reviews the financial reports and other financial information provided by Pubco to regulatory authorities and its shareholder and reviews Pubco’s system of internal controls regarding finance and accounting including auditing, accounting and financial reporting processes.

 

Resulting Issuer Board Committees

 

Upon closing of the RTO, the Resulting Issuer is expected to establish board committees, including an audit committee (the “Audit Committee”), a compensation and corporate governance committee (the “Compensation and Corporate Governance Committee”) and such other committees as determined to be appropriate by the Resulting Issuer Board.

 

Audit Committee

 

The Audit Committee will be comprised of William Van Faasen (Chair), Douglas Maine and Kevin P. Murphy. Each of the proposed members of the Audit Committee, other than Mr. Murphy, meets the independence requirements pursuant to NI 52-110 and each is financially literate within the meaning of NI 52-110. For a description of the education and experience of each member of the Audit Committee, see “Directors and Executive Officers”.

 

The Resulting Issuer Board will adopt a written charter setting forth the responsibilities, powers and operations of the Audit Committee consistent with NI 52-110. The principal duties and responsibilities of the Resulting Issuer’s Audit Committee will be to assist the Resulting Issuer Board in discharging the oversight of:

the integrity of the Resulting Issuer’s consolidated financial statements and accounting and financial processes and the audits of our consolidated financial statements;
the Resulting Issuer’s compliance with legal and regulatory requirements;
the Resulting Issuer’s external auditors’ qualifications and independence;
the work and performance of the Resulting Issuer’s financial management and its external auditors; and
the Resulting Issuer’s system of disclosure controls and procedures and system of internal controls regarding finance, accounting, legal compliance, and risk management established by management and the Resulting Issuer Board.

It is anticipated that the Audit Committee will have access to all books, records, facilities and personnel and may request any information about the Resulting Issuer as it may deem appropriate. It will also have the authority to retain and compensate special legal, accounting, financial and other consultants or advisors to advise the Audit Committee. The Audit Committee is also expected to review and approve all related-party transactions and prepare reports for the Resulting Issuer Board on such related-party transactions as well as be responsible for the pre-approval of all non-audit services to be provided by our auditors.

 

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Compensation and Corporate Governance Committee

The Compensation and Corporate Governance Committee will be comprised of Larissa L. Herda (Chair), John Boehner, Brian Mulroney, Kevin P. Murphy and Bill Weld. Larissa L. Herda and Brian Mulroney are independent for purposes of NI 58-101.

The Resulting Issuer Board will adopt a written charter setting forth the responsibilities, powers and operations of the Compensation and Corporate Governance Committee. The principal duties and responsibilities of the Compensation and Corporate Governance Committee will be to assist the Resulting Issuer Board in discharging its oversight of:

executive compensation;
management development and succession;
director compensation;
executive compensation disclosure.
the Resulting Issuer’s overall approach to corporate governance;
the size, composition and structure of the Resulting Issuer Board and its committees;
orientation and continuing education for directors;
related party transactions and other matters involving conflicts of interest; and
any additional matters delegated to the Compensation and Corporate Governance Committee by the Resulting Issuer Board.

 

13.3       Corporate Cease Trade Orders, Bankruptcies, Penalties and Sanctions

No proposed director, officer, promoter or shareholder holding a sufficient number of securities of the Resulting Issuer to affect materially the control of the Resulting Issuer, is, or within 10 years before the date of the Listing Statement has been, a director or officer of any other Resulting Issuer that, while that person was acting in that capacity:

(a)was the subject of a cease trade or similar order, or an order that denied the other Resulting Issuer access to any exemptions under Ontario securities law, for a period of more than 30 consecutive days, state the fact and describe the basis on which the order was made and whether the order is still in effect;

 

(b)was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days, state the fact and describe the basis on which the order was made and whether the order is still in effect;

 

(c)became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, state the fact; or

 

(d)within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, state the fact.

 

 

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13.4       Penalties or Sanctions

Except as described below, to the knowledge of the Resulting Issuer, no proposed director, officer, or promoter of the Resulting Issuer or any shareholder anticipated to hold a sufficient amount of securities of the Resulting Issuer to materially affect control of the Resulting Issuer, has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or has been subject to any other penalties or sanctions imposed by a court or regulatory body or self-regulatory authority that would be likely considered important to a reasonable investor in making an investment decision.

On January 11, 2016, Mr. Murphy entered into an agreement to settle a matter in connection with a routine FINRA examination of a broker-dealer firm formerly owned, in part, by Mr. Murphy. FINRA alleged that Mr. Murphy failed to inform the firm’s compliance officer or receive pre-approval for the sale of his securities. Mr. Murphy agreed, without admitting or denying the findings and without adjudication of any issue of law or fact, to a 12 month suspension from acting as a broker and a contingent fine payable upon Mr. Murphy’s re-registration, notwithstanding that Mr. Murphy resigned his position with the broker dealer in January 2014. Mr. Murphy does not intend to re-register as broker now or in the future.

 

13.5       Personal Bankruptcies

No proposed director, officer or promoter of the Resulting Issuer, or a shareholder anticipated to hold a sufficient amount of securities of the Resulting Issuer to materially affect the control of the Resulting Issuer, or a personal holding company of any such persons, has, within the 10 years preceding the date of this Listing Statement, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of such person.

13.6       Conflicts of Interest

To the best knowledge of Pubco and Acreage Holdings, and other than as disclosed herein, there are no known existing or potential material conflicts of interest between Pubco or Acreage Holdings, or a subsidiary of Pubco or Acreage Holdings and a director, officer or promoter of Pubco or Acreage Holdings or a proposed director, officer or promoter of the Resulting Issuer except that certain of the directors, officers and promoters of Pubco and Acreage Holdings and certain of the proposed directors, officers or promoters of the Resulting Issuer serve as directors, officers and promoters of other companies and therefore it is possible that a conflict may arise between their duties as a director, officer or promoter of any of Pubco, Acreage Holdings and/or the Resulting Issuer, as applicable, and their duties as a director, officer and promoter of such other companies. See “Risk Factors”.

The directors, officers and promoters of Pubco and Acreage Holdings and the proposed directors, officers and promoters of the Resulting Issuer are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosure by directors of conflicts of interest and each of Pubco, Acreage Holdings and the Resulting Issuer will rely upon such laws in respect of any directors’ and officers’ conflict of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with applicable law and they will govern themselves in respect thereof to the best of their ability in accordance with the obligation imposed upon them by law.

14.       CAPITALIZATION

Each of the tables in this Section 14 pertain to the Resulting Issuer Shares only.

As at the date of this Listing Statement, the Resulting Issuer has the following issued and outstanding securities according to the below table.

 

 

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14.1       Issued Capital

The following table sets out the number of the Subordinate Voting Shares available in the Resulting Issuer’s Public Float and Freely-Tradeable Float on a diluted and non-diluted basis:

 

Number of Subordinate Voting Shares

(non-diluted)

Number of Subordinate Voting Shares

(fully-diluted)

% of Issued

(non-diluted)

% of Issued

(fully-diluted)

Public Float        
Total outstanding (A) 21,443,042