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Harborside Announces Agreement to Acquire Sublime for U.S. $43.8 Million

OAKLAND, Calif., June 1, 2021 – PRESS RELEASE – Harborside Inc., a California-focused, vertically integrated cannabis enterprise, announced it has signed a definitive agreement to acquire 100% of the issued and outstanding equity of Sublimation Inc. ("Sublime"), an award-winning cannabis manufacturing company located in Oakland, Calif., for a total consideration of U.S. $43.8 million. The acquisition is expected to close, subject to customary closing conditions, in July 2021.

Founded in 2016, Sublime is best known for its expansive line of high-potency, high-quality and affordable, Fuzzies branded pre-rolls, a leading brand of pre-rolls in the state of California, as well as vapes and roll-your-own flower kits. Since 2019 Sublime has delivered a revenue compound annual growth rate (CAGR) of approximately 70%, and ended 2020 with 7.9% California pre-roll market share, according to BDS Analytics. Sublime is strategically positioned for continued growth as pre-rolls are the fastest growing cannabis sub-segment within the California market since the beginning of 2020.

Upon completion of the acquisition, Harborside expects to realize significant synergies by bringing together Sublime’s brands, production capabilities and robust distribution system with the high-quality cannabis grown at the company’s Salinas, Calif. cultivation facility, which is anticipated to result in additional gross profit and earnings before interest, taxes, depreciation and amortization (EBITDA) by extending the reach of Sublime, Harborside and Key branded products throughout the state. Harborside also expects to bolster Sublime’s marketing capabilities, which is expected to drive higher retail margins for the company as an owned brand within its portfolio. Finally, Harborside will seek to license the Fuzzies California lifestyle brand in additional legal adult-use markets across the country, particularly those that do not currently have high potency infused products.

“This acquisition adds an iconic, award-winning California brand, with an exceptional product offering and consumer following, to our growing brand portfolio,” Harborside Interim CEO Peter Bilodeau said. “Harborside has been a customer of Sublime for many years, and we know the quality of their products. With the existing production capacity and soon to be completed upgrades at our Salinas cultivation facility, we are well-positioned to support the continued growth of the Sublime brands while expanding the reach of Harborside’s existing branded product portfolio in both the retail and wholesale markets, which we expect to ultimately drive increased profitability across our entire business. We’re very excited to continue to provide consumers with innovative, high-quality products while delivering strong value for our shareholders. The company will issue new guidance in due course.”

Sublime CEO Ahmer Iqbal said, “Harborside is known for being an innovative pioneer within the California cannabis market and has garnered a long-term reputation across the state for being a leading retailer and producing high-quality products. As a leader among California brands, we are thrilled that Sublime will join the Harborside owned-brand portfolio, leveraging their production and retail capabilities to further expand the distribution of Sublime products throughout California.”

Transaction Details

Upon closing, Harborside will acquire 100% of the issued and outstanding shares of Sublime (the “Sublime Shares”) in exchange for a total consideration of U.S. $43.8 million (the “Purchase Price”). The Purchase Price comprises of approximately $38.4 million payable in multiple voting shares of Harborside, representing approximately 207,579.66 multiple voting shares of the company based on volume-weighted average price of the subordinate voting shares of the company on the Canadian Securities Exchange (CSE) for the 30-days immediately preceding the date of the agreement and approximately $5.4 million in cash (of which approximately $3.4 million will be used to repay existing indebtedness of Sublime). The Purchase Price represents a multiple of approximately 1.78 times to the estimated $24.6 million of standalone 2021 revenues for Sublime.

The Agreement provides for, among other things, customary representations and warranties and covenants, including mutual non-solicitation provisions and a $1.5 million termination fee payable by either the Harborside or Sublime in certain circumstances. The acquisition is subject to the approval of the shareholders of Sublime, and the receipt of certain regulatory approvals and other customary closing conditions for a transaction of this nature.

The directors and officers and certain shareholders of Sublime, collectively holding approximately 86.5% of the outstanding Sublime Shares, have entered into voting and support agreements and have agreed to approve the acquisition. In addition, concurrent with the closing of the acquisition, Harborside will enter into a lock-up agreement with certain shareholders of Sublime (the "Locked-Up Shareholders") in respect of the multiple voting shares of Harborside to be received by such shareholders pursuant to the acquisition (the "Lock-Up Agreement"). Pursuant to the Lock-Up Agreement, the Locked-Up Shareholders will agree not to sell, assign or otherwise transfer the multiple voting shares received. The restrictions lapse in three installments with 50% of the shares released from the restrictions on the 12-month anniversary and 25% of the shares released from the restrictions on each the 15-month and 18-month anniversaries from the closing of the acquisition, respectively.

Harborside's board of directors has approved the acquisition. As well, Sublime's board of directors has approved the acquisition and has resolved to recommend that Sublime shareholders vote in favor of the acquisition.

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