Hygrovest Ltd (ASX:HGV) has completed a C$1 million follow-on investment in unlisted Weed Me Inc via an unsecured convertible note.
This investment will fund Weed Me’s business plan rollout and position Weed Me for a liquidity event - either a public listing or the sale of the business.
Hygrovest has also been issued a further 230,415 warrants convertible into 230,415 Weed Me shares each at C$2.17 with an expiry date of October 29, 2024.
Expansion of Weed Me’s sales growth
Hygrovest chairman Peter Wall said: “The follow-on investment in Weed Me demonstrates HGV’s expertise to secure a private negotiated investment in unlisted businesses, which are not generally available to Australian retail and institutional investors.
“The investment in Weed Me will assist the further expansion of Weed Me’s sales growth and maximise the value on the ultimate exit of HGV’s investment.”
Terms of convertible note
The key terms of the convertible note are:
➢ A cash yield of 8% per annum;
➢ Maturity date of April 29, 2023; and
➢ Conversion at HGV’s option prior to maturity.
The additional C$1 million convertible note was made on the same terms as the C$1 million convertible note advanced by HGV to Weed Me in November 2021.
Current book value
Hygrovest made its initial investment in Weed Me in December 2017 and this investment has a current book value of C$13.8 million.
This comprises:
➢ 3.64 million shares representing around 14% of Weed Me’s current issued capital valued at C$9.6 million;
➢ 460,830 warrants each convertible at C$2.17 with an expiry date of October 29, 2024, with the unrealised gain valued at C$0.6 million; and
➢ C$2 million convertible note, which is unsecured, bears interest at a rate of 8% per annum is repayable on April 29, 2023, and HGV has the option to convert into Weed Me shares at $1.67 per share. The unrealised gain from the conversion option is valued at C$1.6 million.
As at February 28, 2022, HGV had generated a total return of 3.5 times on its investment in Weed Me.
Weed Me
Established in 2016, Weed Me is the largest unlisted Canadian licensed producer of cannabis products for the Canadian recreational market.
The Weed Me brand consists of a complete line of dried flower, pre-rolls, vapes and gummies products, which have significant market shares in its key Canadian provincial markets.
Weed Me has successfully expanded its operations with net sales of C$22.7 million in the year ended December 31, 2021, up from the previous financial year net sales of C$6.9 million.
It was profitable in FY21.
Net sales growth continues with the net sales of C$25.1 million in the 12 months ended 31 January 2022, a 14% increase over the 12 months ended December 31, 2021.