Aleafia Health Inc. to Acquire Emblem Corp. to Create New Medical Cannabis Leader

Aleafia has entered into support and voting agreements with each of Emblem’s directors, Emblem’s CEO and CFO, along with additional shareholders who have agreed to support and vote for the Transaction and who represent in aggregate approximately 11.8% of the outstanding Emblem shares.

It is expected that holders of Emblem options will receive replacement Aleafia options (on the same terms as the Emblem options), and holders of Emblem warrants will receive, upon exercise, the same consideration they would have received as if they were Emblem shareholders at the closing of the Transaction.

Aleafia and Emblem have also entered into an agreement with a holder representing 69.44% of the principal amount of Emblem’s convertible debentures pursuant to which such holder has agreed not to accept any change of control offer to the extent one is made, and the parties have agreed to use their commercially reasonable efforts to amend the trust indenture to amend the change of control provisions such that they do not apply to the Transaction, and to reduce the conversion price from $2.30 to $2.00.

Further information regarding the Transaction will be included in the information circular that Emblem will prepare, file, and mail in due course to its shareholders in connection with its special meeting to be held to consider the Transaction which is expected to occur before March 8, 2019. The Agreement will be filed on the SEDAR profiles of Emblem and Aleafia on the SEDAR website at www.sedar.com.

Emblem Board of Director’s Recommendations

The board of directors of Emblem (the “Emblem Board”) has unanimously determined, after receiving the unanimous recommendation of its Special Committee and financial and legal advice, that the consideration to be received by the Emblem shareholders is fair from a financial point of view and that the Arrangement is in the best interests of Emblem and its security holders, and the Emblem Board unanimously recommends that the Emblem shareholders vote in favour of the Transaction.

The Emblem Board and its Special Committee have each obtained a fairness opinion from Eight Capital and Echelon Wealth Partners Inc., respectively, that, as of the date of the opinions, and subject to the assumptions, limitations, and qualifications on which such opinions are based, the consideration to be received by Emblem shareholders pursuant to the Agreement is fair, from a financial point of view, to the Emblem shareholders.

Legal and Financial Advisors

Gowling WLG (Canada) LLP is acting as legal counsel to Aleafia. Deloitte advised Aleafia on financial due diligence. Mackie Research Capital Corporation is acting as financial advisor to Aleafia. In addition to other fees and expenses payable to Mackie, Aleafia is required to pay a success fee (the “Success Fee”) to Mackie upon closing of the Transaction equal to 2.0% of the aggregate fair market value of the share consideration issuable by Aleafia to Emblem’s shareholders and the amount of net debt of Emblem (as of its most recent balance sheet prior to the closing of the Transaction, and calculated as the sum of the long term debt and debentures) which is assumed or acquired by Aleafia, or retired or otherwise extinguished in connection with the Transaction (expected to be $30.5 million). The Success Fee is payable in common shares of Aleafia subject to acceptance of the TSX Venture Exchange.

Dentons Canada LLP is acting as legal counsel to Emblem. Eight Capital is acting as financial advisor to Emblem and Echelon Wealth Partners Inc. is acting as financial advisor to the Special Committee. Eight Capital and Echelon Wealth Partners Inc. have each provided a fairness opinion to the Emblem Board and the Special Committee, respectively.

Conference Call and Slide Presentation

Aleafia and Emblem will hold a webcast conference call, including a slide presentation, to discuss the Transaction.

Date:   Wednesday December 19, 2018

Time:   8:30am (Toronto Time)

USA/Canada Toll-Free Participant Call-in: (866) 679-9046; Passcode: 9579635

International Toll-Free Participant Call-in: (409) 217-8323; Passcode: 9579635

Webcast Link: https://edge.media-server.com/m6/p/4pcbtcdd

This conference call will be webcast live over the internet and can be accessed through the link provided. Audio of the call will be available to participants through both the conference call line and webcast, however questions to management may only be submitted via the webcast.

For Additional Information and Support:

About Aleafia Health Inc.

Aleafia is a leading, vertically integrated cannabis company with major cannabis cultivation & processing and medical cannabis clinics business operations. Aleafia owns two cannabis cultivation facilities, one of which is licensed and fully operational and one which will be fully operational in early 2019. Aleafia will reach a fully-funded annual growing capacity of 98,000 kg in 2019. Canabo Medical Clinics are the largest brick and mortar medical cannabis clinic network in Canada with 22 locations and over 50,000 patients. 

About Emblem Corp.

Emblem is a fully integrated cannabis company focused on driving shareholder value through product innovation, brand relevance, and access to patient and consumer channels. Through its wholly-owned subsidiary Emblem Cannabis Corporation, Emblem is licensed to cultivate, process, and sell cannabis and cannabis derivatives in Canada under the Cannabis Act. Emblem’s state-of-the-art indoor cannabis cultivation facility and Product Innovation Centre is located in Paris, Ontario. Emblem is also the parent company of GrowWise Health Limited, one of Canada’s leading cannabis education services. Emblem trades under the ticker symbol EMC on the TSX Venture Exchange.

For more information, please visit www.emblemcorp.com.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Note Regarding Forward-Looking Statements:

Certain information in this news release constitutes forward-looking statements under applicable securities laws. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward looking statements are often identified by terms such as “may”, “should”, “anticipate”, “expect”, “potential”, “believe”, “intend” or the negative of these terms and similar expressions. Forward-looking statements in this news release include, but are not limited to, statements with respect to accretive earnings, anticipated revenue and costs synergies associated with the acquisition of Emblem, statements with respect to internal expectations, estimated margins, expectations for future growing capacity, costs and opportunities, the effect of the transaction on the combined company and its strategy going forward, expectations for receipt of licenses to cultivate, process or distribute medical cannabis in Federally legal markets, the completion of any capital project or expansions, the expectations with respect to future production costs, the anticipated timing for the special meeting of Emblem shareholders and closing of the Transaction; the consideration to be received by shareholders, which may fluctuate in value due to Aleafia common shares forming the consideration; the satisfaction of closing conditions including, without limitation (i) required Emblem shareholder approval; (ii) necessary court approval in connection with the plan of arrangement, (iii) Aleafia obtaining the necessary approvals from the TSX Venture Exchange for the listing of securities in connection with the Transaction; and (iv) other closing conditions, including, without limitation, obtaining certain consents, the operation and performance of the Emblem and Aleafia businesses in the ordinary course until closing of the Transaction and compliance by Emblem and Aleafia with various covenants contained in the Agreement. In particular, there can be no assurance that the Transaction will be completed. Forward looking statements are based on certain assumptions regarding Emblem and Aleafia, including expected growth, results of operations, performance, industry trends and growth opportunities. While Emblem and Aleafia consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements also necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; marketing costs; loss of markets; future legislative and regulatory developments involving the medical and adult-use marijuana markets; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the medical and adult-use marijuana industries generally; income tax and regulatory matters; the ability of Aleafia and Emblem to implement their business strategies; competition; crop failure/conditions; currency and interest rate fluctuations and other risks.

Readers are cautioned that the foregoing list is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated.

Forward-looking statements contained in this news release are expressly qualified by this cautionary statement and reflect our expectations as of the date hereof, and thus are subject to change thereafter. Emblem and Aleafia disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. This news release has been approved by the Board of Directors of each of Aleafia and Emblem. Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters referred to above and elsewhere in Emblem’s and Aleafia’s public filings and material change reports that will be filed in respect of this Transaction which are and will be available on SEDAR.