Acreage Holdings, Inc. (OTC: ACRHF, ACRDF) is selling its four Oregon dispensaries to Chalice Brands Ltd. (CSE:CHAL) (OTCQB:CHALF). The divestiture is part of Acreage’s strategy to target only core states versus trying to be the largest MSO in the most states.  The deal is valued at $6.5 million. Acreage’s four Oregon retail dispensaries are branded as Cannabliss & Co. and the sale will end the company’s presence in the state. The company said in a statement that the Oregon stores were negatively affecting the company’s bottom line and utilizing management resources.

“This is a fantastic opportunity for Chalice to edge closer to our goal of achieving our targeted market share in the state of Oregon while entering the Eugene market, and immediately enables the deployment of our Chalice products to more stores. Adding the Cannabliss retail stores increases our footprint from twelve to sixteen stores, represents nearly a 130% increase in retail footprint for this year alone. The Cannabliss team has done a tremendous job in Portland, Eugene, and Springfield, Oregon in building historic businesses and a strong reputation for friendly customer service – exactly aligned with what Chalice looks for in a partner,” said Chalice CEO Jeff Yapp. Chalice believes it can turn around the Cannabliss stores, which have apparently lost market share.

Chalice retail footprint increases from twelve to sixteen stores in Oregon, making this nearly a 130% increase in the current fiscal year. Cannabliss is expected to carry Chalice Brands products immediately once the services agreements are completed providing the opportunity to increase total gross margins gradually from approximately 42% to at least 52% within a year. Vertical sales of Chalice branded products are expected to be approximately 25% of products sold within a year. With the Cannabliss acquisition, Chalice said it will strengthen its customer base in the Oregon market, while also significantly increasing vertical margin contribution through the distribution of its Bald Peak flower, Chalice, Private Stash, RXO, and Elysium Fields branded products into the Cannabliss stores.

“The sale of our Oregon operations represents another strategic step in our previously announced operating strategy,” stated Peter Caldini, Acreage Holdings CEO. “As we previously communicated, Acreage remains focused on our three key strategic objectives – driving profitability, strengthening our balance sheet, and accelerating our growth in our core markets.”

Oregon dispensaries include two in Portland, one in Eugene, and one in Springfield. Two of the store locations are in buildings that are on the national registry of historic places – Sorority House in Eugene and Firestation 23 in Portland. The Firestation 23 location was the first adult-use dispensary to open in the city of Portland and was Oregon’s first medical marijuana dispensary.

“This deal structure demonstrates our disciplined approach to capital allocation, as we avoid dilution while growing both our top line and profitability. The positive cash flow generated by this acquisition will partially fund the deferred payment, providing an immediate opportunity to enhance value for Chalice shareholders. With the addition of these four retail assets,  Chalice continues to cement our leadership position in Oregon as we execute on our stated market share objectives for 2021,” noted John Varghese, Executive Chairman of the Company

Terms

Under the terms of the Asset Purchase Agreement, upon regulatory approval Acreage will divest the assets of its four Cannabliss retail stores (inclusive of a working capital surplus of US $500,000) – located in Portland, Eugene, and Springfield, Oregon – for total consideration of US $6,500,000, consisting of a US $250,000 cash payment at the time of signing and a 10-month secured promissory note for US $6,250,000 bearing interest of 6% for the first 5 months and 10% for the remaining 5 months.