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

TORONTO, December 19, 2018 – Aleafia Health Inc.and Emblem Corp. are pleased to announce that they have entered into a definitive agreement under which Aleafia will acquire, by way of a plan of arrangement under the Canada Business Corporations Act, all of Emblem’s issued and outstanding common shares in an all-share transaction currently valued at approximately $173.2 Million.

The Agreement calls for Emblem shareholders to receive 0.8377 of an Aleafia common share in exchange for each Emblem common share, representing the equivalent of $1.21 per Emblem Share and a premium of 27.0% based on the closing prices of Aleafia and Emblem Shares on the TSX Venture Exchange on December 18, 2018. When the Transaction is completed, it is expected that existing Aleafia and Emblem shareholders will own approximately 59.0% and 41.0% of Aleafia, respectively, on a fully diluted in-the-money basis. The Transaction has been unanimously approved by Emblem’s Special Committee and Board of Directors.

Aleafia intends to capitalize on high growth opportunities and leverage international expansion across four verticals: Cannabis Production, Health and Wellness, Cannabis Education and the Consumer Experience.

• A Canadian Clinic Network: Combining Canabo Medical Clinic and GrowWise Health creates the leading Canadian clinic network with access to 40 national medical clinics and education centers that have served almost 60,000 patients, with increases in patient visits and referrals since October 17, 2018. In addition, Aleafia will be able to leverage Emblem’s extraction, and product innovation to, for the first time, sell medical cannabis directly to Aleafia’s patient base.
• Medical Product Portfolio: Aleafia’s patient base will enjoy access to Emblem’s differentiated, high margin derivative products including capsules, oils and oral sprays, with industry leading recognized revenue per gram rates. Patients will also access Emblem’s customer service, scheduled home delivery and eCommerce platform.
• Scaled Production Capacity and Supply: Aleafia will be a leading licensed producer of cannabis with approximately 138,000 kg of production and supply across three Ontario facilities and the industry’s largest LP to LP cannabis supply agreement.
• National and Global Distribution Platform: Aleafia expects to leverage Emblem’s approval to supply to the Provinces of Ontario, Saskatchewan, British Columbia and Alberta; national medical distribution through Shoppers Drug Mart; and national retail distribution through Fire & Flower, Starbuds and the emerging OnePlant network. In addition, through Emblem’s joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH, Aleafia expects to access the world’s largest medical cannabis market serving more than 82 million people, with access to approximately 20,000 pharmacies, along with access to Australia’s burgeoning medical cannabis market upon completion of Aleafia’s previously announced transaction with CannaPacific Pty Ltd.
• Adult-use Brands: Complementing Aleafia’s adult-use strategy via the transactions with Serruya Private Equity, Aleafia will leverage Emblem’s flagship brand Symbl.
• Focus on Product Development: Aleafia will build on Emblem’s product development success. Based out of Emblem’s state-of-the-art Product Innovation Centre, product development will focus on potential innovations in high-margin, branded beverages, edibles, vape pens, topicals and concentrates for the medical and adult-use markets.
• Improved Capital Markets Profile: Aleafia will be a leading licensed producer appealing to a broader shareholder base, with greater access to capital and improved trading liquidity.
• Robust Cash Position: Aleafia and Emblem currently have access to a combined CAD $69.9 million in cash, to be used for continued product innovation and brand building, construction and development of their cultivation facilities and outdoor grow operations, to support expansion efforts and to pursue strategic opportunities and investments that maximize shareholder value.

“The Emblem acquisition rapidly accelerates the execution of Aleafia’s strategy to become a vertically integrated, diversified cannabis company. It is difficult to overstate the significance of securing the highest quality medicine for our patients and Aleafia” said Aleafia Health CEO Geoffrey Benic. “Emblem’s product leadership in the medical and adult-use sectors and highly coveted supply agreements will perfectly complement Aleafia’s cannabis production and clinic operations. This is a transformative transaction that positions Aleafia as a global cannabis leader.”

“Emblem’s patient-focused product portfolio and strength in patient education, conversion and retention through GrowWise will be further bolstered by the patient acquisition capabilities of Aleafia’s Canabo clinics. The combination of the companies will form a fully integrated market leader in the medical cannabis sector, with industry leading patient counts, and the ability to immediately capitalize on full revenue potential,” said Emblem CEO Nick Dean. “Furthermore, our renowned national brands, robust footprint in emerging value-added products, and strong domestic and international growth opportunities, will cement our position of strength in this highly competitive market.”

Additional Transaction Details

The Transaction will be effected by way of a court-approved plan of arrangement completed under the Canada Business Corporations Act and will require approval by at least 66 2/3% of the votes cast by the shareholders of Emblem present in person or by proxy at a special meeting of Emblem shareholders.

Upon completion of the Transaction, two (2) independent directors of Emblem will be appointed to serve on the board of directors of Aleafia, being Daniel Milliard and Loreto Grimaldi who will replace two (2) directors of Aleafia.

The Agreement includes customary provisions including reciprocal non-solicitation provisions, subject to the right of each of Emblem and Aleafia to accept a superior proposal/competing transaction in certain circumstances, with both Emblem and Aleafia having a seven (7) business day right to match any such superior proposal/competing transaction for the other party. The Agreement also provides for reciprocal termination fees of $10 million if the Transaction is terminated in certain specified circumstances.

In addition to shareholder approvals, the Transaction is subject to the receipt of certain regulatory, court and stock exchange approvals, the obtaining of material consents / waivers and the satisfaction of other conditions customary in transactions of this nature.

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.