Auxly Announces Non-Binding Agreement to Amend and Extend BMO Credit Facility and Settlement of all Amounts owing to Imperial Brands

Rhea-AI Summary

Auxly Cannabis Group (CBWTF) has announced two significant financial agreements to strengthen its balance sheet and reduce debt. First, the company entered a non-binding agreement to amend its BMO-led credit facility, which includes a $50.7M facility consisting of a $36.2M term loan, $10M revolving facility, and $4.5M in equipment leases. Second, Auxly reached an exchange agreement with Imperial Brands to settle over $21M in convertible debenture debt through share issuance and pre-funded warrants. The agreement includes converting $1M principal into 1.23M shares at $0.81/share, $1.39M of accrued interest into shares at $0.0811/share, and issuing warrants for up to 90.88M shares. Upon completion, Imperial Brands will own approximately 19.9% of outstanding shares. These transactions aim to improve Auxly's capital structure, reduce interest obligations, and enhance financial stability.

Positive

• Elimination of over $21M in debt through equity conversion improves balance sheet
• New $50.7M credit facility provides enhanced liquidity and capital flexibility
• Expected removal of going concern uncertainty from financial statements
• Reduction in interest obligations strengthens financial position
• Strategic partnership maintained with Imperial Brands holding 19.9% ownership

Negative

• Significant shareholder dilution through share issuance and warrants
• Credit facility agreement is non-binding, with no guarantee of reaching definitive terms
• New credit facility requires broader asset security coverage from company and subsidiaries
• Short two-year term on credit facility with paid extension option

TORONTO, June 19, 2025 /PRNewswire/ - Auxly Cannabis Group Inc. (TSX: XLY) (OTCQB: CBWTF) ("Auxly" or the "Company"), a leading consumer packaged goods company in the cannabis products market, is pleased to announce that it has entered into two agreements that will strengthen its balance sheet, reduce debt, and support long-term growth:

• A non-binding agreement (the "Term Sheet") to amend and restate the Company's existing syndicated credit facility led by the Bank of Montreal ("BMO"), and
  
  
• An exchange agreement (the "Exchange Agreement") with Imperial Brands plc ("Imperial Brands") pursuant to which all amounts owing by the Company under the outstanding convertible debenture held by Imperial Brands (the "Debenture") will be settled in common shares of the Company ("Shares") and pre-funded warrants to purchase Shares.

These transactions represent meaningful progress in the Company's ongoing efforts to strengthen its balance sheet. The restatement of the credit facility will enhance the Company's liquidity and provide increased flexibility to allocate capital toward strategic growth initiatives. Concurrently, the settlement of the Imperial Brands convertible debenture through the issuance of equity instruments will eliminate over $21 million of debt from the Company's balance sheet. This deleveraging will improve the Company's capital structure, reduce interest obligations and reinforce the Company's financial stability and long-term viability.

"This refinancing marks a significant milestone for Auxly, resulting in a stronger, more resilient company," said Hugo Alves, CEO of Auxly. "These transactions will significantly reduce our debt, strengthen our balance sheet and give us the flexibility to invest in innovation and growth. The actions support our objective of achieving sustainable, profitable growth and creating long-term value for all of our stakeholders."

Travis Wong, CFO of Auxly, added: "These transactions materially improve and simplify our capital structure. As a result of the refinancing, we anticipate the removal of the going concern uncertainty disclosure from our financial statements which is a clear reflection of our strengthened financial position and the growing stability of our operations."

Amended Credit Facility

The Company has entered into a non-binding agreement providing indicative terms for an amendment and restatement of Auxly Leamington's existing credit facility agreement with a syndicate of lenders led by BMO (the "Amended Credit Facility"). The key modifications to be provided under the Amended Credit Facility will include the following:

• Borrower: The Company will replace Auxly Leamington as the borrower.
  
  
• Facility Structure: Credit facility of $50.7 million consisting of:
  • Term loan of $36.2 million
  • Revolving facility of $10.0 million to be used for working capital and corporate requirements
  • Existing equipment leases of $4.5 million
    
    
• Term: Two years with an option to extend for an additional year for $100,000.
  
  
• Updated Financial Covenants: Revised covenants which provide the Company with the flexibility to support its long-term growth strategy.
  
  
• Security: The Amended Credit Facility will be secured by all, or substantially all, of the assets of the Company and its subsidiaries (rather than primarily the assets and equity of Auxly Leamington as is the case under Auxly Leamington's existing credit facility).

The Company and the lenders are working towards a definitive binding amendment and restatement agreement for the Amended Credit Facility, although there can be no assurance that a definitive amendment and restatement agreement with the lenders will be reached.

Imperial Brands Convertible Debenture Settlement

The Company and Imperial Brands have entered into the Exchange Agreement pursuant to which, and subject to the execution of the Amended Credit Facility on the terms provided in the Term Sheet:

1. 1. 1. Imperial Brands will convert the remaining $1.0 million principal amount owed under the Debenture into 1,234,568 Shares at a conversion price of $0.81 per share in accordance with the terms of the Debenture (the "Principal Conversion");
         
         
      2. Imperial Brands will convert approximately $1.39 million of accrued interest under the Debenture into Shares at a per-share conversion price of $0.0811, equal to the trailing 5-day volume-weighted average trading price of the Shares on the Toronto Stock Exchange (the "TSX") as of the date hereof (the "Interest Conversion"); and
         
         
      3. the Company will issue to Imperial Brands pre-funded warrants to acquire up to 90,883,618 Shares (the "Warrants") in exchange for a certain amount of additional interest, and all remaining accrued interest owed under the Debenture will be forgiven. Each Warrant will entitle an affiliate of Imperial Brands to purchase one Share for a nominal exercise price at any time prior to December 31, 2028 (the "Expiry Date"), provided that the number of Warrants exercisable for Shares (the "Underlying Shares") that may be exercised at any time prior to the Expiry Date will be limited to such number of Warrants for which the issuance of corresponding Underlying Shares would not result in Imperial Brands owning more than 19.9% of all the then outstanding Shares.

Upon the completion of the Principal Conversion and the Interest Conversion (assuming such completion occurs), the Debenture will be cancelled and there will be no further amounts owing thereunder, and Imperial Brands will own and control approximately 19.9% of all issued and outstanding Shares.

The execution of the Amended Credit Facility and the completion of the transactions contemplated by the Exchange Agreement are expected to occur on or about June 30, 2025, subject to the satisfaction of certain conditions precedent, including (in the case of the transactions contemplated by the Exchange Agreement) the receipt of the required approval from the TSX.

ON BEHALF OF THE BOARD

"Hugo Alves" CEO

About Auxly Cannabis Group Inc. (TSX: XLY)

Auxly is a leading Canadian consumer packaged goods company in the cannabis products market, headquartered in Toronto, Canada. Our mission is to help consumers live happier lives through quality cannabis products that they trust and love.

Our vision is to be a global leader in quality cannabis products.

Learn more at www.auxly.com and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.

Related Party Transaction

Imperial Brands is considered a "related party" of the Company, and the transactions contemplated by the Exchange Agreement (collectively, the "Settlement") constitute a "related party transaction", as such terms are defined by Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The completion of the Settlement is exempt from the minority shareholder approval and formal valuation requirements of MI 61-101 as, at the time of execution of the Exchange Agreement, the fair market value of the consideration to be paid pursuant to the Settlement amounted, in aggregate, to less than 25% of the market capitalization of the Company.

Further details will be provided in the corresponding material change report of the Company in respect of the Settlement, a copy of which will be filed under the Company's issuer profile on SEDAR+ which is accessible at www.sedarplus.ca.

Required Early Warning Disclosure

Prior to the Settlement, Imperial held 247,631,691 Shares (approximately 18.79% of the issued and outstanding Shares (calculated on a non-diluted basis)), and approximately $1 million principal amount of the Debenture. Following the Settlement (assuming it is completed), Imperial will hold 265,968,180 Shares (approximately 19.9% of the issued and outstanding Shares (calculated on a non-diluted basis)) and the Warrants, being pre-funded warrants to acquire up to 90,883,618 Shares. The aggregate consideration to be paid by Imperial for the Shares issuable upon the completion of the Principal Conversion and the Interest Conversion and the Warrants is approximately $9.8 million (which, together with the amount forgiven in the amount of approximately $11.8 milion, reflects the aggregate settlement of the indebtedness owed under the Debenture prior to the Settlement (assuming it is completed)).

Imperial Brands intends to review its investment in the Company on a continuing basis and may, subject to the terms of the second amended and restated investor rights agreement between Imperial Brands and the Company dated March 28, 2024, purchase or sell Shares, either on the open market or in private transactions, or further exercise its conversion rights under the Warrants in the future, in each case, depending on a number of factors, including general market and economic conditions and other factors and conditions Imperial Brands deems appropriate. Imperial Brands may formulate other purposes, plans or proposals regarding the Company or any of its securities or may change its intention with respect to any of the foregoing.

An early warning report will be filed by Imperial Brands with applicable Canadian securities regulatory authorities. To obtain a copy of the early warning report, please contact Matthew Brace at +44 (0)117 963 6636.

Notice Regarding Forward Looking Information:

This news release contains certain "forward-looking information" within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or information that certain events or conditions "may" or "will" occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the execution of the Amended Credit Facility and the anticipated timing thereof; the anticipated benefits of the Amended Credit Facility and the timing thereof; the completion of the Settlement (and any portion thereof) and the anticipated timing thereof; the issuance of Underlying Shares in connection with the potential future exercise of Warrants; the anticipated benefits of the Settlement and the timing thereof; the Company's execution of its product development and commercialization strategy; consumer preferences; Imperial Brands' intentions to review its investment in the Company on an ongoing basis; political change; future legislative and regulatory developments involving cannabis and cannabis products; and competition and other risks affecting the Company in particular and the cannabis industry generally.

A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information included in this release including, but not limited to, whether: the expected benefits of the execution of the Amended Credit Facility and/or the Settlement (or any portion thereof) materialize in the manner expected, or at all; there is acceptance and demand for current and future Company products by consumers and provincial purchasers; and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company operates will remain the same. Additional risk factors are disclosed in the annual information form of the Company for the financial year ended December 31, 2024 dated March 20, 2025 and other documents that the Company files with Canadian securities regulatory authorities from time to time.

New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this news release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. Readers should not place undue reliance on forward-looking information contained in this news release.

The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

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

View original content to download multimedia:https://www.prnewswire.com/news-releases/auxly-announces-non-binding-agreement-to-amend-and-extend-bmo-credit-facility-and-settlement-of-all-amounts-owing-to-imperial-brands-302485963.html

SOURCE Auxly Cannabis Group Inc.

FAQ

What is the size of Auxly's (CBWTF) new credit facility with BMO?

The new credit facility totals $50.7 million, consisting of a $36.2M term loan, $10M revolving facility, and $4.5M in existing equipment leases.

How much debt is being converted in the Imperial Brands agreement with Auxly?

Over $21 million in convertible debenture debt is being settled through share issuance and pre-funded warrants.

What percentage of Auxly will Imperial Brands own after the debt conversion?

Imperial Brands will own approximately 19.9% of all issued and outstanding shares of Auxly.

What is the term of Auxly's new BMO credit facility?

The credit facility has a two-year term with an option to extend for an additional year for $100,000.

What is the conversion price for Imperial Brands' principal amount in Auxly shares?

The $1.0 million principal amount will be converted at $0.81 per share, resulting in 1,234,568 shares.

When are the Auxly debt restructuring transactions expected to complete?

The transactions are expected to close on or about June 30, 2025, subject to conditions including TSX approval.