INCBA Las Vegas CLE Liquidity Events Panel 1

INCBA Las Vegas CLE- Liquidity Events Panel 1 - SALE OF A BUSINESS Brent Fassett, Moderator Krystal Saab, Panelist Matt Kittay, Panelist Ruth Chun, Panelist Joe Segilia, Panelist December 10, 2019●Vegas 1

Moderator and Panelists Krystal Saab The+Source Matthew R. Kittay Fox Rothschild LLP Brent Fassett Cooley LLP Joseph Segilia Terra Tech Corp Ruth Chun Law 2

Today’s Topic SALE OF A BUSINESS: Panelists will review various types of transactions that can be used by cannabis business owners to spin off, sell, or otherwise cash out of a business enterprise. Learn how to prepare for the desired exit, and how to analyze the pros and cons of different deal structures. 3

Today’s Topics Overview: Deal Structure Overview o Hostile Takeovers o Joint Ventures o Current State of the Market o Regulatory Considerations o U. S. vs. Canada o 4

States Allowing of Marijuana ME WA MT VT NH MA ND MN OR ID NY WI SD MI PA MD NJ DE WY IA NE IL NV UT CA CO KS IN OH WV VA MO OK NM NC TX SC AR MS AK Washington D. C. KY TN AZ RI CT AL GA Our map shows current state laws and recentlyapproved ballot measures legalizing marijuana for medical or recreational purposes. States with limited medical marijuana laws, such as those only permitting use of CBD oil, are not considered to have adopted broad medical marijuana laws. Final rules for recently-passed medical marijuana laws are pending in some states. Information is current as of June 25, 2019. LA FL Source: Governing. com State Marijuana Laws in 2019 Map https: //www. governing. com/gov-data/safety-justice/statemarijuana-laws-map-medical-recreational. html HI Medical States Adult Use States/Decriminalized 5 5

Deal Structure • There are three main structures for a sale of a business o Asset sale – sell some or all of an entity’s assets o Equity sale – sell some or all of an entity’s equity o Merger – merger an entity with another entity 6

Choosing the Right Approach • Asset sale ▪ Parties can pick and choose with assets to sell ▪ Buyer can assume some, all or none of the seller’s liabilities (with certain exceptions) • Equity sale ▪ All assets are transferred. Parties can’t pick and choose. ▪ Buyer assumes liabilities (can be indemnified) ▪ May not be practical with a large number of shareholders • Merger ▪ All assets and liabilities are assumed ▪ Usually only requires majority shareholder approval 7

Multi-Factor Decision • • Forms of agreements Third party consents / Regulatory approvals State corporate law considerations Tax and accounting issues Public companies present unique considerations Going public as an alternative Deal Structure Comparison (see next slide) 8

M&A: Types of Deals 9

M&A: Common Target Structure 10

M&A: Common Target Structure Example: Acquisition 11

M&A: Common Target Structure Example: Combination 12

M&A: Common Target Structure Example: Distressed LBO 13

US vs. Canadian Law • Cannabis Act - Health Canada (notifications, clearances) • Competition Act (‘antitrust’ / CAD$400 M / CAD $87 M) • Investment Canada Act - Foreign Investment Review • Public Deals- Regulators / court / statutory ■ Take over bid regime (‘tender offer’) ■ Statutory plan of arrangement / amalgamation 14

Hostile Takeover 15

Regulatory Considerations General concerns: • Choose the right regulatory compliance attorney as your partner • Be prepared for delays • Watch out for Anti-Monopoly regulations • Complete All Required Documents for Submission! 16

Regulatory Considerations Anti-monopoly provisions (NAC 453 D. 272(5)) • Harvest Example - Harvest Health & Recreation, an Arizona-based multistate cannabis company, reached an agreement with Pennsylvania regulators to drop two permits for affiliated medical marijuana companies it was pursuing in the state. 17

CANADIAN PERSPECTIVE ON REGULATION 18

M&A: Cannabis Transaction Takeaways ● Early stage targets (which is almost all transactions) means valuations are hard to evaluate ● Robust Due Diligence ○ regulatory compliance is central to the process ○ general lack of corporate organization and sophistication of companies ○ “rough edges” of target companies ● Closing Mechanics, Funds Transfer and Escrow Issues ● Staggered Sign and Close – how long? ● HSR Scrutiny ● Nuances of State “Anti-Monopoly” Laws + Knowing your investors Combined ● Securing Assets ○ one primary asset (inventory) is Federally illegal ○ one primary asset (licenses) are non-transferable and often prohibited from being used as security ○ foreclosure processes are complicated due to license requirements ● Trading “Baseball Cards” – Equity Exchanges due to Lack of Cash Consideration ● Stock Lockups and Illiquid Liquidity 19

Q&A Any questions? 20