Ontario Commission des 22nd Floor 22e étage
Securities valeurs mobilières 20 Queen Street West 20, rue queen ouest
Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8
May 5, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the “Jurisdiction”)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF MERCER PARK BRAND ACQUISITION CORP. (the “Filer”)
DECISION
Background
The principal regulator in the Jurisdiction (the “Decision Maker”) has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the “Legislation”) under:
(a) Section 19.1 of National Instrument 41-101 — General Prospectus Requirements (“NI 41-101”) and Section 5.1 of National Instrument 52-107— Acceptable Accounting Principles and Auditing Standards (“NI 52-107”) exempting the Filer from the requirements under Sections 3.2 and 3.3 of NI 52-107 requiring that the financial statements of each of GH Group, Inc. (“GH Group”), Element 7, LLC (“Element 7”), iCANN, LLC (“Farmacy Berkley”) and Bud and Bloom (“Bud and Bloom”) and applicable pro forma financial statements required to be included in a prospectus to be filed by the Filer pursuant to Item 32 of Form 41-101F1 – Information Required in a Prospectus, and
(b) Section 13.1 of NI 51-102 – Continuous Disclosure Obligations (“NI 51-102”) exempting the Filer from the requirements under Item 14.2 of Form 51-102F5 – Information Circular that financial statements of GH Group, Element 7, Farmacy Berkeley, and Bud and Bloom, and applicable pro forma financial statements, required to be included in an information circular relating to a restructuring transaction (as defined in NI 51-102) to be filed by the Filer,
in each case, be prepared in accordance with accounting principles and audited in accordance with auditing standards prescribed under Sections 3.2 and 3.3 of NI 52-107, respectively, namely International Financial Reporting Standards (“IFRS”) and Canadian GAAS (the “Accounting Standards Relief”), respectively in connection with a preliminary and final prospectus, and any amendments thereto (the “Prospectuses”), which Prospectuses the Filer is filing as non-offering Prospectuses with each of the provincial and territorial securities regulatory authorities in Canada, other than Quebec, as contemplated in Section 10.16 (as defined below), and a management information circular (the “Circular”, and together with the Prospectuses, the “Filings”), which Circular is being prepared in connection with an upcoming meeting of the Filer’s shareholders to consider an agreement and plan of merger involving, inter alia, the Filer and GH Group, all in connection with the Qualifying Transaction (as defined below) (together, the “Exemption Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, the Yukon Territory, Nunavut and the Northwest Territories (the “Passport Jurisdictions”), which, pursuant to Section 8.2(2) of National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions (“NP 11-202”) and Section 5.2(6) of National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions (“NP 11-203”), also satisfies the notice requirement of Section 4.7(1)(c) of MI 11-102.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102, NP 11-202, NI 41-101, NI 52-107, NP 11-203 and NI 51-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the Business Corporations Act (British Columbia).
The Filer is a reporting issuer in all of the provinces and territories of Canada, other than Quebec, and is not in default in any material respect under applicable securities legislation in such jurisdictions.
The Filer is a “special purpose acquisition corporation”, or “SPAC”, under Section 10.16 of the NEO Exchange (“NEO”) Listing Manual (“Section 10.16”), as varied by exemptive relief, having completed its SPAC initial public offering (“IPO”) on May 13, 2019 pursuant to a final prospectus that was filed in each of the provinces and territories of Canada other than Quebec dated May 7, 2019.
The Filer’s authorized share capital consists of shares of two classes: Class A Restricted Voting Shares, issued to investors in the Filer’s initial public offering, and Class B Shares held by the Filer’s founding shareholders (some of which were also qualified under the IPO prospectus). In addition, the Filer’s authorized capital also currently includes an unlimited number each of subordinate voting shares and multiple voting shares, none of such are currently issued and outstanding and the terms of which are expected to be amended in connection with the Qualifying Transaction. In addition, the Filer issued Share Purchase Warrants as part of the IPO, each such Warrant being exercisable, beginning 65 days after completion of a “qualifying acquisition” by the Filer, to acquire one Class A Restricted Voting Share at a price of US $11.50 per share.
The Class A Restricted Voting Shares and Share Purchase Warrants of the Filer are listed on the NEO under the symbols “BRND.A.U” and “BRND.WT”, respectively. The Class B Shares of the Filer are not listed on the NEO or any other marketplace as defined in National Instrument 21-101 Marketplace Operation.
The Filer has entered into an agreement and plan of merger dated April 8, 2021 in respect of a proposed business combination transaction which would constitute the Filer’s “qualifying acquisition” under Section 10.16, involving, among other things, the direct or indirect acquisition by the Filer of all of common equity interests in GH Group (the “Qualifying Transaction”).
The Qualifying Transaction would constitute the Filer’s “qualifying acquisition” under Section 10.16.
The Filer is filing the Prospectuses as non-offering Prospectuses with each of the provincial and territorial securities regulatory authorities in Canada other than Quebec as contemplated in Section 10.16.
GH Group is a limited liability company formed under Delaware state law with its principal executive offices located at 3645 Long Beach Blvd., Long Beach, California, USA, 90807. GH Group is one of the largest privately-held, vertically integrated cannabis companies in California with operations currently including cultivation, manufacturing, distribution and retail facilities. Additionally, GH Group has:
(a) On August 31, 2019, completed an acquisition of 100% of the equity interests of Bud and Bloom, a licenced California corporation carrying out the business of procurement and sale of cannabis retail products in the city of Santa Ana, California.
(b) On January 1, 2021, completed an acquisition of 100% of the equity interests of Farmacy Berkeley, a licensed retail cannabis company located in Berkeley, California.
(c) On February 23, 2021, entered into a merger and exchange agreement with Element 7, whereby GH Group has the right, subject to satisfactory completion of due diligence, to merge with up to 17 subsidiary entities of Element 7 which are in the process of applying for state and local retail cannabis licenses in California, by way of a separate merger for each entity.
The Prospectuses will include consolidated/combined, as applicable, financial statements for each of GH Group, Farmacy Berkley, Bud and Bloom, and the Element 7 entities (collectively, the “GH Group Acquisition Financial Statements”), each of which will have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and audited in accordance with United States Public Company Accounting Oversight Board Generally Accepted Accounting Standards (“U.S. PCAOB GAAS”). The consolidated financial statements of GH Group and Farmacy Berkeley will be for the financial years ended December 31, 2020, 2019 and 2018. The combined financial statements for Bud and Bloom will be for the eight (8)-month period ended August 31, 2019 and the financial year ended December 31, 2018. The consolidated financial statements of the Element 7 entities will be for the financial years ended December 31, 2020 and 2019, as those businesses did not exist until after 2018.
Each of GH Group, the Element 7 entities, Farmacy Berkeley, and Bud and Bloom is not an "SEC Issuer" or an "SEC foreign issuer" as such terms are defined in NI 52-107.
If completed, the acquisition by the Filer of interests in GH Group is expected to be accounted for as a reverse merger or non-acquisition equity transaction by GH Group and, accordingly, GH Group may be viewed as the “accounting acquirer” for accounting purposes (and the “reverse takeover acquirer” for purposes of Canadian financial statement disclosure requirements for the Filings, pursuant to section 36.1 of Form 41-101F1 and/or Ontario Securities Commission practice).
The Filer has filed a Form 40-F registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) under the Canada/U.S. multi-jurisdictional disclosure system, which has been declared effective by the SEC. Accordingly, the Filer qualifies as an “SEC issuer” pursuant to NI 52-107. As an SEC issuer, the Filer is entitled to file its financial statements prepared in accordance with U.S. GAAP under Section 3.7 of NI 52-107 and they would be able to be audited as required in accordance with U.S. PCAOB GAAS under Section 3.8 of NI 52-107.
After the closing of the Qualifying Transaction, the Filer intends to file its financial statements required by Canadian securities laws prepared in accordance with U.S. GAAP and audited as required in accordance with U.S. PCAOB GAAS as permitted under Sections 3.7 and 3.8 of NI 52-107.
Consistent with this contemplated approach, the Filer has included or will include its own financial statements as well as the GH Group Acquisition Financial Statements in the Filings prepared in accordance with U.S. GAAP and audited as required in accordance with U.S. PCAOB GAAS under Sections 3.7 and 3.8 of NI 52-107.
If GH Group is viewed as the “accounting acquirer” as described above for accounting purposes and the “reverse takeover acquirer” under NI 41-101 with respect to the Qualifying Transaction, Section 3.2 of NI 52-107 would require its financial statements to be prepared in accordance with IFRS and GH Group would not be able to prepare its financial statements in accordance with U.S. GAAP or have them audited in accordance with U.S. PCAOB GAAS under any of Sections 3.7, 3.8, 3.9 or 3.10 of NI 52-107 since GH Group is not an “SEC issuer”, an “SEC foreign issuer” or a “designated foreign issuer” as defined in NI 52-107.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that:
(a) the Exemption Sought is granted to the Filer in respect of the GH Group Acquisition Financial Statements and applicable pro forma financial statements to be included in the Filings, provided that those financial statements are prepared in accordance with U.S. GAAP and they are, where applicable, audited in accordance with U.S. PCAOB GAAS; and
(b) the Exemption Sought will terminate in respect of the Filer if the Filer does not complete the Qualifying Transaction in the manner contemplated in this decision.
“Cameron McInnis” _____________________________ Cameron McInnis
Chief Accountant Ontario Securities Commission