Newstrike Brands (HIP) Inner Spirit Could Give it a Legs Up

Newstrike Brands Ltd. (TSXV:HIP) and Inner Spirit Holdings have entered into a strategic alliance agreement for the retail distribution of Up Cannabis Inc. products

SmallCapPower | August 7, 2018: Newstrike Brands Ltd. (TSXV:HIP), a cannabis player operating through its licensed subsidiary, Up Cannabis, announced recently that it has closed investments as per the May 22, 2018 agreement with Inner Spirit Holdings Ltd, which operates a chain of recreational cannabis dispensaries under Spirit Leaf brand. The closing of Newstrike’s investment followed Inner Spirit’s initial public offering on the same day.

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Pursuant to the investment agreement, Newstrike Brands made a total investment of $2.25 million in Inner Spirit, comprising $1.125 million in cash and 1.25 million Newstrike shares issued at $0.90. Newstrike also issued Inner Spirit 1.125 million warrants, exercisable at $0.99 over 24 months and will vest on a performance-based schedule triggered by the opening of a pre-determined number of future Spirit Leaf locations. In consideration for Newstrike’s investment in Inner Spirit, Inner Spirit issued Newstrike Brands 15.0 million units at $0.15 per unit (closing price on the listing day), with each Unit comprising of one common share of Inner Spirit and one-half of a common share purchase warrant, exercisable at $0.30 per share for a period of two years.

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As described in the investment agreement, Newstrike Brands and Inner Spirit also entered into a strategic alliance agreement for the retail distribution of Up Cannabis Inc. products and the creation and operation of Up Cannabis-branded customer lounges or “Experiential Hubs” in Spirit Leaf stores.

The closing of the transaction strengthens Newstrike’s ability to supply its recreational cannabis products across the vast network of Inner Spirit stores. With a total of $5.9 million raised from the IPO as well as investments from Newstrike Brands and Auxly (formerly Cannabis Wheaton), Inner Spirit has the necessary capital to accelerate the development of over 100 Spirit Leaf store franchisees.

Newstrike Brands gained a bit of national attention in Canada in 2017 when they revealed that iconic Canadian rock group The Tragically Hip would partner with the Company and become “significant investors” in Newstrike Resources. According to the agreement, The Hip and its members will get 2.5% of gross revenues “from the sale of products bearing the brand or likeness of The Tragically Hip,” and also received three million shares in the Company, plus “a non-refundable advance payment against future royalties of $1 million.”

Newstrike Brands currently has a production capacity of 15,000 kg/annum, which will increase to 25,000 kg/annum post Phase II completion of its Niagara facility in early 2019. Newstrike currently trades at a market cap of $273 million.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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