Columbia Care Inc.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- application for relief from requirement to obtain separate minority approval from the filer's common shares and proportionate voting shares, each voting separately as a class -- classes intended to be identical, but for proportionate rights -- no difference of interest between holders of each class of shares in connection with the proposed business combination transaction, different classes are not affected in a differing way -- safeguards include independent committee, fairness opinions, approval of the Court -- applicable corporate statue and filer's constating documents provide that shareholders will vote as a single class other than in certain circumstances which are not present in connection with the proposed transaction.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 8.1(1) and 9.1(2).
May 11, 2022
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 COLUMBIA CARE INC. (the "Filer")
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Filer, pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101"), from the requirement in subsection 8.1(1) of MI 61-101 to obtain minority approval for the Arrangement (as defined below) from the holders of every class of affected securities of the Filer voting separately as a class, and requiring instead that minority approval be obtained from all Disinterested Shareholders (as defined below) voting together as single class (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, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut.
Terms defined in National Instrument 14-101 Definitions, MI 11-102, and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation validly existing under the Business Corporations Act (British Columbia) ("BCBCA") and is in good standing.
2. The registered office address of the Filer is 666 Burrard St., #1700, Vancouver, British Columbia, Canada, V6C 2X8. The head office address of the Filer is 680 Fifth Ave., 24th Floor, New York, New York, 10019, United States of America.
3. The Filer is a reporting issuer in all of the provinces and territories of Canada other than Québec and is not in default of its obligations under the securities legislation in any of those jurisdictions.
4. The Filer is engaged primarily in the production and sale of cannabis as regulated by the regulatory bodies and authorities of the jurisdictions in which it operates.
5. The authorized share capital of the Filer consists of (a) an unlimited number of common shares, carrying one (1) vote per share (the "Common Shares"), (b) an unlimited number of proportionate voting shares, carrying one hundred (100) votes per share (the "PV Shares" and together with the Common Shares, the "Filer Shares"), and (c) an unlimited number of preferred shares (the "Preferred Shares").
6. As at May 3, 2022:
(a) the outstanding share capital of the Filer consisted of 383,560,081 Common Shares, 136,410.48 PV Shares, and nil Preferred Shares; and
(b) the Common Shares represent approximately 96.57% of the aggregate voting rights attached to the Filer Shares, and the PV Shares represent approximately 3.43% of the aggregate voting rights attached to the Filer Shares.
7. The sole reason the PV Shares were initially created was to help ensure that the Filer maintained its "Foreign Private Issuer" status under United States securities laws.
8. The Filer became a registrant with the United States Securities and Exchange Commission (the "SEC") on March 31, 2022 and is no longer a "Foreign Private Issuer" as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934. Accordingly, the difference between the PV Shares and Common Shares is entirely administrative.
9. The holders of the Common Shares and PV Shares have the same rights and obligations, and no holder of Filer Shares is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:
(a) The Common Shares may at any time, at the option of the holder thereof and with the consent of the Filer, be converted into PV Shares on the basis of one (1) Common Share for one one-hundredth (0.01) of a PV Share.
(b) The PV Shares may at any time, at the option of the holder thereof, be converted into Common Shares on the basis of one hundred (100) Common Shares for one (1) PV Share, with fractional PV Shares convertible into Common Shares on the same ratio. If the board of directors of the Filer (the "Board") determines that it is no longer advisable to maintain the PV Shares as a separate class of shares, then the PV Shares shall be converted into Common Shares on the basis of one hundred (100) Common Shares for one (1) PV Share, with fractional PV Shares convertible into Common Shares on the same ratio.
(c) Subject to the preferences accorded to the holders of the Preferred Shares, each PV Share is entitled to dividends if, as and when dividends are declared by the Board, with each PV Share being entitled to one hundred (100) times the amount paid or distributed per Common Share (or, if a stock dividend is declared, each PV Share shall be entitled to receive the same number of PV Shares per PV Share as the number of Common Shares entitled to be received per Common Share), and fractional PV Shares will be entitled to the applicable fraction thereof, and otherwise without preference or distinction among or between the Filer Shares.
(d) Subject to the preferences accorded to the holders of the Preferred Shares, in the event of the liquidation, dissolution or winding-up of the Filer, the holders of Shares are entitled to participate in the distribution of the remaining property and assets of the Filer, with each PV Share being entitled to one hundred (100) times the amount distributed per Common Share and fractional PV Shares will be entitled to the applicable fraction thereof, and otherwise without preference or distinction among or between the Filer Shares.
(e) The holders of the Filer Shares are entitled to receive notice of, attend and vote at any meeting of shareholders of the Filer, except those meetings at which holders of a specific class of shares are entitled to vote separately as a class under the BCBCA.
(f) The Common Shares will carry one (1) vote per share and the PV Shares will carry one hundred (100) votes per share. Fractional PV Shares will be entitled to the number of votes calculated by multiplying the fraction by one hundred (100).
(g) The rights, privileges, conditions and restrictions attaching to the Filer Shares may be modified if the amendment is authorized by not less than 66?% of the votes cast at a meeting of holders of the Filer Shares duly held for that purpose. However, if the holders of PV Shares, as a class, or the holders of Common Shares, as a class, are to be affected in a manner materially different from such other class of Filer Shares, the amendment must, in addition, be authorized by not less than 66?% of the votes cast at a meeting of the holders of the class of shares which is affected differently.
(h) No subdivision or consolidation of the Common Shares or PV Shares may be carried out unless, at the same time, the shares of the other class are subdivided or consolidated in the same manner and on the same basis, so as to preserve the relative rights of the holders of each such class of Filer Shares.
(i) In addition to the conversion rights described above, if an offer ("Offer") is made for PV Shares where: (i) by reason of applicable securities legislation or stock exchange requirements, the offer must be made to all holders of the class of PV Shares; and (ii) no equivalent offer is made for the Common Shares, the holders of Common Shares shall have the right, at their option, to convert their Common Shares into PV Shares for the purposes of allowing the holders of the Common Shares to tender to the Offer.
(j) In the event that holders of Common Shares are entitled to convert their Common Shares into PV Shares in connection with an Offer, holders of an aggregate of Common Shares of less than one hundred (100) (an "Odd Lot") will be entitled to convert all but not less than all of such Odd Lot of Common Shares into an applicable fraction of one (1) PV Share, provided that such conversion into a fractional PV Share will be solely for the purpose of tendering the fractional PV Share to the Offer in question and that any fraction of a PV Share that is tendered to the Offer but that is not, for any reason, taken up and paid for by the offeror will automatically be reconverted into the Common Shares that existed prior to such conversion.
10. By their terms, the PV Shares and Common Shares were intended to be identical, but for the proportionate (a) voting rights, (b) dividend rights, (c) participation rights on liquidation, dissolution or winding-up, and (d) conversion privileges, as outlined in paragraph 9 above.
11. For accounting purposes, there is no distinction between the Common Shares and PV Shares, which are treated as if they were shares of one class only. All Filer Shares are treated as Common Share capital and presented in the aggregate in shareholders' equity as share capital on the Filer's consolidated statement of financial position.
12. The voting power of the Common Shares, relative to the dividend, distribution and liquidation entitlements of the Common Shares is proportionate to the voting power of the PV Shares, relative to the dividend, distribution and liquidation entitlements of the PV Shares. Accordingly, the predecessor to the Filer (Canaccord Genuity Growth Corp.) received a decision from the Ontario Securities Commission (the "OSC") on March 1, 2019 to, among other things, exempt the Filer from the requirement to use restricted share terms and provide restricted share disclosure in respect of the Common Shares (the "2019 Relief"). The Filer continues to satisfy the conditions of the 2019 Relief.
13. Cresco Labs Inc. ("Cresco") is a corporation validly existing under the BCBCA and is in good standing.
14. The registered office address of Cresco is 666 Burrard St., #2500, Vancouver, British Columbia, Canada, V6C 2X8. The head office address of Cresco is 400 W Erie St., #110, Chicago, Illinois, 60654, United States of America.
15. Cresco is a reporting issuer in all of the provinces and territories of Canada, and is not in default of its obligations under the securities legislation in any of those jurisdictions.
16. On March 23, 2022, the Filer entered into an arrangement agreement (the "Arrangement Agreement") with Cresco pursuant to which the Filer agreed to complete an arrangement under the BCBCA, which, subject to the terms and conditions of the Arrangement Agreement, will result in, among other things, Cresco acquiring, following the conversion of all PV Shares into Common Shares in accordance with the terms of the Filer's Articles (the "Articles"), all of the outstanding Common Shares (other than the Filer Shares in respect of which dissent rights are validly exercised) and issuing to each holder of Common Shares 0.5579 of a subordinate voting share in the capital of Cresco (each whole share, a "Cresco Share") for each Common Share held, subject to adjustment as set out in the Arrangement Agreement (the "Arrangement").
17. At the time the Arrangement was agreed to, Cresco was not a related party of the Filer.
18. The Arrangement is a business combination for the purposes of MI 61-101 and is therefore subject to the applicable requirements of MI 61-101, on the basis that Nicholas Vita, the Chief Executive Officer of the Filer, and thus, a related party, is entitled to receive a collateral benefit as a consequence of the Arrangement. As a business combination, approval for the Arrangement is required to be obtained from a majority of votes cast by holders of each class of Filer Shares, in each case voting separately as a class, excluding the votes attached to Filer Shares, beneficially owned, or over which control or direction is exercised, by any party specified in subsection 8.1(2) of MI 61-101 (such voting shareholders, the "Disinterested Shareholders") at a shareholder meeting to be held by the Filer. The Disinterested Shareholders consist of the holders of Common Shares and PV Shares, with the exception of Nicholas Vita. In aggregate, Nicholas Vita holds approximately 9.58% of the Common Shares on a diluted basis assuming the conversion of all PV Shares into Common Shares.
19. MI 61-101 was adopted to ensure the fair treatment of all security holders and the perception of such in the context of insider bids, issuer bids, business combinations and related party transactions.
20. The approval of the Arrangement is subject to a number of mechanisms to ensure that the collective interests of the holders of Filer Shares are protected, including the following:
(a) the Arrangement is structured as an arrangement to be carried out in accordance with Division 5 of Part 9 of the BCBCA and requires, among other things, (i) the approval of a special resolution in respect of the Arrangement by two-thirds of the votes cast by holders of Filer Shares, voting together as a single class, at a special meeting of shareholders of the Filer, and (ii) following receipt of such shareholder approval, the approval the Arrangement by the Supreme Court of British Columbia (the "Court");
(b) an interim order of the Court pursuant to section 288 of the BCBCA (the "Interim Order") providing for the manner in which the Filer will call, hold and conduct a special meeting of shareholders in respect of the Arrangement;
(c) the preparation and delivery by the Filer to its shareholders of a management information circular (the "Information Circular") in accordance with applicable securities law requirements and the Interim Order that will provide shareholders with sufficient information to enable them to make an informed decision in respect of the Arrangement;
(d) the requirement that the Arrangement receive approval from a majority of votes cast by the Disinterested Shareholders voting together as a single class (each Common Share carrying one (1) vote and each PV Share carrying one hundred (100) votes);
(e) the creation of a special committee of independent directors (the "Special Committee") whose mandate included negotiating the Arrangement and making a recommendation regarding the Arrangement and who unanimously determined that the Arrangement is in the best interests of the Filer and is fair and reasonable to holders of Filer Shares;
(f) the Board having unanimously determined that the Arrangement is in the best interests of the Filer and is fair and reasonable to holders of Filer Shares;
(g) the Board and Special Committee having obtained fairness opinions from Canaccord Genuity Corp. (the "Canaccord Fairness Opinion") and ATB Capital Markets Inc. (the "ATB Fairness Opinion", and collectively with the Canaccord Fairness Opinion, the "Fairness Opinions"), respectively, stating that, as of the date of the opinion and subject to the assumptions, limitations, and qualifications on which such opinion is based, the consideration to be received by holders of Filer Shares pursuant to the Arrangement is fair, from a financial point of view, to the holders of Filer Shares;
(h) a right of dissent for the benefit of the holders of Filer Shares, including Disinterested Shareholders; and
(i) the Arrangement is the result of extensive arm's length negotiations among representatives of the Filer and Cresco and their respective legal and financial advisors; (the measures described in paragraphs 20(a) through (i), together, the "Safeguard Measures").
21. The Special Committee and the Board are each of the view that the Safeguard Measures are the optimal mechanisms to ensure that the public interest is well protected and that holders of Filer Shares are treated fairly and in accordance with their voting and economic entitlements under the Articles.
22. Under the BCBCA, there is no entitlement to separate class votes with respect to the approval of the Arrangement.
23. The Articles provide that (a) the holders of Common Shares are entitled to vote at all meetings of shareholders of the Filer except a meeting at which only the holders of another class or series of shares is entitled to vote, and (b) the holders of PV Shares are entitled to vote at all meetings of shareholders of the Filer at which holders of Common Shares are entitled to vote. In the case of Common Shares and PV Shares, as the case may be, the Articles require a separate special resolution of the holders of Common Shares or PV Shares, as the case may be, only when the Articles are being altered or amended in a way that would either (i) prejudice or interfere with any right or special right attached to the Common Shares or the PV Shares, as the case may be, or (ii) affect the rights or special rights of the holders of Common Shares and PV Shares on a per share basis which differs from the basis of one (1) per share in the case of Common Shares, and one hundred (100) per share in the case of the PV Shares. The Filer has determined that under the Articles, there is no entitlement to separate class votes with respect to the approval of the Arrangement, and the holders of PV Shares are entitled to vote with the Common Shares as a single class in respect of the approval of the Arrangement.
24. Separate class votes by the holders of Filer Shares would have the effect of granting disproportionate importance to one class of Filer Shares over another. Despite the fact that the PV Shares held by Disinterested Shareholders would represent approximately 4.33% of the total votes of Disinterested Shareholders on an aggregate basis, holders of PV Shares, as a separate class, would be entitled to a veto right in respect of the Arrangement that could be exercised against all other Disinterested Shareholders. Such an outcome would not be in accordance with the reasonable expectations of the holders of Filer Shares.
25. On April 29, 2022, the Filer issued a press release that included disclosure that it had made an application to the OSC for the Exemption Sought, which would allow the Filer to obtain minority approval for the Arrangement from the Disinterested Shareholders voting together as a single class, as opposed to the holders of Common Shares and PV Shares each voting separately as a class.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that the following mechanisms are implemented and remain in place:
(a) a special meeting of the holders of Filer Shares is held in order for the Disinterested Shareholders of the Filer to consider and, if deemed advisable, approve the Arrangement, such approval to be obtained with the Disinterested Shareholders of the Filer voting together as a single class of the Filer;
(b) the Information Circular is prepared and delivered by the Filer to its shareholders in accordance with applicable securities law requirements; and
(c) the Fairness Opinions are included in their entirety in the Information Circular.
Director, Office of Mergers & Acquisitions
Ontario Securities Commission