Pivot Pharmaceuticals Inc. (OTCQB: PVOTF) (CSE: PVOT) is pleased to announce that the Company has completed the acquisition of ERS Holdings, LLC (“ERS”), a privately-held California company. As previously announced on December 20, 2017, ERS has developed a patented technology called “RTIC” Ready-To-Infuse-Cannabis (the “Patent”), relating to the transformation of cannabis oil into powder for infusion into a variety of food and beverage products such as capsules, K-Cups, stick packs, baked mixes, liquid shots, protein shakes, topicals, lotions, and bottled beverages. ERS has also filed several continuation patents that would allow cannabis powder to be combined with other health and wellness products such as natural sleep-aids, cold medications and vitamins.
Invented by Ross Franklin and Ed Rosenthal, the Patent “relates generally to methods and compositions of matter for enabling concentrated cannabis oil to be stable, emulsifiable and flavorless for use in hot beverages or food by combining cannabis oil with a starch powder or starch-derived powder. Embodiments also relate to a variety of culinary uses for the stabilized, emulsified, flavorless concentrated cannabis oil powder.”
Additionally, Mr. Patrick J. Rolfes has been appointed President of ERS Holdings, LLC, a wholly-owned subsidiary of Pivot. Mr. Rolfes will focus on monetizing the intellectual property (“IP”) and has already received expressions of interest from multi-national beer and spirits companies interested in partnering with Pivot to develop and commercialize THC and/or CBD infused branded products. Further, Mr. Ross Franklin, co-inventor of the Patent, has been appointed as ERS’ Director of Research and Development and will continue to invent new and innovative ways to infuse cannabis into foods and beverages.
Alcoholic beverage sales fell by 15 percent following the introduction of medical marijuana laws in a number of US states, according to a new working paper by researchers at the University of Connecticut and Georgia State University. The study also concludes that marijuana availability can reduce alcohol consumption. Another study by Deloittesuggests that “on sales of recreational marijuana alone, the Canadian marketplace could be as much as C$5B per year to start – a number on par with the Canadian spirit market (whiskey, vodka, rum, etc.). At the upper threshold, which takes into account the people who are 'likely to consume,' marijuana sales alone could be as high as C$8.7B, similar to sales generated by wine.”
As a consequence, Molson Coors has acknowledged that legal cannabis is a “risk” to their business, stating in their most recent 10-K that “Although the ultimate impact is currently unknown, the emergence of legal cannabis in certain U.S. states and Canada may result in a shift of discretionary income away from our products or a change in consumer preferences away from beer. As a result, a shift in consumer preferences away from our products or beer or a decline in the consumption of our products could result in a material adverse effect on our business and financial results.”
Dr. Patrick Frankham, CEO of Pivot, stated that “the RTIC family of patents will be transformational for the food and beverage industry. Based on our interaction with key players in the beverage market, we anticipate that there will be a significant substitution in consumer choices towards cannabis infused drinks. With this acquisition, we have positioned Pivot to be at the forefront of this enormous new market. Closing this transaction will enable us to further engage interested parties to work with us on developing the full potential of these Patents. Pivot intends to monetize the Patents as quickly as possible and thus I am delighted that Patrick Rolfes and Ross Franklin have joined the Pivot team to accelerate the process.”
Dr. Frankham also stated that “today’s related financing confirms that our vertically integrated cannabis business model is differentiated in the Canadian marketplace and recognized by a strong sponsorship from a sophisticated institutional investor. The Company will continue working with its financial advisor, Origin Merchant Partners, to successfully close our pending acquisitions and aggressively execute the remainder of our business plan in 2018/2019.”
Convertible Debenture Units
Pivot also announced today a private placement offering of senior secured convertible debentures ("Convertible Debentures") of the Company with a conversion price of $1.74 per common share for aggregate gross proceeds of $5,000,000 (the "Offering"). The net proceeds received by the Company will be used to, among other things, fund working capital and general corporate purposes, including but not limited to, development of its pipeline of products and intellectual property acquisitions.
The Company has entered into an agreement with an institutional investor with respect to the Offering, whereby the institutional investor has agreed to subscribe for up to $5,000,000 aggregate principal amount of Convertible Debentures. Closing of the Offering is subject to the satisfaction of customary conditions, including the receipt of all requisite regulatory approvals.
The Convertible Debentures will bear interest at the rate of 10% per annum, payable quarterly, will mature 12 months following the date of their issuance and will be convertible at the option of the holder for a period of 12 months into common shares of the Company ("Common Shares") at a conversion price of $1.74 per Common Share (the "Conversion Price"), subject to adjustment of the Conversion Price in certain events.
Beginning on the date that is four months and one day following the issuance of the Convertible Debentures, the Company may force the conversion of the principal amount of the then outstanding Convertible Debentures at the Conversion Price on not less than 30 days’ notice should the daily volume weighted average trading price of the Common Shares be greater than $2.50 for any 20 consecutive trading days on the Canadian Stock Exchange, or such other exchange as the Common Shares are principally traded.
The Convertible Debentures shall be offered and sold by way of private placement to "accredited investors" within the meaning of NI 45-106 - Prospectus Exemptions and other exempt purchasers (i) in Canada, and (ii) outside Canada and the United States on a basis which does not require the qualification or registration of any of the Convertible Debentures or the Company. The Convertible Debentures and the Common Shares issuable upon the conversion of the Convertible Debentures will be subject to a statutory four month and one day hold period.
Subject to the satisfaction of customary of conditions, the Offering is expected to be completed on or about February 28, 2018.
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