Ginkgo’s platform for engineering biology is powered by automation and custom-built software used to design and print DNA. With the world’s largest library of designed DNA sequences, Ginkgo has extensive expertise in the biology of enzymes for the production of molecules used in industries from flavor and fragrance to food to pharmaceuticals. By transferring the DNA sequences for cannabinoid production into yeast, Ginkgo expects to develop strains that produce cultured cannabinoids at high quality and purity in a process similar to brewing beer in a microbrewery. In addition to allowing for the efficient and scalable production of cannabinoids, the use of Ginkgo’s platform is expected to unlock access to potentially valuable cannabinoids that are present only in low quantities in the plant.
The partnership between Ginkgo and the Company will focus on the scalable and consistent production of a wide range of cannabinoids, including THC, CBD and a variety of other lesser known and rarer products. These cultured cannabinoid molecules are identical to those extracted from the plants grown with traditional methods, but are created by leveraging the power of biological manufacturing via fermentation.
Pursuant to the Agreement, Ginkgo will work with the Company on research and development (“R&D”) of microorganisms capable of producing certain target cannabinoids in a scalable and highly efficient manner. The Company will fund certain R&D and foundry expenses expected to be approximately US$22 million, subject to the achievement of certain milestones. In addition, upon Ginkgo’s demonstration that the microorganisms are capable of producing the target cannabinoids above a minimum productivity level, the Company will issue up to approximately 14.7 million Common Shares in the aggregate (subject to customary anti-dilution adjustments) in accordance with the milestone allocations described below. The Common Shares allocated were based on the 60-day volume weighted average closing price for the Company’s Common Shares of US$6.81 as of July 17, 2018, when the letter of intent was executed by both parties. The transaction had an aggregate value of US$100 million assuming all milestones are met. Tranches of these Common Shares will be issued once each of the target cannabinoids can be produced for less than US$1,000 per kilogram of pure cannabinoid at a scale of greater than 200 liters as follows: THC(A), 20%; CBD(A), 15%; CBC(A), 10%; CBG(A), 10%; THCV(A), 15%; CBGV(A), 10%; CBDV(A), 10%; CBCV(A), 10% (each, an “Equity Milestone Event”).
The Company will have the exclusive right to use and commercialize the key patented intellectual property related to the production of the target cannabinoids globally. All R&D work undertaken by Ginkgo will be conducted in compliance with all U.S. federal laws regarding controlled substances and Ginkgo is coordinating activities closely with both Federal and State agencies. The Company intends to produce and distribute the target cannabinoids globally and has received confirmation that this method of production is permitted under theCannabis Act (Canada) – the legal framework that will regulate cannabis in Canada.
Pursuant to the Agreement, if the Company undergoes a change of control (as defined in the Agreement) that has been approved by the Company’s board of directors (an “Approved Change of Control”), Ginkgo may elect to receive cash payments, totalling up to US$100 million, in lieu of the Common Shares that would otherwise become issuable in connection with any Equity Milestone Events achieved following such election (the “Milestone Cash Election”). If the Company undergoes a change of control (as defined in the Agreement) other than an Approved Change of Control, then Ginkgo will have the ability to terminate the Agreement immediately, in which case, among other things: (i) all intellectual property and other rights or licenses granted to the Company by Ginkgo under the Agreement will terminate; (ii) certain expenses and costs incurred by Ginkgo will be accelerated and become due immediately, payable by the Company; (iii) the then-outstanding and unpaid portion of all cash payments from the Company to Ginkgo for the achievement of R&D milestones by Ginkgo shall be due immediately as if all R&D milestones had been achieved; and (iv) a lump sum cash payment equal to the aggregate of all Milestone Cash Election amounts in respect of which the relevant Equity Milestone Events have not yet been achieved will be immediately due and payable by the Company.
The description of the Agreement set forth above is a summary only and is qualified in its entirely by the full text of the Agreement, a copy of which is available on the Company’s profile on SEDAR atwww.sedar.com and EDGAR atwww.sec.gov.
