MediPharm Labs Corp. (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) (“MediPharm”, or “MediPharm Labs”) is pleased to announce the mailing of a joint management information circular of MediPharm and VIVO Cannabis Inc. (“VIVO”) dated February 6, 2023 (the “Circular”) and related documents for the special meeting of MediPharm shareholders to be held virtually at 1:00 p.m. (Toronto time) on March 21, 2023 (the “Meeting”). The Meeting is being held in connection with the previously announced plan of arrangement under section 192 of the Canada Business Corporations Act, whereby MediPharm will acquire all of the issued and outstanding common shares of VIVO (each, a “VIVO Share”) in an all-equity business combination transaction (the “Arrangement”).

Under the terms of the arrangement agreement dated December 21, 2022 between VIVO and MediPharm, if the Arrangement becomes effective, the VIVO shareholders (other than dissenting VIVO shareholders) will receive between 0.2110 (the “Minimum Exchange Ratio”) of a common share of MediPharm (each, a “MediPharm Share”) and 0.4267 (the “Maximum Exchange Ratio”) of a MediPharm Share for each VIVO Share held. Prior to closing of the Arrangement (“Closing”), MediPharm has agreed to advance up to $3.75 million to VIVO, on the request of VIVO from time to time, to fund ongoing operations in the ordinary course, to be evidenced by one or more secured promissory notes. The exchange ratio at Closing (the “Closing Exchange Ratio”) will be adjusted based on VIVO’s Working Capital Amount (as defined in the Circular) at Closing, which will include an adjustment for any amounts advanced under the promissory notes.

If the Working Capital Amount at Closing is less than $6 million, there will be an upward adjustment from the baseline Minimum Exchange Ratio up to a maximum of the Maximum Exchange Ratio, which will result in the former VIVO shareholders holding up to 35% of the issued and outstanding common shares of the combined company resulting from the Arrangement (the “Combined Company”) and the shareholders of MediPharm holding not less than 65% of the issued and outstanding common shares of the Combined Company.⁽¹⁾⁽²⁾

If the Working Capital Amount at Closing is greater than or equal to $6 million, there will be no upward adjustment to the share consideration payable to VIVO shareholders and the Closing Exchange Ratio will be the Minimum Exchange Ratio, which will result in the former VIVO shareholders holding not less than 21% of the issued and outstanding common shares of the Combined Company and the MediPharm shareholders holding up to 79% of the issued and outstanding common shares of the Combined Company.⁽¹⁾⁽³⁾

Further details with respect to the Arrangement are included in the Circular, which can be found under MediPharm’s profile on SEDAR at www.sedar.com.

• Leading Pharmaceutical Cannabis Company: The acquisition of VIVO will add established Australian and German medical cannabis brand Beacon Medical^®, an industry-leading medical cannabis clinic business Harvest Medicine™, and a longstanding Canadian medical sales platform Canna Farms™ Medical.
  
  
• Direct to Patient Sales:⁽¹⁾⁽⁵⁾ VIVO’s medical sales channel, Canna Farms Medical, was the first Licenced Producer in British Columbia and has supported over 60,000 patients since 2014.⁽⁸⁾ Following the Arrangement, it is anticipated that this platform will provide patients with a more diverse product portfolio that includes existing MediPharm products. Direct to patient sales generally result in a better gross margin with the ability to bypass provincial distributors. VIVO’s clinic business Harvest Medicine will allow real-time product feedback and clinical insights on MediPharm products.
  
  
• Diversified Revenue Profile with Strong Canadian Base: ⁽¹⁾⁽⁵⁾ The pro-forma Combined Company is expected to provide fulsome Canadian market coverage with cultivation and manufacturing expertise, and a full suite of dried flower & derivative products with both established medical and adult-use wellness distribution channels.
  
  
• Expanding International Medical Cannabis Opportunity:^(1)(4)(5)(6) The pro-forma Combined Company’s international distribution will cover European and Asia-Pacific markets through established, revenue-generating agreements. The VIVO Napanee Ontario facility is EU-GMP certified for cultivating and packaging flower and the MediPharm Barrie Ontario facility is GMP certified for flower alternative format medical products. With two distinct international platforms, the pro-forma Combined Company is expected to open many new product offerings for existing distribution channels and geographies. The pro-forma Combined Company would have annualized international revenue of over $20M, based on Q3 2022.
  
  
• Revenue and Cost Synergies Realizable in the Near-Term:^(1)(4)(5)(6) Using forecasts derived collaboratively by both management teams, along with revenue and cost synergy estimates, the pro-forma Combined Company aims to find positive EBITDA⁽⁷⁾ synergies to the magnitude of between $7M to $9M on an annualized basis, and could reach positive EBITDA and cash flow in the first half of 2024.
  
  
• Balance Sheet Strength: ^(1)(4)(5)(6) Anticipated combined cash position of approximately $30 million (as reported September 30, 2022 and including the subsequent sale of MediPharm Labs Australia Pty Ltd.), less than $2.5M in debt on closing, and unencumbered ownership of all major assets. This strength is expected to provide confidence in the Combined Company’s balance sheet to execute on its strategic growth roadmap, despite the macro backdrop of capital markets that continue to soften.