Grown Rogue to acquire interest in Sea Craft

Executive Summary

• Grown Rogue International Inc. is accelerating its entry into the Illinois adult-use cannabis market by acquiring a 49% interest in Sea Craft LLC and leasing a turnkey production facility in Dwight, Illinois.
• The transaction allows Grown Rogue to bypass the typical $10M+ upfront capital and 12-month construction timeline associated with new-build projects, reducing initial capital requirements to approximately $4 million and time to market to under nine months.
• Operations are expected to commence in Q2 2026, with product availability targeted for Q4 2026, subject to Illinois Department of Agriculture approval.

Key Details

• Transaction Structure:
  • Grown Rogue Management Associates (GRMA), an affiliate 80% owned by Grown Rogue, acquired a 49% interest in Sea Craft LLC.
  • Initial consideration for the 49% stake was $1.0 million, satisfied by the issuance of a seller's note with a two-year term and 10% annual interest.
  • GRMA holds an option to acquire the remaining 51% interest in Sea Craft for a performance-based variable payment ranging from $250,000 to $1.0 million.
  • Sea Craft holds an Illinois craft grow license and an existing cash balance of $1.0 million.
• Financing:
  • GRMA completed a $3.0 million preferred equity investment to support Sea Craft’s capital needs.
  • The preferred equity carries a 15% preferred dividend.
  • Preferred units may be converted into subordinate voting shares of Grown Rogue at a conversion price of $0.65 per share (approx. 100% higher than the stock price at execution) at the investors' discretion for up to three years.
  • Total project capital available is approximately $4.0 million (combining Sea Craft's $1.0M cash and the $3.0M preferred equity).
• Facility Details:
  • Location: Dwight, Illinois.
  • Facility Type: Turnkey cultivation and processing facility formerly operated by PharmaCann Inc., owned by Innovative Industrial Properties Inc. (IIP).
  • Size: 66,000 square feet total, including a 43,000 sq ft industrial building and a 23,000 sq ft greenhouse (not currently planned for use).
  • Capacity: Currently includes ~10,000 sq ft of indoor flowering canopy; capacity to expand to 14,000 sq ft as permitted by the craft grow license.
  • Infrastructure: Includes dedicated post-harvest, processing, and manufacturing infrastructure.
• Timeline and Strategy:
  • Reactivation of the facility is expected to take under nine months with modest incremental capital investment.
  • Operations start: Q2 2026.
  • Product availability: Q4 2026.
  • Strategic Goal: Leverage industry distress to acquire underutilized assets at lower cost/time, aiming for improved return on invested capital and a framework for future turnkey acquisitions.

Notable Quotes

• "We are excited to enter the Illinois adult-use market in a highly capital-efficient way... By stepping into the lease of an existing facility and planning for modest upgrades, we believe that we cut the cost and time to market by more than 60 per cent compared to one of our new-build projects, to less than $4-million and under nine months, respectively... We anticipate similar revenue and profit potential with this approach, which would then translate into improved return on invested capital." — Obie Strickler, CEO
• "As discussed on our last few earnings calls, we view the current industry distress... as an additional pipeline for future growth... we feel strongly that we can continue to identify distressed opportunities, and that our team can quickly and efficiently implement Grown Rogue's best practices to improve yields, reduce costs, transform underperforming assets into strong additions to our platform..." — Josh Rosen, Chief Strategy Officer