CubicFarm Systems Corp. Update on Previously Announced Marketed Offering of Units

NOT FOR DISSEMINATION IN THE UNITED STATES OR THROUGH U.S. NEWSWIRE SERVICES

VANCOUVER, British Columbia, March 9, 2023 – CubicFarm® Systems Corp. (“CubicFarms” or the “Company”) (TSX:CUB), a leading local chain agricultural technology company, today announced that it has submitted a financial hardship exemption application to the Toronto Stock Exchange under Section 604(e) of the TSX Company Manual (the “Manual”) in respect of its previously announced marketed public offering (the “Offering”) of units (the “Units”) of the Company.

Background

Pursuant to the Offering, the Company intends to issue up to 100,000,000 Units at a price of C$0.05 (the “Offering Price”) per Unit for gross proceeds of up to C$5 million (the “Offering”). Each Unit will consist of one common share of the Company (a “Common Share”) and one common share purchase warrant (the “Warrants”). Each Warrant will entitle the holder thereof to acquire one Common Share of the Company at an exercise price of C$0.10 (the “Exercise Price”) per Common Share for a period of 36 months from the Closing Date (as defined below) of the Offering.

The Offering will be conducted on a best-efforts agency basis pursuant to the terms and conditions of an agency agreement dated February 21, 2023 entered into between the Company and Canaccord Genuity Corp. and Raymond James Ltd., as co-bookrunners and co-lead agents (collectively, the “Agents”).

The Company has agreed to pay the Agents a cash commission equal up to 6% of the aggregate gross proceeds of the Offering and an aggregate number of compensation warrants (each, a “Compensation Warrant”) equal up to 6% of the aggregate number of such Units issued pursuant to the Offering. Each Compensation Warrant will be exercisable to acquire one Common Share of the Company at the Offering Price for a period of 36 months from the Closing Date of the Offering, subject to adjustment in certain events.

The Company has also granted the Agents an option (the “Over-Allotment Option”) to sell up to an additional 15,000,000 Units at the Offering Price. The Over-Allotment Option may be exercised at any time up to 30 days following the Closing Date of the Offering.

The Offering will be conducted (i) pursuant to an amended and restated prospectus supplement (the “Prospectus Supplement”) to the Company’s short form base shelf prospectus dated January 30, 2023 (the “Base Shelf Prospectus”), which Prospectus Supplement is expected to be filed with the securities commissions and other similar regulatory authorities in each of the provinces of Canada, except the Province of Québec, on or about March 13, 2023, and (ii) in jurisdictions outside of Canada as are agreed by the Company and the Agents. Copies of the Prospectus Supplement and accompanying Base Shelf Prospectus will be available under the Company’s profile on SEDAR at www.sedar.com. The Offering is not expected to impact control of the Company or include any insider participation.

The net proceeds from the Offering will be used as follows: C$513,000 as repayment of a refundable deposit to a customer who could not obtain sufficient financing to complete the project; 25% of the net proceeds (net of repayment of deposits, fees and expenses), to repay the Company’s debt to BDC Capital Inc.; and 75% of the net proceeds (net of repayment of deposits, fees and expenses) to Cubic Lending Vehicle LP in respect of the Company’s senior credit lending facility, the repayment of which can be redrawn by the Company immediately. Assuming that the Offering closes for approximately C$3 million, representing 60% of the maximum Offering, the amount repaid to Cubic Lending Vehicle LP will be approximately C$1,600,000. This amount will be re-drawn and used to pay non-payroll expenses (C$600,000); payroll expenses (C$650,000); debt services (principal and interests) (C$120,000); and working capital obligations (C$230,000).

Exemption Application under Section 604(e) of the Manual

Given the size of the discount in the price of the Units relative to the market price, the TSX is reviewing the Offering under s. 607 of the Manual. Section 607(g)(i) of the Manual states that shareholder approval is required where dilution exceeds 25% of the number of shares outstanding, Section 607(e) of the Manual states that shareholder approval is required where the discount to the market price when pricing was announced exceeds 25%, and Section 607(i) of the Manual states that warrants to purchase listed securities may only be issued if the warrant exercise price is not less than the market price of the underlying security. The proposed issuance of the Units and Compensation Warrants will represent a potential dilution of 114% on a fully diluted basis and a price discount of the Units and Compensation Warrants of 27% relative to the market price on February 15, 2023, being C$0.068. The Company has applied to the TSX, pursuant to the provisions of Section 604(e) of the Manual, for a “financial hardship” exemption from the requirement to obtain shareholder approval for both the proposed dilution and the discount to the market price, on the basis that the Company is in serious financial difficulty and the Offering is designed to address these financial difficulties in a timely manner.

The Company’s decision to rely on the financial hardship exemption in the Manual was made upon the recommendation of the Board of Directors of the Company (the “Board”), who are independent of management, free from any interest in the Offering and unrelated to the parties involved in the Offering. The Board has considered and reviewed all of the circumstances currently surrounding the Company and the Offering including, among other factors: the Company’s current financial difficulties and immediate capital requirements; the lack of alternate financing arrangements available; and the fact that the Offering is the only viable financing option at the present time. The current financial difficulties are based on a number of factors since December 15, 2022, when the Company stated in its LIFE exemption document that it reasonably believed it raised sufficient funds to meet its business objectives and liquidity requirements for a period of 12 months following such offering, based on its cash balance at the time and access to its senior credit facility.  The Company’s circumstances have changed since then based on a number of factors, including the following: due to the change of manufacturer, the Company has been experiencing production challenges including quality issues and delays since late 2022 which resulted in the Company having to revise the timing of the receipt of progress payment of approximately US$1,200,000 from January 2023 to April 2023; delays of shipment and parts procurement in the final commissioning of an indoor farm project has resulted in the expected final payment for such project moving from February 2023 to April 2023; due to deteriorating market conditions, the Company cannot draw further funds under such credit facility in a timely manner, so the Company must seek alternate means of securing financing from the public equity market; and, assuming that the Company has the ability to drawdown from such credit facility, such drawdown, in the context of the current market capitalization of the Company, would require the issuance of a number of share purchase warrants by a material subsidiary of the Company, HydroGreen, Inc. (i.e., approximately 2,527,974 warrants with an exercise price of US$0.42), greater than what the Company anticipated in December 2022, for an exercise price significantly lower than initially anticipated (i.e., approximately 1,737,982 warrants with an exercise price of US$0.61), which is why the Board of the Company would pursue the Offering rather than issue additional warrants diluting the Company’s equity interest in HydroGreen, Inc. Accordingly, as a result of all such factors, the Company had to turn to the Offering to make up for the cash flow deficit that was not anticipated in December 2022 when the LIFE exemption was filed. The proceeds from the Offering, assuming 60% of the maximum Offering, together with the operating cash flow generated from the Company’s projected sales and the related working capital during that period, is indeed expected to remedy the financial problems by providing the capital necessary to sustain the Company’s operation during the first half of 2023.

Based on its analysis, the Board concluded that: (i) the Company is in serious financial difficulty; (ii) the Offering is designed to improve the Company’s financial situation; (iii) the Offering offers the only practical and timely financing solution to meet the needs of the Company; and (iv) the terms of the Offering are reasonable for the Company in the circumstances. As such, the Board unanimously voted to: (i) proceed with the Offering, and (ii) given the immediate need for a capital infusion, apply for the financial hardship exemption.

There can be no assurance that the TSX will accept the application for the use of the financial hardship exemption from the requirement to obtain shareholder approval for the Offering. Assuming TSX approval for the Offering and the financial hardship application is obtained, it is anticipated that the Offering will be completed on or about March 17, 2023 (the “Closing Date”). If the Offering is completed in reliance on the financial hardship exemption, the Company will be put under delisting review under Part VII of the Manual, pursuant to which the Company may delist from the TSX and pursue an alternative listing on the TSX Venture Exchange.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in the United States or in any other jurisdiction in which such offer, solicitation or sale would be unlawful. The securities have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereunder.

Forward looking and other cautionary statements

Certain statements in this release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws, including, without limitation, statements with respect to: the Offering; the use of proceeds from the Offering; the ability of the Company to close the Offering; timing of filing of the Supplemental Prospectus; the jurisdictions in which the Offering will be conducted; the granting by the TSX of the financial hardship exemption; the approval by the TSX of the Offering; the possible outcome of the TSX’ delisting review process and the Company’s pursue of an alternative listing on the TSX Venture Exchange; and the ability of the Company to remedy its financial difficulties by the first half of 2023. Such statements involve known and unknown risks, uncertainties, and other factors and assumptions which may cause the actual results, performance, or achievements of CubicFarm Systems Corp., or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements or information including, without limitation, the risk of the Company not obtaining the approval of the Offering from the TSX or acceptance of the financial hardship exemption application by the TSX, risks relating to the outcome of the delisting review process and the Company’s pursue of an alternative listing on the TSX Venture Exchange; risks that the Company may not be able to remedy its financial difficulties or it may not do it in the expected timeline, risks relating to the Company’s ability to raise additional funding; risks relating to the Company’s ongoing or future litigation; the Company’s ability to establish, maintain and defend intellectual property rights in the Company’s products; risks associated with product liability claims, insurance and recalls; risks associated with the Company’s manufacturing operations; risks relating to the manufacturing capacity of third-party manufacturers for the Company’s products, including risks of supply interruptions impacting the Company’s ability to manufacture its own products and the other factors disclosed under “Risk Factors” in the Company’s annual information form for the year ended December 31, 2021, and those risks described in other documents incorporated or deemed to be incorporated by reference in the prospectus. Such statements can be identified by the use of words such as “intend”, “expect”, “believe”, “plan”, “anticipate”, “estimate”, “scheduled”, “forecast”, “predict”, and other similar terminology, or state that certain actions, events, or results “may”, “can”, “could”, “would”, “might”, or “will” be taken, occur, or be achieved.

These statements reflect the Company’s current expectations regarding future events, performance, and results and speak only as of the date of this news release. Consequently, there can be no assurances that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Except as required by securities disclosure laws and regulations applicable to the Company, the Company undertakes no obligation to update these forward-looking statements if the Company’s expectations regarding future events, performance, or results change.