PharmaCielo Closes Subscription Receipt Financings in Two Tranches for Gross Proceeds of over $39 Million; Provides Corporate Update

• Harvest of ~200,000 CBD-dominant plants and production of cannabis oil extracts underway; 45,000 THC-dominant plants currently under cultivation
• The Offering (as defined herein) will enable the Company to: complete the construction of its GMP¹ downstream oil processing facility; expand its clinic footprint and base of 80,000 patients; ramp to commercial production of CBD and THC oil extracts; and explore entry into prospective Latin American and European markets   
• The Company expects to begin the commercial-scale production and sale of both CBD-focused and THC-focused cannabis oil extracts, during the first half of 2019

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All financial figures in Canadian Dollars ($) unless otherwise noted.

TORONTO, Aug. 13, 2018 /CNW/ - PharmaCielo Ltd. ("PharmaCielo" or the "Company") today announced the closing of its previously announced private placement offering (the "Offering") of subscription receipts ("Subscription Receipts") co-led by Echelon Wealth Partners Inc., Cormark Securities Inc. and GMP Securities L.P., (together, the "Co-Lead Agents") for aggregate gross proceeds of approximately $39.2 million.

"The PharmaCielo team has made substantial progress over the past 10 months," said Anthony Wile, CEO of PharmaCielo. "With 200,000 CBD-dominant plants currently being harvested and processed, 45,000 THC-dominant plants under cultivation, 15 million square feet² of available cultivation capacity and an expanding base of medical clinics across the country, we believe PharmaCielo is the dominant player in Colombia's rapidly growing cannabis sector. The closing of the Offering substantially advances the Company's current business plan. It enables PharmaCielo to expand its active cultivation footprint and complete the construction and commercial commissioning of its downstream processing facility, with a target of beginning the commercial sale of cannabis oil extracts in the first half of 2019. The Company is also in active negotiations to enter additional prospective markets and with a sustainable, low-cost, scalable cultivation and production model, PharmaCielo has the capacity to grow rapidly and generate significant value for shareholders."

The Offering

Gross proceeds raised pursuant to the Offering were $39,273,443.60. Pursuant to the closing of the first tranche of the Offering on June 22, 2018 and June 26, 2018 (the "First Tranche"), PharmaCielo issued and sold an aggregate 9,289,202 Subscription Receipts at a price of $3.35 per Subscription Receipt (the "Offering Price") for gross proceeds of $31,118,826.70. Pursuant to the closing of the second tranche of the Offering on July 26, 2018 (the "Second Tranche"), PharmaCielo issued and sold an aggregate 2,434,214 Subscription Receipts at the Offering Price for gross proceeds of $8,154,616.90.

The Offering was conducted in connection with the previously announced proposed business combination between AAJ Capital 1 Corp. ("AAJ") and PharmaCielo (the "Proposed Transaction"), that is intended to constitute AAJ's "Qualifying Transaction" pursuant Policy 2.4 of the TSX Venture Exchange ("TSXV"). In connection with the Proposed Transaction, AAJ's name will be changed to "PharmaCielo Corporation" ( thereafter referred to as the "Resulting Issuer"), subject to regulatory and board approval.

The Offering was conducted pursuant to an agency agreement (the "Agency Agreement") dated June 22, 2018 among PharmaCielo, AAJ and the Co-Lead Agents. Each Subscription Receipt entitles the holder thereof to receive, upon satisfaction of the Escrow Release Conditions (as defined below) on or before the Escrow Release Deadline (as defined below), and without payment of additional consideration, one common share in the capital of PharmaCielo (each, a "PharmaCielo Share"). Each PharmaCielo Share shall be exchanged, without further consideration, for one common share in the capital of the Resulting Issuer (each, a "Resulting Issuer Share") upon the completion of the Proposed Transaction.

The gross proceeds of the Offering, net of: (i) the Co-Lead Agents' reasonable costs and expenses at the time of closing of the First Tranche and the Second Tranche and (ii) 50% of the Co-Lead Agents' cash compensation (consisting of commission and corporate finance fees)  (the "Escrowed Funds"), are being held in escrow pursuant to the terms of a subscription receipt agreement (the "Subscription Receipt Agreement") dated June 22, 2018 between PharmaCielo, AAJ, the Co-Lead Agents and TSX Trust Company, as registrar and subscription receipt agent for the Subscription Receipts and as escrow agent for the Escrowed Funds. Upon satisfaction or waiver of the escrow release conditions (the "Escrow Release Conditions") including, among other things, the satisfaction or waiver of all conditions precedent to the completion of the Proposed Transaction, each Subscription Receipt will automatically convert without any further action on the part of the holder into a Resulting Issuer Share, and the Escrowed Funds, together with any interest earned thereon, will be released to the Resulting Issuer (and the Co-Lead Agents in respect of the remaining cash compensation, corporate finance fees, and expenses) in accordance with the terms set out in the Subscription Receipt Agreement. The Co-Lead Agents were also issued compensation options in connection with services provided to the Company relating to the Offering. Additional details of the Offering are available in the previous joint press release of AAJ and PharmaCielo dated April 23, 2018, available on AAJ's profile in SEDAR at www.sedar.com.

In the event that the Escrow Release Conditions are not satisfied or are incapable of being satisfied on or before September 30, 2018 (the "Escrow Release Deadline"), or such later date as may be established in accordance with the Agency Agreement, the Escrowed Funds, as well as any accrued interest earned thereon (less any applicable withholding taxes), will be returned to purchasers of the Subscription Receipts, and outstanding Subscription Receipts will then be cancelled.

Upon completion of the Proposed Transaction and satisfaction or waiver of the Escrow Release Conditions, PharmaCielo expects to use the net proceeds of the Offering to construct facilities necessary for the production and processing of medicinal cannabis extracts and oils, and general corporate purposes. Management will have discretion with respect to the use of proceeds of the Offering and there may be circumstances where a reallocation of funds from the expected use of proceeds may be necessary for sound business reasons.

Corporate Update

PharmaCielo is currently harvesting its first scale crop of 200,000 CBD-dominant plants, and expanding CBD-dominant plants under cultivation through continued planting. The Company is also currently processing the harvested plants and producing cannabis oil extracts.

On July 30^th, PharmaCielo Colombia Holdings S.A.S., ("PharmaCielo Holdings"), the wholly owned subsidiary of PharmaCielo, began planting THC-dominant cannabis under quota from the Colombian government. PharmaCielo Holdings was the first recipient of a license to cultivate THC-dominant strains and produce THC-focused cannabis oil extracts. PharmaCielo has planted 45,000 THC-dominant cannabis plants to date.

GMP¹ Oil Processing Facility

PharmaCielo is currently producing CBD-focused cannabis oil extracts. With the closing of the Offering, the Company believes it will be able to complete the construction of its oil processing facility and expects to begin the commercial-scale production and sale of both CBD-focused and THC-focused cannabis oil extracts during the first half of 2019.

Clinic Roll-Out Through UBIQUO

The Company entered into a binding letter of intent to acquire UBIQUO, Colombia's only medical patient and e-clinic platform. UBIQUO currently has 80,000 patients on its platform in its home base of Medellin. Part of the proceeds of the Offering will be applied to adding clinics in seven additional Colombian jurisdictions, which is expected to significantly grow UBIQUO's patient base, beginning in late 2018/early 2019.

¹ GMP (Good Manufacturing Practices) as defined by the World Health Organization (WHO) Expert Committee on Specifications for Pharmaceutical Preparations

² 15 million square feet comprised of: 1.3 million square foot, nursery & propagation center (Company-owned); 0.4 million square feet of open air greenhouses owned by the Company with indigenous growers; and 13.3 million square feet of open-air greenhouse capacity accessed through contract growers.

About PharmaCielo

PharmaCielo Ltd. is a private company headquartered in Canada, with a focus on processing and supplying all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors. PharmaCielo's principal (and wholly-owned) subsidiary is PharmaCielo Colombia Holdings S.A.S., headquartered at its nursery and propagation centre located in Rionegro, Colombia. 

The boards of directors and executive teams of both PharmaCielo and PharmaCielo Colombia Holdings are comprised of a diversely talented group of international business executives and specialists with relevant and varied expertise. PharmaCielo recognized the significant role that Colombia's ideal location will play in building a sustainable business in the medical cannabis industry, and the company, together with its directors and executives, has built a compelling business plan focused on supplying the international marketplace.

About AAJ

AAJ is a capital pool company formed under the TSXV capital pool company program.

Cautionary Note

Completion of the Proposed Transaction is subject to a number of conditions including, but not limited to, completion of satisfactory due diligence, completion of a consolidation of the common shares of AAJ, TSXV acceptance and, if applicable, pursuant to policies of the TSXV, majority of the minority shareholder approval. Where applicable, the Proposed Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Proposed Transaction will be completed as proposed, or at all.

Investors are cautioned that, except as disclosed in the filing statement to be prepared in connection with the Proposed Transaction, any information released or received with respect to the Proposed Transaction may not be accurate or complete and should not be relied upon.

Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this press release.

Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) has in any way passed upon the merits of the Proposed Transaction and associated transactions and neither of the foregoing entities has in any way approved or disapproved of the contents of this press release.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as, "expects", "is expected", "intends", "believes", or variations of such words and phrases or state that certain actions, events or results "may" or "will" be taken, occur or be achieved. Forward-looking statements include statements with respect the Qualifying Transaction, satisfaction of the Escrow Release Conditions, the use of proceeds of the Offering, the completion of construction of its GMP downstream oil processing facility, the timing of reaching commercial production and sales of CBD and THC cannabis oils, and the acquisition of UBIQUO. Forward-looking statements are based on assumptions, including with respect to PharmaCielo's planned products, and the ability to execute its business plan that management believes are reasonable in the circumstances, but the actual results, performance or achievements of PharmaCielo's business may be materially different from any future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements can be affected by known and unknown risks, uncertainties and other factors, including, but not limited to, the equity markets generally, risks associated with early stage companies, risks associated with the regulation of cannabis and cannabinoid derivatives, failure to obtain necessary TSXV or shareholder approvals, competition for PharmaCielo's planned products, risks associated with operating in Colombia, and currency exchange risk. Accordingly, readers should not place undue reliance on forward-looking statements.

Except as required by law, PharmaCielo undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE PharmaCielo

Media (PharmaCielo): David Gordon, Email: [email protected], +1.647.259.3258; Investors (PharmaCielo): Mark Kuindersma, CFA, PharmaCielo investor relations, LodeRock Advisors Inc., Email: [email protected], +1 416.519.2156 ext. 2230; For more information on AAJ: Praveen Varshney, Chief Executive Officer and Chief Financial Officer, E-mail: [email protected], Tel: [phone]