- Acquisition boosts High Tide's current U.S. revenue run
rate by ~60% to over C$40
Million
- Highly accretive transaction for shareholders, as FABCBD
generated 2020 revenue of US$10.8
Million and EBITDA of US$4.3
Million – with each metric having more than doubled in each
of the past two years
- Strong financial profile which generated 74% gross
margins and 40% EBITDA margins in 2020
- Complementary acquisition adding a fully direct to
consumer e-commerce platform, which is in line with High Tide's
retail strengths
- Potential for meaningful synergies and cross-selling
opportunities, including offering FABCBD products on CBDCity,
GrassCity and Smoke Cartel and bringing the FABCBD brand to
Canada and the E.U.
CALGARY, AB, May 3, 2021 /CNW/ - High Tide Inc. ("High
Tide" or the "Company") (TSXV: HITI) (OTCQB: HITIF)
(FRA: 2LY), a retail-focused cannabis corporation enhanced by the
manufacturing and distribution of consumption accessories, is
pleased to announce that it is taking another step towards
solidifying itself as a major player within the U.S. e-commerce
marketplace for accessories and hemp-derived CBD products, by
entering into a definitive agreement (the "Acquisition
Agreement") pursuant to which High Tide will acquire 80% of Fab
Nutrition, LLC. ("FABCBD"), operating as FABCBD for
US$20.64 Million (the
"Transaction"), and will have a three-year option to acquire
the remaining 20% of FABCBD at any time.
Founded in 2017 with its headquarters in Milwaukee, Wisconsin, FABCBD has quickly grown
to become one of the most popular brands for hemp-derived CBD
products across the U.S., including CBD oils, creams, gummies, and
dog treats. In 2020 FABCBD had over 1.3 Million online
impressions and an average order value of US$91.90. FABCBD's founder and sole
shareholder, Josh Delaney, will join
the High Tide team, as general manager of FABCBD, and will help
with growing High Tide's CBD business globally.
"Investors will recall that just over two months ago we declared
our intentions to ramp up acquisition activity at High Tide, and we
had disclosed our approach to focus on businesses that were in the
U.S., compatible with our ecosystem, and generating meaningful
results. In this context, I could not be more thrilled to
announce the acquisition of FABCBD," said Raj Grover, President and
Chief Executive Officer of High Tide. "We evaluated numerous
U.S. CBD opportunities and FABCBD clearly stuck out from the
rest. FABCBD has been exceptionally run, having more than
doubled revenue and EBITDA in each of 2019 and 2020, including
generating terrific gross margins of 74% and EBITDA margins of 40%
in 2020 – by far the highest of all CBD companies we
evaluated. In addition to the company's financial profile, we
were also attracted to FABCBD's corporate social responsibility
initiatives and spirit of giving back – which are both ingrained in
our DNA as well. With thousands of satisfied U.S. customers, the
FABCBD brand is well positioned for international expansion.
I am very excited to welcome Josh and the FABCBD team to the High
Tide family," added Mr. Grover.
"We've entertained many potential partners over 2020, measuring
strategic fit, team dynamics and company mission. When
we met Raj and the High Tide team, we instantly felt they had the
right organization for us to align with. High Tide has a very
complementary culture to FABCBD, with a similar EBITDA-focused
approach that we appreciate." said Josh
Delaney, CEO of FABCBD. "Our team is very important
and couldn't be more excited to work with High Tide. I
look forward to being a meaningful shareholder of High Tide and
leveraging its resources and reach to continue driving the
company's CBD business globally," added Mr. Delaney.
Strategic Highlights
Accelerates High Tide's U.S. exposure – While High
Tide was already in the U.S. CBD sector since organically launching
CBDCity in May 2020, the addition of
FABCBD will turn it into a major player overnight. Pro forma
following the acquisition of FABCBD, the Company's annual U.S.
revenue run rate will exceed C$40
Million.
Immediate synergies and cross-selling
opportunities – High Tide plans to offer FABCBD products
on its other U.S. e-commerce platforms, CBDCity, GrassCity and
Smoke Cartel in the near-term. A clear opportunity exists to
bring the brand to Canada via an
arrangement with a licensed producer and sell FABCBD products
across High Tide's own network of 85 retail outlets, as well as
other retailers. Looking further out, High Tide intends to
leverage its e-commerce and distribution infrastructure in
Amsterdam to take the FABCBD brand
to the E.U. market.
Pure e-commerce play is in line with High Tide's
strengths – FABCBD carries multiple product formulations
that are exclusive to FABCBD and are manufactured by contract
manufacturers around the country. 100% of sales are direct to
consumer online from their website. In 2020 FABCBD fulfilled
approximately 124,000 orders from over 1 Million unique site
visitors.
Highly accretive to financial results – Given its
online success and lean overhead, FABCBD generated 2020 gross
margins of 74% and EBITDA margins of 40% – both of which are highly
accretive to High Tide's consolidated profile.
Continued growth – FABCBD has continued to post
meaningful gains in both revenue and EBITDA during the first four
months of 2021 compared to the prior year period. Of note,
FABCBD generated US$160,000 of sales
on April 20, 2021 – which including
High Tide's other platforms results in pro forma sales just shy of
C$1 million for this year's 4/20.
Large global potential – The European Business
review recently cited a study by Grandview Research which predicts
that, "over the next five years, the global CBD industry is
projected to accelerate to $23.6
billion."1 According to a Technavio market
research report titled Global CBD Oil Market 2020-2024, the global
CBD oil market is set to expand by USD $3.52
billion up to 2024, progressing at a compound annual growth
rate of over 32%.2
Transaction Details
The Transaction, which is an arm's length transaction, is
subject to, among other things, receipt of required TSX Venture
Exchange ("TSXV") approval, and other customary conditions
of closing, is expected to close during the first half of
May 2021, implies an enterprise
valuation of US$25.80 Million,
representing 6.0x 2020 EBITDA. The consideration for the 80%
acquired will be comprised of: (i) US$8.08
Million (the "Share Consideration") in common shares
of High Tide ("High Tide Shares") on the basis of a deemed
price per High Tide Share equal to the volume weighted average
price per High Tide Share on the TSXV for the 10 consecutive
trading days preceding closing of the Transaction
("Closing"); and (ii) US$12.56
Million in cash (collectively with the Share Consideration,
the "Consideration"). The cash portion of the
transaction will be funded entirely with cash on hand. Upon
closing, FABCBD will have approximately US$500,000 of cash and non-cash working capital
and inventory of approximately US$550,000.
In addition to the foregoing, FABCBD's founder has agreed to
grant High Tide an option to acquire all the remaining shares in
FABCBD not held by High Tide, and become the sole shareholder of
FABCBD (the "Call Option"), at an enterprise value equal to
the trailing twelve months of EBITDA multiplied by six. The Call
Option will be exercisable at any time for a period of three (3)
years following the Closing. In addition, High Tide has agreed to
grant FABCBD's founder an option to put to High Tide, the remaining
shares in FABCBD not held by High Tide (the "Put Option"),
at the same enterprise value of the Call Option. The Put Option
will be exercisable by FABCBD's founder for a period of two (2)
years following the first anniversary of the Closing. The
consideration under the Call Option or the Put Option, if
exercised, will be satisfied in High Tide Shares, on the basis of a
deemed price per High Tide Share equal to the volume weighted
average price per High Tide Share on the TSXV for the 10
consecutive trading days preceding closing of the Call Option or
the Put Option, as the case may be.
Bayline Capital Partners Inc. ("Bayline") and KPMG LLP
served as High Tide's advisors in connection with the Transaction.
In connection with the Transaction, the Company has agreed to pay
Bayline, an arm's length party, a finder's fee equal to 3% of the
Consideration, 50% in cash on Closing, and 50% in High Tide Shares
calculated on the same basis as the Share Consideration.
The High Tide Shares issued Bayline and pursuant to the Share
Consideration are subject to a statutory hold period of four months
and one day.
ABOUT FABCBD
Fab Nutrition, LLC is one of the leading online retailers of
hemp-derived CBD products. The company provides a marketplace with
a wide variety of high-quality products and formulas, affordable
pricing, rapid dependable shipping, and surprisingly personable
customer service. The company's website at www.fabcbd.com.
ABOUT HIGH TIDE
High Tide is a retail-focused cannabis company enhanced by the
manufacturing and distribution of consumption accessories. The
Company is the most profitable Canadian retailer of recreational
cannabis as measured by Adjusted EBIDTA,3 with 85
current locations spanning Ontario, Alberta, Manitoba and Saskatchewan. High Tide's retail segment
features the Canna Cabana, KushBar, Meta Cannabis Co., Meta
Cannabis Supply Co. and NewLeaf Cannabis banners, with additional
locations under development across the country. High Tide has been
serving consumers for over a decade through its numerous
consumption accessory businesses including e-commerce platforms
Grasscity.com, Smoke Cartel and CBDcity.com, and its wholesale
distribution division under Valiant Distribution, including the
licensed entertainment product manufacturer Famous Brandz. High
Tide's strategy as a parent company is to extend and strengthen its
integrated value chain, while providing a complete customer
experience and maximizing shareholder value. Key industry investors
in High Tide include Aphria Inc. (TSX:APHA) (NYSE:APHA) and Aurora
Cannabis Inc. (NYSE:ACB) (TSX:ACB).
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 release.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this news release constitutes
forward-looking statements under applicable securities laws. Any
statements that are contained in this news release that are not
statements of historical fact may be deemed to be forward-looking
statements. Forward-looking statements are often identified by
terms such as "may", "should", "anticipate", "expect", "potential",
"believe", "intend" or the negative of these terms and similar
expressions. Forward-looking statements in this news release
include statements relating to High Tide's intention and ability to
complete the Transaction on the terms and conditions set out in the
Acquisition Agreement; the potential effects of the Transaction on
the business of High Tide, including the expectation that the
Transaction positioning High Tide to begin online cannabis sales in
the United States should federal
legalization occur in the United
States. While High Tide considers these assumptions to be
reasonable, based on information currently available, they may
prove to be incorrect. Readers are cautioned not to place undue
reliance on forward-looking statements.
Forward-looking statements also necessarily involve known and
unknown risks, including, without limitation, risks associated with
general economic conditions; adverse industry events; marketing
costs; loss of markets; future legislative and regulatory
developments involving the retail cannabis markets; inability to
access sufficient capital from internal and external sources,
and/or inability to access sufficient capital on favourable terms;
the retail cannabis industries generally; income tax and regulatory
matters; the ability of High Tide to implement its business
strategy; competition; currency and interest rate fluctuations; the
COVID-19 pandemic nationally and globally and the response of
governments to the COVID-19 pandemic in respect of the operation of
retail stores and other risks. Readers are cautioned not to
place undue reliance on forward-looking statements as there can be
no assurance that the plans, intentions or expectations upon which
they are placed will occur. Readers are further cautioned that the
assumptions used in the preparation of such forward-looking
statements (including, but not limited to, the assumption that (i)
High Tide will successfully complete the Transaction (and will
obtain all requisite approvals) on the terms and within the
timelines anticipated by High Tide (ii) High Tide's financial
condition and development plans do not change as a result of
unforeseen events, (iii) there will continue to be a demand, and
market opportunity, for High Tide's product offerings, (iv) current
and future economic conditions will neither affect the business and
operations of High Tide nor High Tide's ability to capitalize on
anticipated business opportunities), although considered reasonable
by management of High Tide at the time of preparation, may prove to
be imprecise and result in actual results differing materially from
those anticipated, and as such, undue reliance should not be placed
on forward-looking statements.
Forward-looking statements, forward-looking financial
information and other metrics presented herein are not intended as
guidance or projections for the periods referenced herein or any
future periods, and in particular, past performance is not an
indicator of future results and the results of High Tide in this
press release may not be indicative of, and are not an estimate,
forecast or projection of High Tide future results.
Forward-looking statements contained in this news release are
expressly qualified by this cautionary statement and reflect our
expectations as of the date hereof, and thus are subject to change
thereafter. High Tide disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law. Factors that could cause anticipated opportunities
and actual results to differ materially include, but are not
limited to, matters referred to above and elsewhere in High Tide's
public filings and material change reports, which are and will be
available on SEDAR.
This news release does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities in
the United States of America. The
securities have not been and will not be registered under the
United States Securities Act of 1933 (the "1933 Act") or any state
securities laws and may not be offered or sold within the United States or to U.S. Persons (as
defined in the 1933 Act) unless registered under the 1933 Act and
applicable state securities laws, or an exemption from such
registration is available.
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Adjusted EBITDA is a
non-IFRS financial measure.
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SOURCE High Tide Inc.