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High Tide Inc
Symbol HITI
Shares Issued 449,371,660
Close 2021-01-22 C$ 0.495
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High Tide to acquire Smoke Cartel for $8M (U.S.)

2021-01-25 07:33 ET - News Release

Mr. Raj Grover reports

HIGH TIDE CONTINUES TO STRENGTHEN U.S. MARKET PRESENCE THROUGH ACQUISITION OF LEADING E-COMMERCE RETAILER SMOKE CARTEL

High Tide Inc. is taking another step toward solidifying itself as the dominant player within the U.S. e-commerce marketplace for consumption accessories and hemp-derived CBD (cannabidiol) products, by entering into an agreement to acquire Smoke Cartel Inc. Upon the closing of the acquisition of Smoke Cartel, High Tide will operate both the largest and second-largest e-commerce platforms for consumption accessories in the world and believes it will be well positioned to begin on-line cannabis sales should the United States move toward federal legalization.

Founded in 2013, Smoke Cartel has grown to become one of the most searchable websites of its kind with seven million site visits and over 110,000 orders last year. Upon closing, High Tide anticipates that the acquisition will create immediate synergies and enhance High Tide's profitability by:

  • Creating the necessary scale to take advantage of the continuing trend toward e-commerce, which according to data from Salesforce, resulted in a 45-per-cent year-over-year digital sales increase in the first two weeks of December globally;
  • Providing access to Smoke Cartel's proprietary drop-shipping technology, creating new revenue generation opportunities across all High Tide's e-commerce platforms;
  • Allowing High Tide's brands and existing inventory to reach Smoke Cartel's 550,000 customers across the United States, Canada, the United Kingdom, Australia, Germany and Mexico, driving more sales opportunities and increased profit margin;
  • Providing High Tide with access to Smoke Cartel's database of over one million e-mail and social contacts.

In 2020, Smoke Cartel expects to report approximately $7.4-million (U.S.) in revenues and over 16 per cent in EBITDA (earnings before interest, taxes, depreciation and amortization) margin, with approximately $1.0-million (U.S.) in cash currently on hand.

High Tide has entered into a definitive agreement pursuant to which High Tide will acquire all of the issued and outstanding shares of Smoke Cartel for $8.0-million (U.S.), implying an approximate value of 30.9 U.S. cents per SC share, representing a premium of 33 per cent to Smoke Cartel's last closing share price of 23.2 U.S. cents (Jan. 22, 2021). The consideration will consist of: (i) $6.0-million (U.S.) in common shares of High Tide on the basis of a deemed price per High Tide share equal to the volume-weighted average price per High Tide share on the TSX Venture Exchange for the 10 consecutive trading days preceding closing of the transaction; and (ii) $2.0-million (U.S.) in cash. As a result of U.S. securities law considerations, significant Smoke Cartel shareholders have agreed to allow the cash consideration to be allocated first to Smoke Cartel's shareholders generally, who will be paid fully in cash, using all or a portion of the cash consideration.

Pursuant to the acquisition agreement, 25 per cent of the share consideration will be placed in escrow for a period of 12 months from closing.

"The acquisition of Smoke Cartel is a great way to further vertically integrate our accessories business and expand our footprint in the United States, especially in parallel with our current application to list on the Nasdaq. We expect Smoke Cartel's proprietary and licensable drop-shipping technology to enhance our e-commerce business right away, along with the cross-listing of inventories between its website and our Grasscity and CBDcity platforms," said Raj Grover, president and chief executive officer of High Tide. "The acquisition also expands High Tide's considerable access to cannabis consumers on-line, further positioning the company to enter the cannabis e-commerce marketplace should the United States move towards federal legalization," added Mr. Grover.

In connection with the transaction, High Tide is excited to announce that Sean Geng, founder and chief technology officer of Smoke Cartel, will be joining the High Tide team on closing as chief technology officer to oversee all IT (information technology) and e-commerce initiatives for High Tide globally.

"I'm truly excited to be joining the High Tide team and to begin overseeing High Tide's technology infrastructure and global e-commerce initiatives," said Mr. Geng. "The marriage of High Tide's current e-commerce and manufacturing capabilities with Smoke Cartel's proprietary drop-shipping technology sets the stage for the company to become the dominant global consumption accessories and CBD products e-commerce retailer," added Mr. Geng.

The transaction has been unanimously approved by the board of directors of each of High Tide and Smoke Cartel. Certain Smoke Cartel directors, officers and other significant shareholders have entered into voting and support agreements to vote in favour of the transaction and have entered into leakout agreements, which will limit their ability to sell High Tide shares they receive based on various time and volume restrictions.

The transaction is an arm's-length transaction pursuant to applicable regulatory policies.

The transaction is subject to, among other things, the approval of Smoke Cartel shareholders, receipt of required regulatory approvals and other customary conditions of closing. Approval of High Tide shareholders is not required. It is currently anticipated that, subject to receipt of all regulatory, shareholder and other approvals, the transaction will be completed in March, 2021.

About Smoke Cartel Inc.

Smoke Cartel is one of the leading on-line retailers of consumption accessories, including glass water pipes and vaporizers, as well as hemp-derived CBD (cannabidiol) products. The company provides a marketplace with a wide variety of high-quality products, subscription boxes, reliable customer service and rapid dependable shipping. Smoke Cartel leverages its proprietary marketplace technology to seamlessly connect brands and vendors with its growing customer base built over the last seven years.

About High Tide Inc.

High Tide is a retail-focused cannabis company enhanced by the manufacturing and distribution of consumption accessories. The company is the largest Canadian retailer of recreational cannabis as measured by revenue, with 69 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 and CBDcity, 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. and Aurora Cannabis Inc.

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