Mr. Josh Delaney reports
HIGH TIDE CLOSES ACQUISITION OF LEADING CBD E-COMMERCE RETAILER FABCBD
High Tide Inc. has completed the acquisition of Fab Nutrition LLC, operating as FABCBD, thus meaningfully increasing its presence within the U.S. e-commerce marketplace for hemp-derived CBD (cannabidiol) products. The acquisition is just one of a series of recent steps the company has taken to considerably expand its footprint in the United States market by selling products that are already federally permissible and demonstrates that High Tide can drive profitability without having to wait for federal cannabis legalization.
The acquisition was completed pursuant to the terms of the definitive agreement previously announced by the company on May 3, 2021, pursuant to which High Tide has acquired 80 per cent of FABCBD for $20.64-million (U.S.) and has been granted a three-year option to acquire the remaining 20 per cent of FABCBD at any time.
The consideration for the 80 per cent of FABCBD which is being acquired by High Tide comprises: (i) 15,154,09 common shares of High Tide valued at $8.08-million (U.S.) on the basis of a deemed price per High Tide share of 64.8 cents, being equal to the volume-weighted average price per High Tide share on the TSX Venture Exchange for the 10 consecutive trading days preceding the closing of the transaction; and (ii) $12.56-million (U.S.) in cash. The cash portion of the transaction has been financed entirely with cash on hand. In addition, pursuant to the acquisition agreement, the vendor may be entitled to an earn-out bonus of $612,000 (U.S.) in the event that FABCBD exceeds gross revenues of at least $13.5-million (U.S.) in 2021, which will be paid, if due, in High Tide shares based on the volume-weighted average price per High Tide share for the 10 consecutive trading days preceding payment, subject to a maximum of 1,425,106 High Tide shares. To date, upon closing, FABCBD has approximately $500,000 (U.S.) of cash and non-cash working capital and an inventory of approximately $550,000 (U.S.).
In addition to the foregoing, as per the terms of the acquisition agreement, FABCBD has granted High Tide an option to acquire all the remaining shares in FABCBD not held by High Tide, thus allowing High Tide to become the sole shareholder of FABCBD, at an enterprise value equal to the trailing 12 months of EBITDA (earnings before interest, taxes, depreciation and amortization) multiplied by six. The call option will be exercisable at any time for a period of three years from 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, at the same enterprise value of the call option. The put option will be exercisable by FABCBD's founder for a period of two years following the first anniversary of 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 TSX Venture Exchange for the 10 consecutive trading days preceding the closing of the call option or the put option, as the case may be.
Pursuant to the acquisition agreement, 9,679,778 High Tide shares, equal to 25 per cent of the consideration, have been placed in escrow for a period of up to 24 months from closing, with releases scheduled every six months.
Bayline Capital Partners Inc. and KPMG LLP served as High Tide's advisers in connection with the transaction. In connection with the transaction, the company has agreed to pay Bayline, an arm's-length party, an advisory fee equal to 3 per cent of the consideration, 50 per cent in cash on closing and 50 per cent in High Tide shares, being 462,711 High Tide shares.
The High Tide shares issued for the acquisition of FABCBD and to Bayline are subject to a statutory hold period of four months and one day.
Furthermore, High Tide granted 950,000 stock options to Josh Delaney, founder and chief executive officer of FABCBD (750,000), and an employee of High Tide (200,000), exercisable at 60 cents per High Tide share for a period of three years.
Fab Nutrition LLC is one of the leading on-line retailers of hemp-derived CBD (cannabidiol) 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.
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 most profitable Canadian retailer of recreational cannabis as measured by adjusted EBIDTA (earnings before interest, taxes, depreciation and amortization) 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, Smoke Cartel 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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