Calgary, Alberta-headquartered High Tide is again dipping its toes in the U.S. acquisition market, this time with a definitive agreement to buy FabCBD, a Milwaukee-based e-commerce marketplace for hemp-derived CBD products and accessories.
High Tide announced early Monday it is acquiring 80% of Fab Nutrition, which does business as FabCBD, for $20.6 million ($25.4 Canadian dollars) in cash and stock.
High Tide will have a three-year option to acquire the remaining 20% at any time, according to a news release.
The deal comes on the heels of High Tide’s $8 million acquisition of Smoke Cartel, another e-commerce website that sells cannabis accessories and CBD products in the U.S.
“We believe the transaction is positive as it expands (High Tide’s) presence in the U.S. CBD market through a direct-to-consumer e-commerce platform, offering cross-selling and synergy opportunities, such as offering FABCBD products in (High Tide’s) other platforms, as well as expanding distribution of FABCBD branded products to Canada and the EU,” analyst David Kideckel, of Toronto investment firm ATB Capital Markets, wrote in a note to investors shortly after the deal was announced.
The acquisition is unlikely to have a negative impact on High Tide’s financial flexibility.
In April, the company filed a preliminary short form base shelf prospectus to raise up to CA$100 million over a 25-month period.
“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,” High Tide CEO Raj Grover said in the release.
“We evaluated numerous U.S. CBD opportunities and FABCBD clearly stuck out from the rest.”
In 2020, FabCBD reported revenue of $10.8 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $4.3 million.
The deal will bolster High Tide’s U.S. portfolio. The Canadian company launched CBDcity in the U.S. last year.
High Tide said it intends to launch the FabCBD brand in the European Union, but no specific timeline was provided.
“As a publicly traded company that is seeking to list on the Nasdaq we are committed to respecting the laws of the jurisdictions in which we operate,” Omar Khan, High Tide’s vice president of public affairs, said in an emailed statement.
He said the U.S. expansion strategy is based on the premise that High Tide does not need to wait for legalization to expand south of the border, because hemp derived CBD is already federally permissible.
“That being said, the relationships we have built over the years through our wholesale distribution, manufacturing and e-commerce businesses mean that we are just one transaction away from entering the bricks and mortar retail market as soon as federal legalization occurs.”
As of early April, High Tide operated 80 stores in four Canadian provinces.