High Tide Expands US Reach With 80% Stake In FABCBD

The retail-focused cannabis company High Tide Inc. HITI HITIF 2LY said Monday that it will acquire 80% of Fab Nutrition, LLC. (operating as FABCBD) for $20.64 million in stock and cash.

FABCBD, an online retailer of hemp-derived CBD products headquartered in Milwaukee, Wisconsin, launched in 2017.

High Tide said it is considered the most profitable Canadian retailer of adult-use cannabis on an adjusted EBITDA basis. Key investors in High Tide include giant Canadian cannabis companies such as Aphria Inc. APHA APHA and Aurora Cannabis Inc. ACB ACB.

The High Tide-FABCBD Deal

High Tide signed an agreement to obtain 80% interest in FABCBD for $20.64 million consisting of $8.08 million in shares of High Tide and $12.56 million in cash.

The transaction requires authorization from the TSX Venture Exchange, among other things.

Under the agreement, High Tide is provided with a three-year option to buy the remaining 20% of FABCBD at any time; FABCBD’s founder and only shareholder, Josh Delaney, will enter the High Tide team as general manager of FABCBD.

High Tide appointed Bayline Capital Partners Inc. and KPMG LLP as advisors on the transaction.

Why It Matters

With this purchase, High Tide’s pro forma annual U.S. revenue is projected to surpass CA$40 million ($32.5 million).

The company said its consolidated financial results will benefit from FABCBD, which had 2020 gross margins of 74% and EBITDA margins of 40%.

FABCBD saw $160,000 in sales on April 20, which brings High Tide’s pro forma sales for this year’s 420 holiday close to CA$1 million.

Furthermore, High Tide intends to offer FABCBD products across its U.S. e-commerce platforms, including CBDCity, GrassCity and Smoke Cartel. The company is also considering bringing the brand to Canada and Amsterdam.

“We evaluated numerous U.S. CBD opportunities and FABCBD clearly stuck out from the rest,” Raj Grover, president and CEO of High Tide said in a statement.

“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.”

HITIF Price Action

High Tide shares were trading 3.29% lower at 52 cents per share at the time of publication Tuesday. 

Photo by Robert Nelson on Unsplash.