Village Farms International, Inc. (“Village Farms” or the “Company”) (NASDAQ: VFF) (TSX: VFF) today announced that it has acquired 100% interest of privately-held, Colorado-based CBD-platform Balanced Health Botanicals (“Balanced Health”) in a transaction valued at US$75 million, effective today (“Closing Date”). Balanced Health owns and operates one of the largest brands in the hemp-derived cannabidiol (CBD) market in the United States, providing Village Farms with immediate entry into the US CBD market in a consumer products category adjacent to the high-THC cannabis market, as well as the broader consumer packaged goods (CPG) wellness arena. Balanced Health is a profitable business and the acquisition is expected to be immediately accretive to net income.
Balanced Health develops and sells high-quality, CBD-based health and wellness products. With an overriding focus on quality and compliance, Balanced Health has established a diverse portfolio of CBD and other cannabinoid products, including ingestible, edible and topical applications that are distributed via e-commerce and brick and mortar retail channels. Its e-commerce platform, CBDistillery™ (www.theCBDistillery.com), is a top-five US CBD brand1 and top-ranked web site within the CBD category, with more than 30,000 orders monthly and a significant repeat customer base. Through its long-term partnerships, Balanced Health has control of the entire supply chain from seed-to-shelf, seamless sourcing, manufacturing, and sale of high-quality end products across a wide variety of forms and uses.
Highlights of the Acquisition
- Provides immediate access to the US retail CBD market, estimated to grow to US$16 billion by 20252(from US$4.7 billion in 20202) through a well-established, profitable business, with top brand awareness, an established e-commerce platform (CBDistillery™), established retail channels and a growing customer base;
- Adds an experienced team and product categories in the US adjacent to Village Farms’ consumer products portfolio with expansion potential across all cannabinoid products as permissible under currently evolving legislation, including an additional potential pathway to the US high-THC cannabis market;
- Immediately accretive to net income with a purchase price of US$75 million satisfied through US$30 million in cash and common shares of the Company equal to US$45 million to the sellers of Balanced Health;
- Expected to contribute annualized sales of more than US$30 million at an annualized adjusted EBITDA margin of in excess of 15% in 2022; and,
- Opportunity for Village Farms (and its wholly owned subsidiary, Pure Sunfarms, Canada’s premiere supplier and brand) to add significant expertise throughout Balanced Health’s supply chain, including the potential to leverage Village Farms’ long-standing relationships as a produce supplier to its grocery and large-format retailers in the US, as well as through further investment in Balanced Health’s brand and expansion of its leading e-commerce platform.
Village Farms Management Commentary
“Since US federal legalization in late 2018, hemp-derived CBD products, as well as other cannabidiol-based products, have been part of our comprehensive strategy focused on high-value, high-growth plant-based consumer packaged goods opportunities in cannabis,” said Michael DeGiglio, CEO, Village Farms International. “As a well-established, profitable leader in the US retail CBD market, Balanced Health is the right opportunity, at the right time, to take our next major step forward in anticipation of regulatory clarity that will propel the growth of this nascent market. Balanced Health provides a prudent means by which to invest in our cannabis strategy, providing immediate accretion to profitability, meaningful upside potential within the current Balanced Health business and multiple additional strategic opportunities to drive significant additional shareholder value over the medium and long term.”
“Importantly, the addition of the Balanced Health platform provides us with another potential pathway to participate in the US high-THC cannabis market, when permitted to do so, that could enable us to more rapidly access the market, in advance of our plans to convert our more than 5.5 million square feet of high-tech greenhouse facilities in West Texas – one of the most favourable environments for cannabis cultivation in the continental US – for large-scale, low-cost production of cannabis.”
Mr. DeGiglio concluded, “We are thrilled to welcome the outstanding leadership and operational teams at Balanced Health to the Village Farms family. They add complementary capabilities and cannabis expertise that will significantly strengthen our ability to achieve our strategic objectives. We look forward to leveraging their unparalleled know-how and unique skill sets as we continue to grow our Company and pursue our long-term vision to be a formidable, vertically integrated consumer packaged goods company focused on plant-based health and wellness.”
Balanced Health Management Commentary
“We are ecstatic to join forces with Village Farms, a leader in the global cannabis and CBD industries,” said Chase Terwilliger, Chief Executive Officer of Balanced Health Botanicals. “Since 2016, our nimble team has worked tirelessly to create not only a leading brand of which we are extremely proud but also one that is truly making an impact in the lives of consumers by providing everyday premium products. We’ve been able to achieve and maintain a top-five market share1 in the CBD market, while generating positive cash flow. As part of the Village Farms organization, we will be able to take the next steps in our growth strategy, with the opportunity for prudent, return-focused investments, to further expand our market share and drive efficiencies, with a focus on continued profitability.”
“Village Farms is a highly complementary match for Balanced Health, with a strong alignment of vision and values, providing the opportunity for unparalleled collaboration, and a shared objective to be the leader in every market in which we participate. We remain steadfast in our commitment to our retail partners and customers, and are confident this acquisition will further strengthen our ability to meet their needs.”
Acquisition Agreement and Purchase Price
Under the terms of the Acquisition Agreement, the consideration to the sellers of Balanced Health is composed of US$30 million paid in cash, net of all debt of Balanced Health and transaction expenses, and 4,707,113 common shares of the Company, which are equal to US$45 million as calculated based on the volume weighted average trading price on Nasdaq for the ten (10) trading days ending the day prior to the Closing Date. The common shares issued pursuant to the Acquisition Agreement will be subject to lock-up agreements which allow for immediate trading, subject to compliance with applicable securities laws, of 25% of shares received and the balance to be released for trading in three (3) equal installments of 25% every four (4) months. Balanced Health will have no debt upon completion of the transaction.
Within 75 days of the Closing Date, the Company is required to file with the U.S. Securities and Exchange Commission, on Form 8-K/A, historical financial statements for Balanced Health, together with unaudited pro forma combined financial statements of the Company as if the acquisition of Balanced Health had occurred on January 1, 2021.
Vicente Sederberg LLP and Torys LLP acted as legal counsel to Village Farms and Orient Point Partners LLC acted as financial advisor to Village Farms for this transaction.
1. Brightfield Group: 2021 Mid-Year US CBD Report.
2. Brightfield Group.