High Tide Inc., a retail-focused cannabis corporation enhanced by the manufacturing and distribution of consumption accessories, announced that it has entered into a definitive agreement to acquire 80% of Fab Nutrition, operating as FABCBD, for $20.64 million and will have a three-year option to acquire the remaining 20% of FABCBD at any time.
Founded in 2017 with its headquarters in Milwaukee, Wis., FABCBD offers hemp-derived CBD products, including CBD oils, creams, gummies and dog treats. In 2020 FABCBD had over 1.3 million online impressions and an average order value of $91.90. FABCBD’s founder and sole shareholder, Josh Delaney, will join the High Tide team, as general manager of FABCBD, and will help with growing High Tide’s CBD business globally.
“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. In this context, I could not be more thrilled to announce the acquisition of FABCBD,” said Raj Grover, president and CEO of High Tide. “We evaluated numerous U.S. CBD opportunities and FABCBD clearly stuck out from the rest. 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. With thousands of satisfied U.S. customers, the FABCBD brand is well positioned for international expansion. I am very excited to welcome Josh and the FABCBD team to the High Tide family.”
“We’ve entertained many potential partners over 2020, measuring strategic fit, team dynamics and company mission. When we met Raj and the High Tide team, we instantly felt they had the right organization for us to align with. High Tide has a very complementary culture to FABCBD, with a similar EBITDA-focused approach that we appreciate.” said Josh Delaney, CEO of FABCBD. “Our team is very important and couldn’t be more excited to work with High Tide. I look forward to being a meaningful shareholder of High Tide and leveraging its resources and reach to continue driving the company’s CBD business globally.”
Strategic highlights include:
Accelerates High Tide’s U.S. exposure: While High Tide was already in the U.S. CBD sector since organically launching CBDCity in May 2020, the addition of FABCBD will turn it into a major player overnight. Pro forma following the acquisition of FABCBD, the Company’s annual U.S. revenue run rate will exceed C$40 Million.
Immediate synergies and cross-selling opportunities: High Tide plans to offer FABCBD products on its other U.S. e-commerce platforms, CBDCity, GrassCity and Smoke Cartel in the near-term. A clear opportunity exists to bring the brand to Canada via an arrangement with a licensed producer and sell FABCBD products across High Tide’s own network of 85 retail outlets, as well as other retailers. Looking further out, High Tide intends to leverage its e-commerce and distribution infrastructure in Amsterdam to take the FABCBD brand to the E.U. market.
Pure e-commerce play is in line with High Tide’s strengths: FABCBD carries multiple product formulations that are exclusive to FABCBD and are manufactured by contract manufacturers around the country. 100% of sales are direct to consumer online from their website. In 2020, FABCBD fulfilled approximately 124,000 orders from over 1 million unique site visitors.
Highly accretive to financial results: Given its online success and lean overhead, FABCBD generated 2020 gross margins of 74% and EBITDA margins of 40% — both of which are highly accretive to High Tide’s consolidated profile.
Continued growth: FABCBD has continued to post meaningful gains in both revenue and EBITDA during the first four months of 2021 compared to the prior year period. Of note, FABCBD generated US$160,000 of sales on April 20, 2021 — which including High Tide’s other platforms results in pro forma sales just shy of C$1 million for this year’s 4/20.
Large global potential: The European Business review recently cited a study by Grandview Research which predicts that, “over the next five years, the global CBD industry is projected to accelerate to $23.6 billion.” According to a Technavio market research report titled Global CBD Oil Market 2020-2024, the global CBD oil market is set to expand by USD $3.52 billion up to 2024, progressing at a compound annual growth rate of over 32%.
