Canadian retailer High Tide Inc. (CSE: HITI) is increasing its U.S. market presence by spending US$8 million to acquire Smoke Cartel, an online platform that sells cannabis accessories and CBD products.
On Monday, the Calgary-based company said when the acquisition deal closes in March it will own the top-two largest e-commerce websites for weed accessories in the world.
High Tide currently operates Grasscity.com, a leading U.S. online accessory retailer, as well as online cannabidiol retailer CBDcity.com. The firm also owns accessory wholesaler Valiant Distribution.
Under the terms of the deal, the retailer will pay US$2 million in cash and US$6 million in High Tide shares to purchase Georgia-based Smoke Cartel.
High Tide says the move gives it a better position to begin online cannabis sales should the U.S. move towards federal legalization.
“The acquisition of Smoke Cartel is a great way to further vertically integrate our accessories business and expand our footprint in the United States, especially in parallel with our current application to list on the Nasdaq,” High Tide CEO Raj Grover said in a statement.
Canadian companies listed on major exchanges aren’t permitted to enter state-legal cannabis markets unless the drug is decriminalized at the federal level. Since Democrats have taken control of the White House and Congress this year, those companies are hoping for major reform and their first chance to enter the lucrative U.S. market.
For now, High Tide will focus on selling accessories like bongs, t-shirts and rolling papers.
The retailer says its brands will be added to Smoke Cartel’s website, which reaches 550,000 customers across the United States, Canada, the United Kingdom, Australia, Germany and Mexico.
Bolstering its e-commerce retail business is especially important in the modern era as global digital sales increased 45 per cent in 2020, according to High Tide.
Smoke Cartel expects to report revenues around US$7.4 million and positive earnings before interest, taxes, depreciation and amortization for the 2020 calendar year.
High Tide will use Smoke Cartel’s drop-shipping technology across all its platforms. Drop shipping is an asset-light digital distribution model where consumer purchases are made through third-party providers.
The transaction has been unanimously approved by the board of directors of both High Tide and Smoke Cartel.
Last November, High Tide said it closed the acquisition of Canadian rival Meta Growth Corp. (TSXV: META). The deal made it one of the largest weed retailers in the country with 65 stores.
Shares of High Tide rose 21 per cent Monday to $0.60 on the Canadian Securities Exchange.
Top image screenshot of smokecartel.com