The Valens Co. (TSX: VLNS) (OTCQX: VLNCF) is buying a Florida-based CBD producer as the Canadian pot product manufacturer’s first foray into the United States.
On Tuesday, the British Columbia-based company said it will acquire Green Roads for US$40 million in cash and stock, plus US$20 million if earnings-based targets are met.
Green Roads is the largest private company in the U.S. that sells non-psychoactive CBD online and in 7,000 retail locations.
Valens says the combined entity would have had sales of $111.6 million in 2020. Valens reported fiscal 2020 net revenue of $83.8 million.
The deal gives it immediate entry into U.S. CBD, and the company says it provides a potential pathway to enter the country’s legal weed market.
While THC products remain illegal at the federal level, there’s speculation that laws will be eased with Democrats in power. Currently, 18 states have legalized recreational cannabis.
“The acquisition of Green Roads represents only the first step in our U.S. expansion strategy,” Valens CEO Tyler Robson said in a statement. “We expect to continue to unlock complementary, revenue-generating opportunities while we forge our presence and build our reputation in the world’s largest cannabinoid market.”
The transaction is expected to be accretive to 2021 earnings, Valens says. The Green Roads brand ranked second by market share in the U.S. CBD market in the third quarter last year, according to Brightfield Group.
Green Roads produces CBD oils, topicals, edibles and pet products at its Current Good Manufacturing Practice-approved facilities.
Cannabidiol sales in the U.S. reached a record $6 billion (US$4.7 billion) last year, Brightfield estimates.
The deal comes amid a wave of consolidation in the cannabis sector as Canadian companies struggle in a highly competitive market slammed with supply gluts.
As sales continue to miss projections, Canadian operators have been seeking access to the larger U.S. market.
Mega-producer Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) has signed a deal to merge with Acreage Holdings, Inc. (CSE: ACRG.U) that’s contingent upon the U.S. government legalizing cannabis sales.
And last year rival Aphria Inc. (TSX: APHA) (Nasdaq: APHA) bought U.S. beer company SweetWater Brewing.
After Valens posted record revenue of $31.9 million in first-quarter 2020, an oversupply of bulk resin caused a major slowdown in the extraction market.
The company has since pivoted to a manufacturing strategy in Canada, and has previously stated it intends to expand into the U.S. and international markets.
The Green Roads deal has been approved by Valens’s board of directors and is expected to close in June pending regulatory approval.
Shares of Valens rose 4.6 per cent Tuesday to $3.43 on the Toronto Stock Exchange.
Top image via Green Roads