Canadian extractor The Valens Company Inc. (TSX: VLNS) (OTCQX: VLNCF) is set to buy premium flower producer Citizen Stash Cannabis Corp. (TSXV: CSC) (OTCQB: EXPFF) (FRANKFURT: MB31) in an all-stock transaction valued at around $54.3 million.
On Tuesday, the firms announced the deal in which Citizen Stash shareholders will receive 0.1620 of a Valens common share for each common share of Citizen Stash held.
According to a statement, the exchange ratio implies a premium per Citizen Stash common share of about 35.1 per cent based on the 15-day volume-weighted average price of the shares on the TSX Venture Exchange and Valens shares on the Toronto Stock Exchange as of market close on August 27, 2021.
Kelowna, B.C.-based Valens said it expects the deal to increase its earnings per share in 2021 and 2022. The company’s stock dipped almost 3 per cent following the news to $2.98 on the TSX.
The acquisition marks Valens’s entry to the dried flower and pre-roll categories, which account for at least 70 per cent of regulated cannabis sales in Canada. Currently, Valens’s model is a mix of white-label extraction deals, and its own in-house brands.
Citizen Stash, based in Mission, B.C., is known for its strong reputation in the premium flower segment. It has its own production facility, but also sources flower from other producers growing with its genetics.
Based on Hifyre retail data for the flower category from March to May in Ontario, Alberta and B.C., Citizen Stash is the highest-ranked premium brand by market share in the flower category with an average selling price above $13.00 per gram — the only top-20 brand by market share in that price segment.
Valens notes that within the pre-roll category over the same period and markets, Citizen Stash is the third-highest ranked premium brand with average selling price above $13.00 per gram, and one of only five within the top-20 brands overall.
“Citizen Stash’s asset light model, and proprietary genetics will provide us significant operational flexibility and an opportunity to leverage the growing capabilities of our existing LP partners,” Valens CEO Tyler Robinson said in the statement.
“In short, this strategic acquisition will allow Valens to significantly expand its presence in the recreational market and capture a share of the largest categories of the Canadian cannabis space without the burden of a high-cost growing infrastructure.”
Citizen Stash CEO Jarrett Malnarich says the deal has full approval from his firm’s board.
“Together we look forward to taking the Citizen Stash brand to new heights that Citizen Stash could not have achieved on its own, by leveraging Valens’ best-in-class, low-cost manufacturing capabilities and industry leading distribution scale.”
Approval of the deal is pending two-thirds approval from Citizen Stash’s shareholders.