A few years ago, cannabidiol (CBD) was one of the hottest verticals of the cannabis sector and leading operators were being valued at massive valuations.
A lot has changed since then and leading CBD companies have seen valuations plunge by more than 75% on average. Going forward, we do not expect the CBD industry to see valuations that it once did and this is a trend that our readers should be aware of.
So far this year, two of the largest private CBD companies have been acquired and the valuations that are associated with the transactions better explain how the industry has changed. Today, we have highlighted these transactions and believe that our readers should be aware of these deals.
Village Farms Acquires an Industry Leader
Earlier this week, Village Farms International, Inc. (VFF.TO) (VFF) reported to have acquired 100% of Balanced Health Botanicals for US$75 million. Balanced Health owns and operates one of the largest brands in the hemp-derived CBD market in the US and provides the Canadian cannabis producer with immediate entry into the US CBD market as well as the broader consumer packaged goods (CPG) market.
Through the formation of long-term partnerships, Balanced Health has control of the entire supply chain and we are favorable on how the brand will create additional awareness for Village Farms. Balanced Health develops and sells high-quality, CBD-based health and wellness products. The CBD brand is a profitable business and the acquisition is expected to be immediately accretive Village Farms. We consider the transaction to be strategic and will monitor how the management team is able to integrate the businesses.
Balanced Health has established a diverse portfolio of CBD and other cannabinoid products that are distributed via e-commerce and brick and mortar retail channels. Its e-commerce platform, CBDistillery™ is a top-five US CBD brand (Brightfield Group: 2021 Mid-Year US CBD Report) and top-ranked web site within the CBD industry.
One of the reasons for our favorable view on the transaction is due to how the CBD brand provides Village Farms with immediate access to the US retail CBD market. This market is estimated to grow to US$16 billion by 2025 (according to the Brightfield Group) and we are favorable on the growth prospects that are associated with the transaction.
During the last month, Village Farms has come under pressure and we have been closely following the Canadian cannabis company. We believe the acquisition helps transform the story and will monitor how it benefits the business over the near and long-term.
Valens Makes a Move on the Global CBD Market
A few months ago, The Valens Company Inc. (TSX: VLNS) (OTCQX: VLNCF) completed the previously announced acquisition of Green Roads and its manufacturing subsidiary for US$40 million, plus up to an additional US$20 million in contingent considerations.
If Green Roads achieves certain EBITDA milestones by 2022, the company will receive the additional consideration and we are favorable on the structure of the transaction. We believe that Valens has taken a patient strategy for growth and expect the acquisition to immediately prove to be accretive.
In the near term, we expect Green Roads to provide Valens with several strategic benefits. We believe that four of the most significant benefits include:
Direct entry into the US market with a trusted and leading CBD health and wellness brand , established manufacturing and distribution platform with a global reach. With these added capabilities, Valens expects to improve its ability to engage and build cross-border partnerships with CPG companies.
Strengthened position in the Canadian market with an expanded offering through the introduction of various CBD products from Green Roads’ award-winning product portfolio. Valens expects to launch Green Roads products in the Canadian market in the near future
Valens’ move into the US market is expected to open global distribution opportunities, with Green Roads and Valens-manufactured products already being sold in over 11 countries
Valens expects to invest in Green Roads to capitalize on the anticipated growth of the US CBD market. The investment is expected to further development its e-commerce platform, support the expansion of its retail distribution network, and increase the brand’s sales and marketing resources
A few years ago, a few broker-dealers were assigning Green Roads a valuation that was considerably higher. We believe the saturation of the CBD industry brought the valuation down and expect Valens to benefit from this. Going forward, we will monitor how the management team is able to drive the story forward and will keep an eye on the opportunity.
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