Charlotte’s Web has entered into a definitive arrangement agreement to acquire Abacus Health Products for a combined 35% market share of CBD in the food/drug/mass retail channel.

WHO: Since its inception in 2014, Abacus has focused on becoming the leading practitioner and consumer choice for OTC topical medications with active pharmaceutical and natural ingredients, including a cannabinoid-rich hemp extract containing CBD.

Charlotte’s Web is the market leader in the production and distribution of innovative hemp-derived cannabidiol (CBD) wellness products. Founded by the Stanley Brothers, the company’s premium quality products start with proprietary hemp genetics that are responsibly manufactured into hemp-derived CBD extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids, and other beneficial hemp compounds.

WHY: This acquisition combines Charlotte’s Web, the market leader in hemp-derived CBD wellness products, with Abacus, the market leader in OTC topical products combining active pharmaceutical ingredients with hemp extract, to create the world’s largest vertically integrated hemp-derived CBD company. For Charlotte’s Web, the combination benefits from the current US regulatory environment, which favors topical CBD products within the food/drug/mass channel. For Abacus, the acquisition provides the advantages of joining an established and industry-leading platform and benefiting from leading CPG management and brand equity with a low-cost vertical supply chain producing “the world’s most trusted hemp extract.”

IN THEIR OWN WORDS: “The complementary strengths of our relative market positions made this merger a logical strategic move,” Deanie Elsner, Chief Executive Officer of Charlotte’s Web, said in a statement. “With this acquisition, we strengthen the business to reflect the evolution of the category. Because most of Abacus’s products are positioned in adjacent categories, our combined distribution reach has limited shelf overlap. Together we are the most developed CBD company across every channel and segment and positioned to accelerate our growth and extend our market share. Furthermore, it enables us to drive more scale production through our vertically integrated infrastructure.”

“This Transaction provides a unique opportunity to our shareholders and employees to participate in the compelling potential of the combined businesses,” Perry Antelman, Chief Executive Officer of Abacus, said in a statement. “Abacus is one of the largest suppliers and distributors in the United States of topical products infused with hemp extract to the F/D/M and healthcare practitioner markets. By joining with Charlotte’s Web, we have the opportunity to maximize our growth by leveraging the Company’s leading brand, vertical integration, infrastructure, expertise, financial position and capital markets presence, and position the combined Company to deliver benefits for our stakeholders over the long-term.”

DETAILS:

• Charlotte’s Web Holdings and Abacus Health Products have entered into a definitive arrangement agreement pursuant to which Charlotte’s Web proposes to acquire all of the issued and outstanding subordinate voting shares of Abacus, after conversion of all outstanding proportionate voting shares of Abacus into Abacus Shares.
• Under the terms of the Arrangement Agreement, shareholders of Abacus will receive 0.85 of a common share of Charlotte’s Web for each Abacus Share held. The Exchange Ratio implies a price per Abacus Share of C$4.39, representing a premium of 38% based on the 10-day volume-weighted average price of the Abacus Shares on the Canadian Securities Exchange.
• The combined entity is anticipated to represent approximately 34.7% of US CBD sales within the F/D/M channel. Combined sales for the third quarter of 2019 were $29.1 million.
• Food retail combined share of 23.0%.
• Drug retail combined share of 43.5%.
• Charlotte’s Web’s 11,000 retail doors combine with 12,000 from Abacus for 15,000 unique doors.
• Abacus’s network of 16,500 medical and practitioners expands channels served by both companies and presents cross-selling opportunities.
• Expect meaningful synergies to come from economies of scale, production, elimination of public company cost duplication, bolstered by extended sales opportunities through cross-selling and leveraging additional distribution channels.
• Abacus Shareholders will represent approximately 15% of the issued and outstanding Charlotte’s Web Shares.
• The transaction is anticipated to be accretive to Charlotte’s Web shareholders on an adjusted EBITDA basis.
• Additionally, pro forma for the acquisition, the company’s cash position on Dec. 31, 2019, is estimated at US$90.4 million.
• Canaccord Genuity Corp. acted as financial advisor and DLA Piper (Canada) LLP acted as legal counsel to Charlotte’s Web.
• Greenhill & Co. Canada Ltd. acted as financial advisor and Osler, Hoskin & Harcourt LLP acted as legal counsel to Abacus.