Heritage Cannabis Holdings Corp (CSE:CANN) (OTCQX:HERTF) announced a definitive agreement Wednesday to acquire Canada-based recreational and medical cannabis company Premium 5 Ltd in a stock transaction.
Premium 5 creates high-quality full spectrum concentrates and successfully introduced one of the first hydrocarbon products in the Canadian recreational and medical markets. It was also the first to launch live resin vapes, the company said, and it currently offers two brands in eight provinces across Canada, as well as Shelter Market and Shoppers Drug Mart.
Heritage will pay Premium 5 C$21 million in common shares, plus additional shares to compensate the Premium 5 shareholders for net working capital, the company said. The agreement also includes a series of revenue growth and gross margin milestones over the next 24 months that could allow Premium 5 to earn an additional C$20 million in Heritage shares.
The company is best known for its namesake brand — Premium 5 — which is first in the premium hydrocarbon and solventless concentrates category, as well as the newly launched RAD value brand which is first in the value hydrocarbon concentrate, flower and distillate vape categories.
Demand for Premium 5 products has resulted in provincial purchase orders nearing C$10 million since launching sales in June 2020 and growing each month to an annualized run-rate of approximately $20 million, the company said. The launch has been met with strong consumer acceptance as highlighted by sustained reorder rates across Canada, including more than C$2 million in the month of December.
“The acquisition of Premium 5 brings a strong team with proven brands and products to Heritage’s platform,” Heritage CEO Clint Sharples said in a statement. “The combination of Premium 5’s portfolio and our successful line-up of sought-after products creates an impressive catalog of products for both the provincial boards and consumers across Canada... As a result of these product listings, Heritage will have significant product choice for consumers across the country.”
As part of the deal, Premium 5 CEO David Schwede will become the president of Heritage’s recreational cannabis division. Before Premium 5, he was senior manager of product development and project management for one of Canada’s largest revenue-producing cannabis companies.
“We have built a strong brand in a core part of the market that continues to grow,” Schwede said. “Our focus is to combine our innovation and execution with the Heritage infrastructure to leverage our combined team and further expand our reach both domestically and abroad. We look forward to building on past successes as part of the Heritage family.”
The parties expect the deal to close by the end of January 2021.
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