Well-known hemp CBD company Charlotte’s Web Holdings, Inc. (OTCQX: CWBHF) is expanding beyond its current model with a planned acquisition of privately-held Stanley Brothers USA Holdings. Stanley Brothers is a cannabis wellness incubator currently operating in three states (Colorado, California, Florida) with expansion plans underway in eight additional states.
The acquisition though isn’t immediate. Instead, Charlotte’s Web is pursuing a five-year option plan valued at $8 million, which could be extended to seven years. However, the acquisition could also happen in three years and upon the federal legalization of cannabis in the U.S. The company stated that the common shares of Charlotte’s Web continue to trade on the TSX in Canada and OTCQX in the US. The payment will be made in stock, which has fallen on the news.
“Consumer attitudes, market trends, and laws surrounding cannabis and its role within the wellness category continue to trend positively. This strategic Option provides Charlotte’s Web optionality to enter the U.S. cannabis wellness market in partnership with an experienced and trusted team and brand, positioning our business for potential new growth opportunities and shareholder value creation,” explained Deanie Elsner, CEO of Charlotte’s Web. “The Stanley Brothers are innovating cannabis wellness with the same philosophy and vision that drove their success as founders of the Charlotte’s Web brand. With this shared heritage, we could not be more aligned.”
Stanley Brothers combines full-spectrum cannabis extracts with functional botanical ingredients. Marketed under the “ReCreate” brand, the wellness formulations are lower in THC for more precisely controllable benefits. Products include functional chocolates, gummies and oil tinctures, formulated with the wellness benefits of the entire cannabis plant including CBD and THC to help achieve a desired state of wellbeing.
Charlotte’s Web Revenue Woes
Charlotte’s Web had a difficult year in 2020 as the pandemic closed many retailers which hurt sales. The company has missed earnings estimates for three quarters in a row according to Yahoo Finance. The company has also faced intense competition from thousands of CBD companies that have launched over the past two years since hemp was legalized. On top of those problems, the company has faced a lawsuit challenging its ability to patent the strain which is the company’s namesake. So it’s no surprise that the company is seeking a way to expand beyond legal hemp products.
The two companies also share a lineage with the founders. Two founders of Stanley Brothers USA are also members of Charlotte’s Web board of directors. As a result of the planned acquisition Stanley Brothers co-founders Joel Stanley and Jared Stanley are resigning as members of the Charlotte’s Web board of directors and will take board positions at Stanley Brothers.
According to the company statement, upon the occurrence of the Triggering Event, the Company may exercise the Option to acquire Stanley Brothers USA for a purchase price to be determined at the time of exercise of the Option. The purchase price determination will involve weighted application of 3.5 times revenue and 13.5 times EBITDA multiples to Stanley Brothers USA’s financial statements at the relevant time, or a base amount and earn-out, in certain circumstances. The purchase price will be subject to customary adjustments for working capital, debt and cash at closing, and certain portions of the purchase price may be held back to cover post-closing adjustments and indemnification matters.