High Tide Buys 80% Stake in U.S. CBD Company FABCBD

High Tide Inc (HITI) has signed an agreement to buy an 80% stake in US-based Fab Nutrition LLC (FABCBD), a leading online retailer of hemp-derived CBD products such as oils, creams, gummies, and dog treats.

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The cannabis company says it will pay $20.64 million in stock and cash for the controlling stake. In addition, it will have a three-year option to acquire the remaining 20% of FABCBD at any time. The deal strengthens High Tide’s presence in the United States, where it launched its CBDCity subsidiary in May 2020.

High Tide’s President and CEO Raj Grover said, “FABCBD has been exceptionally run, having more than doubled revenue and EBITDA in each of 2019 and 2020, including generating terrific gross margins of 74% and EBITDA margins of 40% in 2020 – by far the highest of all CBD companies we evaluated. In addition to the company’s financial profile, we were also attracted to FABCBD’s corporate social responsibility initiatives and spirit of giving back – which are both ingrained in our DNA as well. With thousands of satisfied U.S. customers, the FABCBD brand is well-positioned for international expansion.”

As part of the deal, Josh Delaney, founder and sole shareholder of FABCBD, will join the High Tide team as general manager of FABCBD. (See High Tide Inc stock analysis on TipRanks)

Two months ago, ATB Capital Markets analyst David Kideckel maintained a Buy rating on the stock and raised its price target from C$1.20 to C$1.40 (112% upside potential).

Kideckel wrote in a report, “We believe that HITI’s sales growth in Canada will continue as overall cannabis retail sales increase, COVID-19 lockdown restrictions ease, and HITI’s retail store footprint expands. In addition, we view a step-up increase in sales stemming from the acquisition of SMCK which, according to the Company, was expected to generate US$7.4 million in sales in 2020. The SMCK is expected to close this month.”

The consensus among analysts is a Moderate Buy based on 2 Buys. The average analyst price target of C$1.15 implies 72.3% upside potential to current levels.