Valens GroWorks Corp (CVE:VGW) (OTCMKTS:VGWCF) announced Tuesday it has acquired beverage company Pommies Cider Co in a cash and stock deal, creating a platform for infused beverages and edibles.
In a statement, Valens said it acquired all of the issued and outstanding shares of Southern Cliff Brands Inc and that all planned capital expenditures are fully funded with cash on hand as well as current and projected cash flow from operations.
Pommies is a leading hard cider manufacturer in the Greater Toronto Area and operates a 32,000 square foot-facility currently used to manufacture the company's existing line of Pommies-branded cider.
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The former owners and founders of Pommies, Nick and Lindsay Sutcliffe, will be joining Valens following the acquisition. Valens said it expects to enter into a lease for the Pommies facility with a 10-year term and a subsequent renewal option for an additional 10 years.
The acquisition adds a new platform to the Valens portfolio that will bolster the company's white-label product offerings in categories such as beverages and edibles.
Valens said it has pilot-scale capacity for cannabis-infused beverages and expects to produce beverages at mass scale in the first half of 2020. The company is budgeting for approximately C$10 million of capital expenditures at the facility over the next 12 months, after which Valens expects the facility to have a 40 million unit capacity for beverages alone.
"We are thrilled to add Pommies to our growing Canadian platform," said Valens CEO Tyler Robson. "In Canada, alcoholic beverages generated nearly C$24 billion of retail sales in 2018. At Valens, we expect that extract-based cannabis products, and infused beverages in particular, could disrupt beverage alcohol sales where monthly per capita spend is roughly 16 times higher compared to legal cannabis."
Valens chose Ontario to establish its second operating facility as it brings a number of strategic advantages.
The geographic expansion to Eastern Canada will allow the company to better serve its growing customer base across Canada as the Pommies facility is located in the Greater Toronto Area. And Ontario is Canada's most populous province and currently the largest market for legal cannabis consumption based on recent sales data from Statistics Canada.
Valens said the acquisition is expected to provide it with a 9-month head start towards the launch of operations at the new facility and the production of cannabis-infused beverages. Furthermore, upon receiving a micro-processing licence at the facility, Valens intends to amend it to a standard processing licence over time, providing optionality for the facility to scale with demand.
The purchase price at closing was C$6 million, comprised of C$3.5 million in cash and C$2.5 million in value of common shares of the company of which C$750,000 in value of common shares were placed into escrow for indemnity purposes.
Up to C$1.5 million (C$0.5 million in cash and C$1 million in value of common shares) of further consideration was placed into escrow and is subject to release upon the achievement of certain earn-out milestones relating to licensing, operational and financial performance.
The existing Pommies business and branded products will continue to service its existing markets. Valens intends to establish a co-manufacturing agreement at a partner facility to continue supplying the market with Pommies' line of hard ciders as the Pommies facility transitions to producing cannabis-infused beverages and edibles.
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