WeedMD Inc (CVE:WMD) (OTCMKTS:WDDMF) is headed into 2020 with a major new acquisition that will position the company as a significant medical cannabis provider in Canada.
The Toronto-based company announced Friday that it signed a deal with Starseed Holdings Inc, a medically-focused, federally-licensed company that provides cannabis for insured patients through their benefit plans.
In addition, WeedMD is bringing on a key strategic investor in the Labourers’ Pension Fund of Central and Eastern Canada (LPF), which will inject C$25 million into the new medical cannabis company.
In a release Friday, WeedMD told shareholders that the acquisition bolsters the company’s leadership position in the medical cannabis market through Starseed’s exclusive distribution and patient channels, provides important growth capital, and fortifies the firm’s balance sheet.
"We believe that there are three pillars to long-term success in the cannabis space: quality production, unique distribution, and a strong balance sheet,” said Keith Merker, CEO of WeedMD in a statement. “This acquisition allows WeedMD to increase its distribution capabilities, maximize margins and access growth capital through a strategic investor.”
Starseed comes to the table with a built-in partnership with Canada’s largest construction union, the Laborers’ International Union of North America, to provide medical cannabis as a fully-covered drug benefit for its more than 100,000 members and retirees in addition to their respective dependents.
"At Starseed, we have focused on building a unique sales platform that largely mirrors the pharmacy distribution model,” said Starseed’s president Angelo Tsebelis. “Simply put, by making cannabis a paid benefit we have removed many of the barriers to mass market uptake of medical cannabis.”
LPF’s investment boosts the new company’s financial position, bringing WeedMD’s pro forma cash balance to approximately C$56 million, according to a release.
Under the all-stock transaction’s terms, WeedMD issued 71.8 million shares to Starseed shareholders which will result in WeedMD owning a 62% share of the new company, Starseed owning 18% and LFP owning 19.9% on a fully-diluted, in-the-money basis.
The deal is valued at approximately C$78 million based on WeedMD’s 10-day volume-weighted average share price of C$1.08.
The new company’s board of directors will be comprised of four representatives from WeedMD and three representatives from Starseed, while key members of Starseed’s management will join the management team of the combined entity.
Both the boards of WeedMD and Starseed unanimously approved the transaction.
WeedMD also reported its third quarter 2019 financials on Friday that saw the company post net revenue of C$6.7 million and a loss of C$13.4 million.
The firm focused on scaling production at its greenhouse and outdoor cultivation operations during the quarter, Merker told shareholders in a release.
“In our first season of cultivating outdoors, we took the opportunity to develop best practices and strategies to set us up for success,” Merker said.
“Our cultivation costs are amongst the lowest in the industry at approximately C$0.16 per gram for outdoors, and C$0.72 per gram for greenhouse cultivation,” said Nichola Thompson, CFO of WeedMD. “With our extraction hub, CX Industries Inc., we are ready to process low-cost, quality cannabis to create an assortment of high-margin finished products which will significantly add to our topline, contributing to anticipated positive EBITDA in 2020.”
Shares of WeedMD resumed trading on Friday afternoon at C$0.94.
Contact Angela at [email protected]
Follow her on Twitter @AHarmantas