High Tide Inc., a retail-focused cannabis corporation enhanced by the manufacturing and distribution of consumption accessories, announced that it is taking another step towards solidifying itself as the dominant player within the U.S. e-commerce marketplace for consumption accessories and hemp derived CBD products, by entering into an agreement to acquire Smoke Cartel, Inc. Upon the closing of the acquisition of Smoke Cartel, High Tide will operate both the largest and second largest e-commerce platforms for consumption accessories in the world1 and believe it will be well positioned to begin online cannabis sales should the United States move towards federal legalization.
Founded in 2013, SmokeCartel.com has grown to become one of the most searchable websites of its kind with 7 million site visits and over 110,000 orders last year. Upon closing, High Tide anticipates that the acquisition will create immediate synergies and enhance High Tide’s profitability by:
- Creating the necessary scale to take advantage of the continuing trend towards e-commerce, which according to data from Salesforce, resulted in a 45% year-over-year digital sales increase in the first two weeks of December globally.
- Providing access to Smoke Cartel’s proprietary drop-shipping technology, creating new revenue generation opportunities across all High Tide’s e-commerce platforms.
- Allowing High Tide’s brands and existing inventory to reach Smoke Cartel’s 550,000 customers across the United States, Canada, the United Kingdom, Australia, Germany and Mexico, driving more sales opportunities and increased profit margin.
- Providing High Tide with access to Smoke Cartel’s database of over 1 million email and social contacts.
In 2020, Smoke Cartel expects to report approximately US$7.4 Million in revenues2 and over 16% in EBITDA margin3, with approximately US$1.0 Million1 in cash currently on hand.
|1||As of January 22, 2021, based on traffic analytics data provided by SEMrush Inc.|
|2||Based on unaudited results, including Q4 2020 results that will be published upon completion of Smoke Cartel’s audit.|
|3||Based on the year to date results of Smoke Cartel, including Q4 2020 results that will be published upon completion of Smoke Cartel’s audit. Earnings before interest, taxes, depreciation, and amortization (“EBITDA”), does not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-IFRS measures provide investors with a supplemental measure of the Company’s operating performance and therefore highlight trends in Company’s core business that may not otherwise be apparent when relying solely on IFRS measures. Management uses non-IFRS measures in measuring the financial performance of the Company.|
High Tide has entered into a definitive agreement (the “Acquisition Agreement”) pursuant to which High Tide will acquire all of the issued and outstanding shares of Smoke Cartel (“SC Shares”) for US$8.0 Million (the “Transaction”), implying an approximate value of US$0.309 per SC Share, representing a premium of 33% to Smoke Cartel’s last closing share price of US$0.232 (Jan. 22, 2021). The consideration will be comprised of: (i) US$6.0 Million (the “Share Consideration”) in common shares of High Tide (“HT Shares”) on the basis of a deemed price per HT Share equal to the volume weighted average price per HT Share on the TSX Venture Exchange for the 10 consecutive trading days preceding closing of the Transaction (“Closing”); and (ii) US$2.0 Million in cash. As a result of U.S. securities law considerations, significant Smoke Cartel shareholders have agreed to allow the Cash Consideration to be allocated first to Smoke Cartel’s shareholders generally, who will be paid fully in cash, using all or a portion of the Cash Consideration.
Pursuant to the Acquisition Agreement, 25% of the Share Consideration will be placed in escrow for a period of 12 months from Closing.
“The acquisition of Smoke Cartel is a great way to further vertically integrate our accessories business and expand our footprint in the United States, especially in parallel with our current application to list on the Nasdaq. We expect Smoke Cartel’s proprietary and licensable drop-shipping technology to enhance our e-commerce business right away, along with the cross-listing of inventories between its website and our Grasscity and CBDcity platforms,” said Raj Grover, President and Chief Executive Officer of High Tide. “The acquisition also expands High Tide’s considerable access to cannabis consumers online, further positioning the Company to enter the cannabis e-commerce marketplace should the United States move towards federal legalization,” added Mr. Grover.
In connection with the Transaction, High Tide is excited to announce that Sean Geng, Founder and CTO of Smoke Cartel, will be joining the High Tide team on Closing as Chief Technology Officer to oversee all IT and e-commerce initiatives for High Tide globally.
“I’m truly excited to be joining the High Tide team and to begin overseeing High Tide’s technology infrastructure and global e-commerce initiatives,” said Sean Geng. “The marriage of High Tide’s current e-commerce and manufacturing capabilities with Smoke Cartel’s proprietary drop-shipping technology sets the stage for the company to become the dominant global consumption accessories and CBD products e-commerce retailer,” added Mr. Geng.
The Transaction has been unanimously approved by the board of directors of each of High Tide and Smoke Cartel. Certain Smoke Cartel directors, officers and other significant shareholders have entered into voting and support agreements to vote in favour of the Transaction and have entered into leak-out agreements which will limit their ability to sell HT Shares they receive based on various time and volume restrictions.
The Transaction is an arm’s length transaction pursuant to applicable regulatory policies.
The Transaction is subject to, among other things, the approval of Smoke Cartel shareholders, receipt of required regulatory approvals, and other customary conditions of closing. Approval of High Tide shareholders is not required. It is currently anticipated that, subject to receipt of all regulatory, shareholder and other approvals, the Transaction will be completed in March 2021.
Smoke Cartel, Inc. is one of the leading online retailers of consumption accessories, including glass water pipes and vaporizers, as well as hemp derived CBD products.The company’s website at www.smokecartel.com offers fast load times and optimizations, making the customer experience quick, seamless, and engaging.
High Tide is a retail-focused cannabis company enhanced by the manufacturing and distribution of consumption accessories. High Tide’s strategy as a parent company is to extend and strengthen its integrated value chain, while providing a complete customer experience and maximizing shareholder value. Key industry investors in High Tide include Aphria Inc. and Aurora Cannabis Inc.