- Combined industry experience, existing and deep supply chain
relationships, and unique IP formulations create one of the leading
cannabis consumer packaged goods platforms in Canada
- Upfront purchase of LYF for CDN$24.9 million plus
approximately CDN$17.5 million in
consideration subject to achieving certain EBITDA milestones, which
if met implies a ~4.2x multiple on fiscal 2022E EBITDA
- Accretive acquisition accelerates Valens entry into one of
the fastest-growing segments of the Cannabis 2.0 and 3.0
markets
- Valens now poised to substantially expand edible product
portfolio and market share with collective capabilities to produce
innovative gummies, chocolates, baked goods and more
KELOWNA, BC, Jan. 25, 2021 /CNW/ - The Valens Company
Inc. (TSX: VLNS) (OTCQX: VLNCF) (the "Company," "The
Valens Company" or "Valens"), a leading manufacturer
of cannabis derivative products, is pleased to announce that it has
entered into a definitive agreement to acquire all of the issued
and outstanding shares of LYF Food Technologies Inc. ("LYF")
in a cash and share transaction (the "LYF
Acquisition") for closing consideration of CDN$24.9 million, plus up to an additional
CDN$17.5 million in consideration
(the "Milestones Consideration") payable upon the business
achieving certain earn-out EBITDA milestones (the
"Milestones"). The LYF Acquisition is expected to be
accretive to the Company's EBITDA and diluted EPS in 2021, and if
all of the Milestones are met, the transaction represents an
approximate ~4.2x multiple on the last milestone achieved. With the
LYF Acquisition, The Valens Company not only strengthens its
already wide-reaching production capabilities for the 2.0 and 3.0
markets, but also unlocks significant growth potential with the
addition of a cutting-edge platform designed to capitalize on one
of the fastest growing product segments in the cannabis
industry.
LYF is a premier edibles manufacturer based in Kelowna, British Columbia with expertise in
novel product creation, white label manufacturing and infusion
technologies. Similar to Valens, LYF operates a product development
and manufacturing platform focused on consumer-driven innovation,
and product safety and consistency. LYF brings a proven team with
significant experience producing high throughput food products, in
addition to experience operating and working with major Canadian
grocery chains, health and wellness retailers, and pharmacies. Just
minutes away from Valens' headquarters, LYF's purpose-built
manufacturing facility produces innovative edible products using
the highest quality ingredients and cannabis extracts, offered in
proprietary delivery methods.
Valens' access to low-cost active ingredients paired with LYF's
industry-recognized product IP formulations of over 100 recipes
strengthens its capabilities to produce higher-margin,
new-to-market edible formats in a segment with limited product
variability, and increased consumer demand. With the added
infrastructure and expertise from the LYF Acquisition, The Valens
Company significantly expands its edibles footprint and strategy to
remain a best-in-class manufacturing platform for its partners,
while also increasing its ability to capture market share in the
rapidly growing product category. Similar to consumer trends in the
US cannabis market, edible products are anticipated to represent
over 10% of sales in the maturing Canadian cannabis market.
Tyler Robson, Chief Executive
Officer and Chair of the Board of The Valens Company, said, "LYF
has set the standard of what high quality edibles should be and has
developed a diverse and flexible manufacturing platform to play
a dominant role in the Canadian edibles market. LYF stood
out for its product innovation and marketing teams, as well as its
broad range of edible products which will introduce new formats to
Canadian consumers that are typically only available in more mature
markets. We look forward to further developing our product offering
to reach more consumers with high-quality and unique cannabis
edibles as this product segment continues to gain in
popularity."
"Our team could not be more thrilled to join forces with The
Valens Company and collectively fuel our shared passion for
producing exceptional cannabis products with consumers top of
mind," said Paolo Pero and
Matthew Amado, Founders of LYF. "As
a fellow Kelowna-based company,
Valens' vision for global growth resonated with the team and
ultimately led us to recognize the significant value in combining
what we have each uniquely created to bring a new level of
manufacturing excellence to Canada
and beyond."
Strategic Highlights
With the added capabilities from the LYF Acquisition, The Valens
Company is better positioned to capture edibles category market
share with the following key success factors:
- Experienced team with a background in commercial-scale
food manufacturing, cannabis processing, and a thorough knowledge
in developing and producing innovative cannabis derivative
products, specializing in confectionary goods. With combined
industry knowledge and in-depth relationships with food ingredient,
packaging, and equipment providers, Valens expects to boost its
reputation in the market as a trusted third-party operator.
- Expected to be an accretive transaction to both
anticipated EBITDA and diluted earnings per share in 2021 with an
earnout structure that effectively aligns the interests of all
parties to drive financial performance and generate shareholder
value.
- Speed to market utilizing LYF's existing infrastructure
and relationships throughout the edibles community. With white
label edible products currently available for purchase in
British Columbia, LYF adds a fully
operational platform and robust partner network ready for
integration with Valens' suite of products. In addition, LYF and
Valens' existing roster of new, innovative edible products with
various partners remain ready for immediate commercialization and
launch into the Canadian market. With the agility and speed to
capitalize on this product segment, Valens sees both new and
existing opportunities on the horizon.
- Category-leading scale with over 77,000 square feet of
licensed manufacturing space at Valens, including the addition of
LYF's 10,500 square feet nimble production facility in close
proximity to the Valens K1 and K2 facilities to allow for ease of
operational and management control and associated cost synergies.
LYF brings an existing asset base with nearly CDN$10 million invested into the business
to-date, including over CDN$5 million
in property, plant, and equipment alone, a standard processing
licence and a pending provincial sales licence. The Valens Company
anticipates the LYF edibles manufacturing facility will be used for
both existing licensed producer and brand partners, as well as
other consumer packaged goods companies who have been observing the
space and awaiting an attractive entry point, and for the further
development of Valens-owned IP for use in North America and emerging markets.
- Further diversified platform equipped to produce
expectedly higher margin edible products for the Cannabis 2.0 and
3.0 markets, including those leveraging SōRSE by Valens emulsion
technology. The integrated platform also contains additional
R&D, testing and distribution capabilities, with multiple
manufacturing lines capable of producing various new product
formats such as real fruit gummies, caramel filled bars, peanut
butter cups, hard candies, granola products, and other customized
baked goods. These precisely dosed edibles products are highly
customizable, with vegan, sugar-free, low-sugar and natural
ingredient offerings.
- Complementary and high-value partnership
network with existing definitive supply agreements and a
robust pipeline of near-term executable opportunities with licensed
producers, brand houses and white label customers, some of which
are already part of Valens' ecosystem, as well as strong
relationships with third-party operators and retailers.
Transaction Details
The purchase price payable on closing is CDN$24.9 million, including the assumption of
CDN$2.9 million in mortgage related
debt and the issuance of up CDN$22.0
million in common shares of the Company, of which up to
CDN$5.0 million is payable in cash
and the remainder payable in common shares of the Company (the
"Common Shares") (being up to 9,846,154 Common Shares
issued based on Valens' 20-day VWAP of CDN$2.23 as of January 22,
2021). CDN$2.2 million in
value of Common Shares (being 984,615 Common Shares) will
be placed into escrow for indemnity purposes. In addition,
CDN$2.9 million in value of Common
Shares (being 1,282,051 Common Shares) of further consideration
will be placed into escrow and is subject to release upon the
achievement of certain Milestones relating to financial performance
with other Milestones to be payable upon achievement in cash and/or
Common Shares, at the Company's option.
The LYF Acquisition remains subject to approval from the Toronto
Stock Exchange and customary conditions and approvals from senior
lenders. The Common Shares issued in connection with the LYF
Acquisition will be subject to lock-up restrictions of four months
and eight months for certain vendors and up to two years for the
founders and majority share owners. There are no finders' fees
payable by the Company in connection with the LYF Acquisition. The
vendors are each arm's length parties to the Company. This
transaction has been approved by the Company's Board of Directors
and is expected to close on or about February 18, 2021.
Advisors
McCarthy Tétrault LLP acted as legal counsel to The Valens
Company on the LYF acquisition and Aird & Berlis LLP acted as
legal counsel to LYF.
About The Valens Company
The Valens Company is a leading manufacturer of cannabis
derivative products with a mission to bring the benefits of
cannabis to the world. The Company provides proprietary cannabis
processing services across five core technologies, in addition to
best-in-class product development, formulation and manufacturing of
cannabis consumer packaged goods. The Valens Company's high-quality
products are exclusively formulated for the medical, therapeutic,
health and wellness, and recreational consumer segments, and are
offered across numerous product formats, including oils, vapes,
concentrates, edibles and topicals, as well as pre-rolls, with a
focus on next-generation product development and innovation. Its
breakthrough patented emulsification technology, SōRSE™ by Valens,
converts cannabis oil into water-soluble emulsions for seamless
integration into a variety of product formats, allowing for
near-perfect dosing, stability, and taste. In partnership with
brand houses, consumer packaged goods companies and licensed
cannabis producers around the globe, the Company continues to grow
its diverse product portfolio in alignment with evolving cannabis
consumer preferences in key markets. Through its wholly owned
subsidiary Valens Labs Ltd., the Company is setting the standard in
cannabis testing and research and development with Canada's only ISO17025 accredited analytical
services lab, named The Centre of Excellence in Plant-Based Science
by partner and scientific world leader Thermo Fisher Scientific.
Discover more on The Valens Company and its subsidiaries at
http://www.thevalenscompany.com.
About LYF Food Technologies Inc.
LYF produces expertly crafted chocolate, confectionery and baked
cannabis-infused edibles. The LYF team has over 25 years of
experience in commercial-scale food manufacturing, working with the
largest grocery chains, health and wellness retailers and
pharmacies across Canada.
With unparalleled expertise in manufacturing scalability, novel
product creation, shelf stability, proprietary delivery methods and
infusion technologies, LYF is able to bring great tasting,
accurately dosed edibles to the legal Canadian marketplace at
affordable prices. LYF offers co-packing and white label
manufacturing services that will turn potential competitors into
strategic partners.
Notice regarding Forward Looking Statements
All information included in this news release, including any
information as to the future financial or operating performance and
other statements of The Valens Company that express management's
expectations or estimates of future performance, other than
statements of historical fact, constitute forward-looking
information or forward-looking statements within the meaning of
applicable securities laws and are based on expectations, estimates
and projections as of the date hereof. Forward-looking statements
are included for the purpose of providing information about
management's current expectations and plans relating to the future.
Wherever possible, words such as "plans", "expects", "scheduled",
"trends", "indications", "potential", "estimates", "predicts",
"anticipate", "to establish", "believe", "intend", "ability to", or
statements that certain actions, events or results "may", "could",
"would", "might", "will", or are "likely" to be taken, occur or be
achieved, or the negative of these words or other variations
thereof, have been used to identify such forward-looking
information. Specific forward-looking statements include, without
limitation, all disclosure regarding future results of operations,
economic conditions and anticipated courses of action. Investors
and other parties are advised that there is not necessarily any
correlation between the number of SKUs manufactured and shipped and
revenue and profit, and undue reliance should not be placed on such
information.
The risks and uncertainties that may affect forward-looking
statements include, among others, that the LYF Acquisition does not
close, the Milestones are not met, the increase to the
Company's EBITDA and diluted EPS is not achieved, regulatory risk,
United States border crossing and
travel bans, reliance on licenses, expansion of facilities,
competition, dependence on supply of cannabis and reliance on other
key inputs, dependence on senior management and key personnel,
general business risk and liability, regulation of the cannabis
industry, change in laws, regulations and guidelines, compliance
with laws, reliance on a single facility, limited operating
history, vulnerability to rising energy costs, unfavourable
publicity or consumer perception, product liability, risks related
to intellectual property, product recalls, difficulties with
forecasts, management of growth and litigation, many of which are
beyond the control of The Valens Company. For a more comprehensive
discussion of the risks faced by The Valens Company, and which may
cause the actual financial results, performance or achievements of
The Valens Company to be materially different from estimated future
results, performance or achievements expressed or implied by
forward-looking information or forward-looking statements, please
refer to The Valens Company's latest Annual Information Form filed
with Canadian securities regulatory authorities at www.sedar.com or
on The Valens Company's website at www.thevalenscompany.com. The
risks described in such Annual Information Form are hereby
incorporated by reference herein. Although the forward-looking
statements contained herein reflect management's current beliefs
and reasonable assumptions based upon information available to
management as of the date hereof, The Valens Company cannot be
certain that actual results will be consistent with such
forward-looking information. The Valens Company cautions you not to
place undue reliance upon any such forward-looking statements. The
Valens Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as required by
applicable law. Nothing herein should be construed as either an
offer to sell or a solicitation to buy or sell securities of The
Valens Company.
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SOURCE The Valens Company Inc.
