Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI) is buying Motif Labs Ltd. in a deal valued at C$90 million consisting of C$50 million in cash and C$40 million of Organigram common shares priced at C$2.3210 on the Toronto Stock Exchange. The stock was popping over 8% on the news and lately selling at $1.58 (C$2.83) on the NASDAQ.
In addition, Motif shareholders will receive an additional consideration of $10 million payable in Organigram common shares if the shares reach a price per share exceeding $3.2203 per share within 12 months of the date of the transaction.
Organigram said the deal will be a financially accretive acquisition with Motif generating approximately C$86 million of LTM net revenue and adjusted EBITDA of C$4.7 million. There will also be a significant cost synergy potential estimated to be more than C$10 million to be realized over ~24 months.
The deal will also help Organigram as it pursues the legal hemp market. Motif produces THCA, a highly sought-after ingredient in the production of the fast-growing infused pre-roll market.
Motif is a Canadian leader in the vape and infused pre-roll categories backed by a portfolio of strong, owned brands, including the popular BOXHOT brand. Motif’s business also includes a wholesale division and end-to-end services for external brands. The deal propels Organigram into the number one market share position in the Canadian adult-use market. It will also place Organigram into the number one position in the vape category and accelerate the company’s market share in the fast-growing infused pre-roll segment.
“The highly complementary acquisition of Motif establishes Organigram as Canada’s largest cannabis company by market share and accelerates our vision to be a leading cannabis company across all major categories, driven by a relentless focus on the consumer of today and tomorrow,” said Beena Goldenberg, CEO of Organigram. “Winning in Canada, the world’s largest federally legal recreational market, supported by leading brands and best-in-class operations, innovation and product development, provides the platform to unlock global opportunities as evolving attitudes towards cannabis drive regulatory changes in new and exciting markets,” she added.
“Motif was founded in 2017 with a vision to leverage manufacturing expertise to succeed in the production of cannabis extracts. We are proud to say that today, not only is Motif one of Canada’s largest and most efficient extractors but we have also commercialized a portfolio of leading, widely distributed brands that have unlocked leading market share positions of #1 in vapes and #3 in infused pre-rolls,” said Mario Naric, CEO and Founder of Motif. “This is a landmark transaction in our industry and the Motif team is thrilled to be joining forces with Organigram to create Canada’s undisputed leader with deep capabilities in all major cannabis categories.”
The acquisition also adds two strategic facilities to Organigram’s manufacturing and cultivation footprints across Canada. According to the statement, Motif’s Aylmer, Ontario facility provides advanced CO2 and hydrocarbon extraction capabilities in addition to increased infused pre-roll production. The facility adds monthly production of 1,350 kgs of distillate, 400 kgs of high value hydrocarbon extracts, 750k infused pre-rolls capacity, and 1 million units of vape filling capacity. The London, Ontario facility provides Organigram with a strategic location in Southwestern Ontario that will be used as a distribution hub to optimize fulfillment and shipping costs.
Organigram recently reported earnings as Green Market Report wrote that the company posted net revenue of C$41.1 million for the quarter, up 25% from C$32.8 million a year earlier. That eclipsed the average analyst estimate of C$39.12 million (US$28.56 million), based on Yahoo Finance data and June 30 exchange rates. Net income was C$2.8 million, versus a net loss of $27.1 million in the previous quarter and a net loss of C$213.5 million in the same period last year.
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