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HempFusion Signs Definitive Agreement to Acquire Pioneering CBD Brand Apothecanna

DENVER–(BUSINESS WIRE)–HempFusion Wellness Inc. (TSX:CBD.U) (US:CBDHF) (FWB:8OO) (“HempFusion” or the “Company”), a leading health and wellness Company offering premium probiotic supplements and products containing CBD, is pleased to announce it has entered into a Purchase Agreement (as defined below) to acquire 100% interest in APCNA Holdings LLC (“Apothecanna”). Established in 2009, Apothecanna pioneered cannabis-powered body care and topicals, and was the first topicals brand to expand nationally and obtain a Federal Trademark. Focused on the premium recovery, pharmacy, and spa segments, Apothecanna has established itself as an industry leader in the development of innovative, all-natural CBD products.

Apothecanna is an established brand in the premium CBD topicals space with significant distribution in the North American market, most notably though CVS and 7th Sense. The company also has access to the Canadian marketplace though a strategic business relationship, giving it significant market share in the Canadian topicals space (#1 topical in 2020 on the OCS).

A key advantage in the current business environment is a strong ecommerce focus and Apothecanna embodies this with approximately 50% of revenues being generated from this channel. The focus on this higher margin, Direct-to-Consumer business drives corporate gross profit margins of approximately 70%.

Strategic Rationale

Revenue of over $4 million in 2020 doubles HempFusion’s historical revenue with significant expansion planned for 2021 and beyond, making it immediately accretive to the Company at closing.
Immediate distribution to an additional 1,800 stores, including CVS, materially increases HempFusion’s retail distribution footprint.
In addition to FDM and e-commerce, this transaction provides added distribution channels, increasing HempFusion’s 5 channel strategy to 6 channels, and bolstering topical product distribution sales.
Robust eCommerce platform drives over 17,000 average monthly sessions, and nearly $2.0MM in gross sales per year with 76% gross margin historically.
Product efficiencies across topicals line while providing a near term opportunity for expansion into ingestible products supported by HempFusion’s proprietary formulations.
HempFusion’s substantial investment into regulatory compliance will help solidify Apothecanna’s leadership position in the CBD industry.
“We are incredibly excited to enter into this agreement with Apothecanna, which, on closing, will have an immediate impact on HempFusion’s revenue while significantly bolstering our distribution and eCommerce platforms,” stated Jason Mitchell, N.D., HempFusion’s Co-Founder and Chief Executive Officer. “We look forward to working to close the transaction as soon as possible,” continued Dr. Mitchell.

“Quality, customer centricity, and innovation have always been core pillars of Apothecanna’s strategy since our founding almost twelve years ago,” said Jeff Henretig, President of Apothecanna. “In HempFusion, we found a partner that has a similar and complimentary focus, with the capabilities to bring Apothecanna into more doors and homes across both the US and abroad. We look forward to joining the HempFusion family and empowering even more people to live healthier lives. We are deeply thankful to our founding team for getting us to this stage.”

Terms of the Agreement

Pursuant to a unit purchase agreement dated May 14, 2021 (the “Purchase Agreement”) among HempFusion, Apothecanna, all holders of Apothecanna interests (the “Sellers”) and Jeff Henretig, as seller representative, HempFusion will acquire 100% of the interests in Apothecanna for initial consideration of US$15 million (the “Initial Consideration”) payable in cash, common shares of the Company (“HempFusion Shares”) or a combination of both (at the election of the Company), with any HempFusion Shares so issued to be valued at a deemed price per HempFusion Share of approximately US$1.19, being the volume weighted average trading price (“VWAP”) of HempFusion Shares on the Toronto Stock Exchange (the “TSX”) for the 30 trading days immediately prior to the date of the Purchase Agreement (the “Transaction”). US$1.125 million of the Initial Consideration is subject to a holdback to be released on the 18 month anniversary of the closing of the Transaction (“Closing”) subject to certain post-closing adjustments and indemnification claims, if any. In addition, the Company will pay the Sellers up to an additional US$10,000,000 (“Milestone Amount”) in cash, HempFusion Shares or a combination of both (at the election of HempFusion), subject to Apothecanna achieving certain revenue targets (with a minimum revenue threshold of US$6 million) within twelve months of Closing.

The number of HempFusion Shares to be issued under the Milestone Payment, if any, will be calculated based on a deemed price which is the greater of (i) the VWAP of HempFusion Shares on the TSX for the 30 trading days immediately prior to the 12-month anniversary of Closing, or (ii) $1.00 per HempFusion Share.

All HempFusion Shares issued in connection with the Purchase Agreement will be subject to contractual resale restrictions to be released over a period of 12 months from Closing as follows: (i) 34% will be released on the four month anniversary of the Closing, (ii) 33% will be released on the eight month anniversary of the Closing and (iii) the remaining balance will be released on the 12 month anniversary of the Closing.

Completion of the Transaction is subject to a number of terms and conditions as set forth in the Definitive Agreements, including (among other things) the consent of all Apothecanna convertible securityholders to convert their securities pre-Closing, the receipt of certain regulatory and third-party approvals, the approval of the TSX and certain other closing conditions customary in transactions of this nature.