Charlotte's Web to Acquire Abacus Health Products

Published: March 24, 2020

Charlotte's Web to Acquire Abacus Health Products

Charlotte’s Web Holdings, Inc., a hemp extract and market leader in hemp-derived cannabidiol (CBD) wellness products, and Abacus Health Products, Inc., a leader in over-the-counter (OTC) topical products combining active pharmaceutical ingredients with hemp extract, are pleased to announce that they have entered into a definitive arrangement agreement pursuant to which Charlotte’s Web proposes to acquire all of the issued and outstanding subordinate voting shares of Abacus, after conversion of all outstanding proportionate voting shares of Abacus into Abacus Shares.

Under the terms of the Arrangement Agreement, shareholders of Abacus will receive 0.85 of a common share of Charlotte’s Web  for each Abacus Share held. The Exchange Ratio implies a price per Abacus Share of C$4.39, representing a premium of 38% based on the 10-day volume weighted average price (“VWAP“) of the Abacus Shares on the Canadian Securities Exchange (“CSE“) and the 10-day VWAP of the Charlotte’s Web Shares on the Toronto Stock Exchange (“TSX“) as of March 20, 2020, for implied total equity consideration of approximately C$99 million.

This acquisition combines Charlotte’s Web, the market leader in hemp-derived CBD wellness products, with Abacus, the market leader in OTC topical products combining active pharmaceutical ingredients with hemp extract, to create the world’s largest vertically integrated hemp-derived CBD company. For Charlotte’s Web the combination benefits from the current U.S. regulatory environment which favors topical- CBD products within the food/drug/mass (“F/D/M“) channel.

For Abacus, the acquisition provides the advantages of joining an established and industry leading platform and benefiting from leading CPG management and brand equity with a low-cost vertical supply chain. The combined entity is anticipated to represent approximately 34.7%3 of U.S. CBD sales within the F/D/M channel. Combined sales for the third quarter of 2019 were $29.1 million.

Since its inception in 2014, Abacus has focused on becoming the leading practitioner and consumer choice for OTC topical medications with active pharmaceutical and natural ingredients, including a cannabinoid-rich hemp extract containing CBD. Abacus currently distributes over 50 SKUs through approximately 12,000 unique doors and 16,500 health-care practitioners. Combined with Charlotte’s Web, the Transaction will reinforce Charlotte’s Web’s leading position in the CBD market, and substantially expand its existing topical offerings and presence in the key F/D/M channel.

KEY STRATEGIC HIGHLIGHTS:

  • Expands Charlotte’s Web product portfolio for the Topicals category, forecasted to become fastest growing and largest CBD segment by 20211, by targeting specific need states to drive greater category reach
    • Immediate expansion of the topical segment driven by Abacus’ patent-pending technologies that deliver OTC topical medications with active pharmaceutical ingredients to target specific pain relief need states
    • Further expands Charlotte’s Web’s breadth and depth into the retail skincare segment
    • Expands Charlotte’s Web’s reach to the personal care and beauty segment through the Harmony Hemp brand which was acquired by Abacus in February, 2020
    • Positions Charlotte’s Web at the forefront of the growing and valuable sports landscape through existing Abacus partnerships
  • Creates a best-in-class innovation leader across all hemp derived category segments
    • Abacus’ proven best-in-class innovation, expertise with OTC topical medications and speed to market
    • Charlotte’s Web’s proprietary genetics and significant hemp cannabinoid knowledge
    • Newly created and scientifically led CW Labs to deliver cutting-edge innovation in wellness
  • Expands market share leadership of the combined Charlotte’s Web and Abacus business 
    • Food/Drug/Mass retail combined share of 34.7%, +16.9 ppts vs the leading competitor3
      • Food retail combined share of 23.0%, +5.0 ppts vs the leading competitor3
      • Drug retail combined share of 43.5%, +25.8 ppts vs the leading competitor3
  • Creates portfolio scale across all channels and customers
    • Enhances Charlotte’s Web’s leading Direct to the Consumer (DTC) platform with an expanded topical and OTC personal care portfolio
    • Charlotte’s Web’s 11,000 retail doors combine with 12,000 from Abacus for 15,000 unique doors
    • Abacus’s network of 16,500 medical and practitioners expands channel served by both companies and presents cross-selling opportunities
  • Leverages Charlotte’s Web’s vertically integrated supply chain to create cost advantage in market
    • Enables Abacus to utilize Charlotte’s Web’s high-quality hemp extract across product portfolio
    • Provides economies of scale to create in-market cost advantage

KEY STAKEHOLDER BENEFITS:

  • Significant Market Opportunity – the Abacus product portfolio significantly strengthens Charlotte’s Web’s topical access into two adjacent markets: Pain Relief, a US$7.4 billion market, and Therapeutic  Skincare, a US$2.6 billion market;3
  • Experienced Operating Team & Best Practice – combined management team with industry leading CPG experience to drive operational excellence, best in class marketing, proven innovation, unique digital/data capability and advantaged customer/channel relationships;
  • Significant Synergies Anticipated – Expect meaningful synergies from economies of scale, production (scaling of low cost manufacturing and extraction), elimination of public company cost duplication, bolstered by extended sales opportunities through cross-selling and leveraging additional distribution channels: expansion of topical portfolio through DTC, F/D/M and B2B channels;
  • Immediate Premium to Abacus Shareholders – premium of 38% based on the 10-day VWAP of the Abacus Shares on the CSE as of March 20, 2020;
  • Continued Participation by Abacus Shareholders – Abacus Shareholders will represent approximately 15% of the issued and outstanding Charlotte’s Web Shares (based on the fully diluted share capital of each of Charlotte’s Web and Abacus, each on an as-converted basis, as of the date of this announcement), allowing Abacus Shareholders the opportunity to participate in the synergies and anticipated value created through the Transaction;
  • Accretive to Charlotte’s Web Shareholders – the Transaction is anticipated to be accretive to Charlotte’s Web shareholders on an Adjusted EBITDA basis; and
  • Increased Scale, Balance Sheet Strength & Capital Markets Presence – the combined entity’s expanded capital markets profile is expected to appeal to a broader shareholder audience, enhance trading liquidity and increase weighting in index tracking portfolio. Additionally, pro forma for the acquisition, the Company’s cash position at Dec. 31, 2019, is estimated at US$90.4 million.

MANAGEMENT COMMENTARY

“The complementary strengths of our relative market positions made this merger a logical strategic move,” said Deanie Elsner, Chief Executive Officer of Charlotte’s Web. “With this acquisition we strengthen the business to reflect the evolution of the category. Because most of Abacus’s products are positioned in adjacent categories, our combined distribution reach has limited shelf overlap. Together we are the most developed CBD company across every channel and segment and positioned to accelerate our growth and extend our market share.  Furthermore, it enables us to drive more scale production through our vertically integrated infrastructure.”

“This Transaction provides a unique opportunity to our shareholders and employees to participate in the compelling potential of the combined businesses,” said Perry Antelman, Chief Executive Officer of Abacus.   “Abacus is one of the largest suppliers and distributors in the United States of topical products infused with hemp extract to the F/D/M and healthcare practitioner markets.  By joining with Charlotte’s Web, we have the opportunity to maximize our growth by leveraging the Company’s leading brand, vertical integration, infrastructure, expertise, financial position and capital markets presence, and position the combined Company to deliver benefits for our stakeholders over the long-term.”