Village Farms International, Inc. announced it has entered into a definitive purchase and sale agreement with Emerald Health Therapeutics, Inc. (“Emerald”) to acquire 36,958,500 common shares of Pure Sunfarms Corp. (“Pure Sunfarms”) owned by Emerald, representing approximately 41.3% of the issued and outstanding common shares of Pure Sunfarms (the “Pure Sunfarms Transaction”). Upon completion of the Pure Sunfarms Transaction, Village Farms will own 100% of the common shares of Pure Sunfarms. The total purchase price of C$79.9 million (US$61.0 million) will be satisfied through a C$60.0 million (US$45.8 million) cash payment and a C$19.9 million (US$15.2 million) promissory note due six months from the closing date of the Pure Sunfarms Transaction. The Pure Sunfarms Transaction will be immediately accretive to Village Farms’ net income.
“With this transaction, Village Farms and its shareholders will fully participate in the financial success of Canada’s premier cannabis supplier, and Village Farms will be able to fully leverage the success of Pure Sunfarms, as well as our decades of experience and deep organizational capabilities, for our cannabis and CBD ambitions in the U.S and selected markets internationally,” said Michael DeGiglio, CEO, Village Farms. “Our ownership of all of Pure Sunfarms is a major next step in building on Village Farms’ foundation as one of North America’s leading, vertically-integrated produce suppliers to become a diversified, plant-based consumer packaged goods business to expand into high value, high-growth opportunities in legal cannabis and CBD.”
“As the low-cost greenhouse cannabis producer in Canada, Pure Sunfarms has generated seven consecutive quarters of positive EBITDA and six consecutive quarters of net income, and with high-quality products that consumers want at an affordable price, remains the leading dried flower brand with the OCS since launching its branded retail products1. Owning the entirety of this coveted asset comes at an opportune time as Pure Sunfarms, looking to leverage its dried flower success, has just started to roll out its cannabis 2.0 products based on the very same value proposition that has resonated so well with dried flower consumers. As Village Farms’ single largest shareholder, I am thrilled to bring this transaction to fruition, and look forward to the additional opportunities that it creates for our Company going forward.”
For the six-month period ended June 30, 2020, Pure Sunfarms generated total net sales of C$30.9 million, with gross margin of 44%, net income of C$9.6 million and EBITDA of C$9.2 million. Retail branded sales volumes for the second quarter of 2020 increased 89% compared to the first quarter of 2020. In August 2020, Pure Sunfarms was the top-selling brand of dried flower products with the Ontario Cannabis Store (“OCS”), the provincial wholesaler and only online retailer in Canada’s most populous province1. Since launching its retail branded products last fall, Pure Sunfarms is the top-selling brand of dried flower products2 with the OCS, with a market share (by kilograms sold) of 13.4%.
The Pure Sunfarms Transaction, which is subject to customary closing conditions, approval by Pure Sunfarms’ and Village Farms’ lenders and approval by Emerald shareholders, is expected to be completed in late October 2020. Upon completion of the Pure Sunfarms Transaction, the existing Pure Sunfarms shareholders agreement between Village Farms and Emerald will terminate, Pure Sunfarms’ management and employees will become part of the Village Farms organization and Village Farms will immediately begin fully consolidating the financial results of Pure Sunfarms. With the date of closing of the Pure Sunfarms Transaction expected to occur after conclusion of Village Farms’ third quarter of 2020, Village Farms’ financial results for the three and nine months ended September 30, 2020 will continue to reflect Village Farms’ 58.3% ownership of Pure Sunfarms as an investment in a joint venture.
Origin Merchant Partners acted as financial advisor to Village Farms for the Pure Sunfarms Transaction.