Well, it looks like Raymond James was on to something. This afternoon, it was announced that Village Farms (TSX: VFF) (NASDAQ: VFF) will be purchasing the remaining portion of Pure Sunfarms that it does not currently own from that of Emerald Health Therapeutics (TSXV: EMH). The total purchase will see the final 41.3% of the joint venture come under the control of Village Farms.
Under the terms of the transaction, Village will acquire the remaining portion of the venture for a total purchase price of C$79.9 million, which will largely consist of a $60 million cash payment, and a $19.9 million promissory note. The note is due six months from the closing of the transaction.
The value of the transaction is rather interesting. Despite paying $79.9 million for the remainder of the asset, some will point out that Emerald Healths market capitalization as a whole is only $40.0 million as of this morning. To this however, it should be noted that the firm currently has $52.7 million worth of liabilities, which likely points to why Village instead elected to purchase the remainder of the asset rather than the entirety of Emerald Health.
The transaction is expected to be immediately accretive to the net income of Village Farms, given that the venture has posted positive EBITDA for seven straight quarters, while posting positive net income for six straight quarters. For the six month period ended June 30, the venture has posted revenues of $30.9 million along with net income of $9.6 million, making it one of the few net income producers within the Canadian cannabis space.
The transaction is subject to approval by Emerald Health’s shareholders, and is expected to close in late October 2020. At this point, the relations with Emerald will end entirely and consolidation of Village Farms’ financial statements can occur.
Following the transaction, Village Farms announced a US$49.8 million registered direct offering in which it expects to sell 9,396,226 units at a price of US$5.30 per unit. Each one consists of one common share and one half of a purchase warrant, with an exercise price of US$5.80 and an expiry of five years. The financing is expected to close by September 10, 2020, with funds of up to $40 million going towards financing a portion of the Pure Sunfarms acquisition.
Village Farms last traded at $5.76 on the Nasdaq.
Information for this briefing was found via Sedar and Village Farms International. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.