WeedMD Inc (TSXV: WMD) announced this afternoon that the firm will be acquiring Bowmanville, Ontario based grower Starseed Holdings. The transaction, valued at $78 million, will see WeedMD gain access to Starseed’s notable union-based clientele, opening up additional sales channels for the firm in an all-stock transaction.
Starseed Holdings differs from many within the Canadian cannabis space in that their primary target consumer is insurance-covered medical consumers. The cultivator is heavily backed by the Laborers’ Inernational Union of North America (LiUNA), a powerhouse of workers that includes a half million members across Canada and the US. The union itself is expected to make a $25 million investment in WeedMD as part of the acquisition.
Starseed currently has an agreement with LiUNA Local 183, based in Toronto, to provide medical cannabis at preferred pricing to 57,000 members. Effective January 1, the Local will provide up to $2,000 per member per year for the coverage of medical cannabis expenses It’s medical product is also distributed via Shoppers Drug Mart. The firm also owns nine clinics across Ontario operating under the North Star Wellness name to provide in-person as well as telemedicine based consultations for patients and as well as medical authorizations for cannabis.
In terms of its recreational product, which is sold under the recreational brand Saturday, Starseed’s product has distribution agreements in place across Alberta, BC, Ontario and Saskatchewan, in addition to being included in the AHLOT multi-LP cannabis collection series.
The combined entity will bring together WeedMD’s low cost of production, with that of Starseed’s high priced average selling price of $8.00 per gram. The result, is an operation anticipated to have an expected per gram margin of $6.74 per gram, or approximately 84.25% on a gross basis.
The proposed transaction is expected to close in December, with the resulting issuer consisting of 62% of WeedMD originating shares, 18% Starseed Holdings investors, and 19.9% ownership by LiUNA. While shareholder approval from WeedMD is not required for the acquisition, WeedMD shareholders will be required to vote on the $25 million investment by LiUNA. That shareholder meeting is expected in February. Upon approval of the LiUNA investment, on a fully diluted basis their ownership will increase to 29%.
WeedMD last traded at $0.93 on the TSX Venture.
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