A week after LiveWell Canada Inc. received approval to relist from the TSX Venture Exchange to the Canadian Securities Exchange, the cannabidiol-focused company announced plans to merge with U.S.-focused hemp company Vitality CBD Natural Health Products.
The all-share transaction will see publicly-traded LiveWell issue roughly $600-million worth common shares to privately-held Vitality. Post-merger, Vitality will own 85 per cent of the combined entity; LiveWell will own 15 per cent.
The move is a significant U.S. play for Ottawa-based LiveWell, which delisted from the TSX-V in November to pursue opportunities south of the border. The TMX Group does not let TSX and TSX-V listed firms conduct cannabis business in the United States.
Vitality, which is backed largely by Canadian money, owns two industrial-scale hemp processing facilities, in Montana and New Mexico.
The company harvested 20,000 acres of industrial hemp this year, according to a press release – 19,000 acres on 33 farms in Montana and 1,000 acres on one farm in Alberta. In Montana, Vitality contracts growing out to farmers who operate under the state’s Industrial Hemp Pilot Program.
“If you take a look at the Montana facility, in December it will be the largest CBD processing facility in North America. And if you take a look ... at New Mexico, in the latter half of next year it will be the global powerhouse of CBD processing,” said David Rendimonti, president and CEO of LiveWell.
In Canada, LiveWell is still waiting on licenses for a greenhouse operation in Ottawa and a research facility in Litchfield, Que.
In October, the company, which is backed by Canopy Growth Corp. and its venture-capital arm Canopy Rivers Corp., signed a binding letter of intent to acquire Acenzia Inc., a health product R&D company based in Windsor, Ont.
“The LiveWell plan [was] to create differentiated finished goods and products, but now [with the Vitality merger] we’ve got a complete insight to the value chain,” Mr. Rendimonti said.
“That is one of our core strategies as a merged organization: to be able to understand biomass, to really have control of scale processing and capability, and then be able to extract and isolate [CBD]... and manufacture finished goods products," he added.
The context for the deal is an explosion of interest in CBD, as well as a changing regulatory environment around industrial hemp. Although industrial hemp was descheduled in the U.S. in 2014, hemp-derived CBD extracts remain in a legal grey zone – only allowed if produced through state industrial hemp pilot programs, as in Montana.
This could change in the coming weeks with the passage of the U.S. Farm Bill, which contains, in the Senate version, provisions that explicitly remove hemp-derived CBD from the Controlled Substances Act. It also amends several other acts, potentially allowing hemp farmers to access things like federal crop insurance and research funding.
Last week, the U.S. Senate and House of Representatives came to an agreement in principle on the final bill, agreeing to include hemp provisions.
"If you want to see a broad expansion of product development and sales at a national level [in the U.S.], you want to wait for the Farm Act," said Mr. Rendimonti. He expects the bill to pass before Christmas.
The merger between LiveWell and Vitality has been in the works for months, Mr. Rendimonti said. And the companies already share key investors: two LiveWell board members, Robert Leaker and Timothy McCunn, are also Vitality board members.
"There's shareholders on both, and... they stand to do very well if the transaction closes, and the value of the market holds," Mr. Rendimonti said.
The transaction is expected to close at the end of March, 2019. The companies have not decided on a name for the merged entity.