Village Farms International has agreed to purchase a 41.3% stake in Pure Sunfarms from Canada-based pharma company Emerald Health Therapeutics for C$79.9 million ($61 million). Canadian cannabis producer, Village Farms already owns 58.7% stake in Pure Sunfarms. Shares are up over 1.2% in pre-market trading on Wednesday, after closing 9.6% higher on Tuesday.
Village Farms (VFF) will finance the deal with a cash payment of C$60 million ($45.8 million) and a C$19.9 million ($15.2 million) promissory note due six months from the closing of the deal. The company registered direct share offering worth $49.8 million to finance part of the deal. The deal, subject to customary closing conditions and approvals, is expected to close in late October and will be immediately accretive to Village Farms’ earnings.
Village Farms’ CEO Michael DeGiglio said that “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 [Cannabidiol].” (See VFF stock analysis on TipRanks).
Commenting on the deal, Roth Capital analyst Scott Fortune said that the acquisition agreement would strengthen Village Farms’ position as “a leading, low cost producer of cannabis in the Canadian market”. Fortune also expects Village Farms to hit its targeted 20% market share and become one of the top suppliers to all provinces. The analyst maintained a Buy rating on the stock and a price target of $10 (74.5% upside potential).
Currently, the Street shares Fortune’s bullish outlook on the stock. The Strong Buy analyst consensus is based on 6 Buys. The average price target of $12.01 implies upside potential of 109.6% to current levels. Shares are down over 8% year-to-date.
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