Ottawa’s CannaRoyalty acquires vape retailer 180 Smoke in $40M deal

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An Ottawa-based cannabis company is hoping to open the door to new markets for its substantial California pot holdings with the acquisition of a Canadian vape retailer.

CannaRoyalty (CSE:CRZ), which owns a portfolio of cannabis brands, growers and distributors, announced last week it had acquired 180 Smoke, its 420 Wellness subsidiary and its 26 retail locations across Canada.

Once approved, the deal will see CannaRoyalty pay 180 Smoke’s shareholders $22.5 million in common shares and $2.5 million in cash. Upon meeting certain milestones, including the acquisition or opening of additional vape stores and securing cannabis retail licences for those outlets, the total value of the deal will increase to $40 million, again largely in CannaRoyalty shares.

CannaRoyalty sees the established vape retailer as an entryway into the cannabis market. In a release, the firm says 180 Smoke’s in-house analyses indicate most of the retailer’s nicotine vape customers would also be potential pot users.

CannaRoyalty adds that the “vast majority” of 180 Smoke’s 26 brick-and-mortar locations have “cannabis potential.” Most of 180 Smoke’s stores are in Ontario, with 15 in the Greater Toronto Area but none in Ottawa.

Last week, the Ontario government said it would not place any limits on the number of private cannabis retail licences it would permit across the province.

Financially, 180 Smoke has had a good year-to-date, with revenues up 51 per cent over the past eight months. The company posted revenues of $7.8 million in 2017 and is on pace to hit $11 million by the end of 2018.

CannaRoyalty is also building to a big year: the company had revenues of $3.5 million in the second quarter of the year, an increase of more than 250 per cent.

The jump was largely driven by the firm’s acquisitions of California-based pot producers and distributors. The company said in a release that it expects to use 180 Smoke’s retail footprint and cannabis licence opportunities to leverage these established product supply chains.

Shares of CannaRoyalty are up nearly 10 per cent over the past month, with other Ottawa-area cannabis firms seeing similar gains in the run-up to recreational cannabis legalization in Canada.