Creso Pharma Ltd (ASX:CPH, OTCQB:COPHF) has entered the US CBD market.
The company has executed a Membership Interest Purchase Agreement to acquire Colorado-based consumer packaged goods company, Sierra Sage Herbs, LLC (SSH).
This revenue-generating agreement not only gives Creso Pharma its maiden entry into the US, but provides several synergistic benefits including:
- Gives CPH an established product suite of plant-based and CBD products generating strong revenues;
- An existing 90,000 points of sale with major retailers;
- More than 150,000 direct to consumer relationships in one of the world’s largest and fastest growing markets; and
- SSH anticipates that it will add an additional 20,000 points of sale with key retailers over the coming months, providing Creso Pharma with a significant opportunity to further scale sales growth.
Notably, SSH has grown sales from US$4.7 million in CY2018 to more than US$8 million in CY2020 and has generated US$5.7 million in revenue in CY2021 with sales expected to grow significantly in the near term.
While revenue decreased in the near term, CPH has a favourable outlook for CY2022 sales.
The up-front purchase price for SSH is US$21 million; with additional future payments based on SSH achieving up to US$10 million of revenue in CY2022 and up to US$20 million of revenue in CY2023.
Building strong foundations
SSH is a leading consumer packaged goods company focused on plant-based and CBD products under the Green Goo, Southern Butter and goodgoo brands offering products in the CBD, first aid, beauty, sexual wellness, women’s health and pet categories.
The Green Goo and Southern Butter product ranges are sold across 90,000 distribution points in the US with an additional 20,000 sales points expected to be added during the current quarter.
Green Goo and Southern Butter products are stocked in key retailers such as AAFES (Army & Air Force Exchange Service), CVS, Walgreens, Rite Aid (NYSE:RAD), Alberstons Companies, The Kroger Family of Companies, Whole Foods, Walmart, AmazonUS and Target.com.
It also has an established ecommerce operations in place – the group has a growing customer base of more than 150,000 consumers across the US.
“The acquisition of Sierra Sage Herbs and the company’s product range is a major milestone for Creso Pharma. It marks entry into the US CBD market and provides a strong foundation to rapidly scale up operations, product development and sales, as well as further M&A transactions,” CPH Group CEO and managing director William Lay said.
“The Green Goo product range is well established in the US, evidenced by relationships with key retailers and over 90,000 points of sale, as well as the large direct to consumer base that Sierra Sage Herbs has established in recent years.
“We intend to aggressively leverage these relationships and the group’s existing customer base by introducing them to Creso Pharma’s existing product suite for human health, animal health and sports and recovery.
“Creso Pharma is expected to benefit from SSH’s existing revenue streams. We expect SSH’s products sales to continue growing significantly in coming years, and the transaction implies material accretion on several metrics for Creso Pharma. Coupled with our existing sales channels, we have the potential to significantly grow our earnings profile in the near term.
“I would like to take this opportunity to welcome Sierra Sage Herbs to the Creso Pharma Group.”
SSH co-founder and CEO Jodi Scott will join the Creso Pharma board as executive director and president of US Operations.
The company sees her appointment as strengthening its North American management in a CBD market expected to grow in value to US$12 billion by 2026.
Creso Pharma will utilise its own in-house IP and leverage SSH’s supply chain, distribution, marketing and branding expertise to drive goodgoo CBD product range revenue in US. It will also launch its existing CBD products through SSH’s established channels to commence US sales.
The company is set to benefit from local manufacturing relationships, existing brand recognition and US market knowledge.
Positive outcome for SSH
“We started this company because we knew that plant-based alternatives could do more. We combined our passions for science, wellness, herbology and wound care into a line of safe, effective all natural products and so began our journey to change first aid as we knew it,” Sierra Sage Herbs CEO and co-founder Jodi Scott said.
“That seed has become one of the most disruptive CPG brands in personal care - and this is just the beginning.
“Our team has developed strong operations while building a robust product development capacity and expanding retail relationships exponentially. This partnership with Creso will set the stage for accelerated growth across multiple categories.
“Together, we will be able to expand portfolios and make synergistic acquisitions in even more meaningful ways. We are thrilled for this next phase in our journey as part of the Creso family and look forward to continuing our tradition of developing high-quality, non-toxic, incredibly effective products that our customers love, while continuing to preserve our mission of spreading goodness globally.”
Broadening sales base
Creso Pharma’s international partners are spread far and wide, spanning Europe, Africa, Latin America and the Asia Pacific. However, they have previously been unable to sell CPH’s products due to regulation around CBD.
The SSH acquisition hands it the Green Goo product, a proven non-CBD product range which CPH will now be able to leverage to drive sales growth in these regions.
Creso Pharma is working with SSH management to determine marketing and sales strategies to immediately capitalise and commence international sales of Green Goo.
The acquisition also provides CPH with a strong foundation to expedite the growth of its sport CBD brand, ImpACTIVE.
Creso Pharma has established a marketing and sales plan following the acquisition of ImpACTIVE, which includes leveraging prominent brand ambassadors to drive sales and awareness.
The company anticipates that the successful marketing of ImpACTIVE’s products through SSH’s existing channels will result in strong uptake and relationships with large retail groups.
SSH has a manufacturing partner with a dedicated product line for the group and CPH intends to utilise this facility for ImpACTIVE products, which will lead to lower lead time on orders and more favourable minimum order quantities compared its existing relationships.
SSH’s key partner is also able to warehouse and fulfil shipments to retail outlets and direct to consumer marketplaces, streamlining Creso Pharma’s supply chain for US sales.