Tilray Inc. (TLRY.O) is acquiring FHF Holdings Ltd., the parent company of hemp-food maker Manitoba Harvest, from a U.S. private equity firm for up to $419 million in a cash-and-stock deal as the Canadian cannabis company accelerates its entry into the North American CBD market.

The deal, whose final price will be pending the achievement of certain milestones after it closes, will give Tilray ownership of a high-profile brand and one of the biggest hemp-food makers in the world. The deal is the latest move by Tilray to focus its investment on the fast-moving U.S. CBD market, which some analysts estimate could be worth more than US$20 billion by 2022, up from roughly US$600 million now.

“When we look at how we see the CBD industry growing and emerging in the coming years, we thought that [Manitoba Harvest’s] supply chain would be an important aspect of our business that we needed to build out and acquire,” said Brendan Kennedy, chief executive officer of Tilray, in a phone interview with BNN Bloomberg.

Compass Group Diversified Holdings LLC acquired an 87 per cent stake in 2015 in Manitoba Harvest for $132.5 million and helped the company expand its retail network from 7,000 stores to about 16,000 including Costco, Amazon, and Wal-Mart. Manitoba Harvest’s products include Hemp Hearts and Hemp Yeah! granola and previously announced plans to launch a line of CBD goods containing hemp extracts in the U.S. this summer.

“There’s a huge overlap [between the two companies],” said Bill Chiasson, chief executive officer of Manitoba Harvest, in a phone interview with BNN Bloomberg. “We know the consumers of Manitoba Harvest products are looking for CBD to fit their needs.”

The deal is unique in that it involves a large amount of cash as part of the acquisition, a relative rarity in the cannabis industry that typically sees transactions conducted with just stock. Kennedy said Tilray will look to do more cash-and-stock deals going forward to minimize the dilution of its shares.

Tilray’s acquisition of Manitoba Harvest follows a steady trajectory of investments the company has announced in the CBD space since industrial hemp – the plant which the cannabis compound is derived from – was legalized under the U.S. 2018 Farm Bill.

In December, Tilray announced it signed a letter of intent to purchase hemp-derived CBD isolate from LiveWell Canada. A month later the company inked a 10-year revenue sharing deal with Authentic Brands Group, the U.S. company behind brands such as Juicy Couture and Nine West, to develop and sell co-branded consumer cannabis products globally. It will also supply Columbus, Ohio-based Green Growth Brands Inc. with the CBD to produce a line of cannabis-infused products under golfer Greg Norman's brand.

Kennedy said there is “definitely an overlap” between its acquisition of Manitoba Harvest and its previous announcements in the CBD market as it eyes a big piece of the U.S. CBD market with its rollout of food and topical products. The company also plans to announce more CBD supply deals in the next six months, he added.

More broadly, Kennedy said he’s structuring Tilray to focus on the long-term opportunity that the legal cannabis and hemp products could potentially bring, pointing out that some of the company’s competitors may be lacking a similar view.

“Some of our competitors are looking at this industry myopically in terms of their corners of the world, their niche within the industry,” Kennedy said.

“You’ll see beer companies like Constellation [Brands Inc.] coming in and buying a competitor, you’ll see a tobacco company coming in like Altria [Group Inc.] buying one of our competitors. The beer companies like Constellation are looking at cannabis as a threat to the beer industry and tobacco companies are looking at how to they leverage investments in nicotine delivery devices and technology over the past 20 years in this industry … As Canada is important, we really look at this as a global opportunity and we’re still in the very early days of this industry.”

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