Editor's Note: This story was updated at 10:20 a.m. ET on Friday, Sept. 13 to include comments from GenTech CEO David Lovatt.
GenTech, a publicly traded company focused on creating a national chain of retail spaces where customers can enjoy CBD-infused teas and coffees, has announced a letter of intent to acquire an unnamed California-based CBD e-commerce retailer in an all-stock transaction.
The target is a profitable CBD distributor focused on the CBD-infused coffee and tea market, according to a company press release. GenTech CEO David Lovatt said the company stood out above the rest and held similar values to GenTech.
"Having wandered the halls at the recent ASD Retail Show, where there were masses of ‘me-too’ CBD retailers all selling the same low-quality gummy bears, honey sticks and cheap CBD coffee, one retailer stuck out head and shoulders above the rest," Lovatt told Cannabis Business Times. "Our first meeting was like a meeting of minds where they put quality first and strove to add CBD in a way that didn’t taint the product. They use the best raw products and the best and most pure CBD. Their ‘quality first’ mantra aligned perfectly with ours."
The acquisition will complement GenTech’s brick-and-mortar café model, as GenTech’s first “CBD-infusion Café” is expected to open in Q1 2020, according to the press release.
"In any business taking the market by storm, you have to learn lessons quickly, and if you can acquire knowledge along the way and fit it perfectly into your business, it reduces the cost of lessons learnt," Lovatt said. "The acquisition target has been in business for a few years now and are certainly experts in the CBD-infused food market. We will lean on them heavily to launch our online offering, as well as ensuring we have the very best quality available to the market. They have a wide customer base and revenue to leverage, which will enable our reach beyond the east U.S. coast and spread us right across the U.S."
Growth estimates for the overall CBD market are a driving factor in this transaction, according to the press release, which cites Brightfield Group’s recent research report that predicts a 706-percent year-over-year sales increase in CBD products in the U.S. this year, totaling around $5 billion in sales. Sales are expected to reach $23.7 billion by 2023, according to Brightfield Group’s projections.
“Completely apart from operational synergies, the investment in horizontal expansion in the CBD market is clearly warranted given current industry trends and forecasted growth over the coming two-to-five-year time horizon,” Lovatt said in a public statement. “This deal makes sense from every angle and should drive a great deal of shareholder value."