8-K: CV Sciences Acquires Elevated Softgels to Enhance Manufacturing Capabilities and Drive Growth

CV Sciences has acquired Elevated Softgels, a manufacturer of softgels and tinctures, to in-source production and expand its market reach.

Summary

• CV Sciences acquired Elevated Softgels on May 13, 2024, making it a wholly-owned subsidiary.
• The acquisition involved a cash payment of $100,000, the issuance of 17,422,181 shares of CV Sciences common stock valued at $700,000, and a potential earn-out payment of up to $200,000.
• The earn-out is contingent on Elevated Softgels' net revenue over the 12 months following the acquisition, with payments ranging from $0 to $200,000 based on revenue thresholds.
• Elevated Softgels is a GMP-certified and FDA-registered manufacturer of softgels and tinctures, known for its flexible production capabilities.
• CV Sciences plans to leverage Elevated Softgels' capabilities to in-source production of some of its +PlusCBD branded products, aiming for cost savings.
• The acquisition is expected to be accretive in its first year and contribute to scaling economics thereafter.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook due to the strategic acquisition, potential cost savings, and expected accretive nature of the deal. The company is taking steps to improve its operations and market position.

Positives

• The acquisition provides CV Sciences with a flexible, low-MOQ manufacturing capability.
• In-sourcing production of key products is expected to lead to meaningful cost savings.
• Elevated Softgels is a profitable business, which should contribute positively to CV Sciences' financials.
• The acquisition is expected to be accretive in its first year.
• The deal allows CV Sciences to leverage its relationships with other hemp and supplement companies.

Negatives

• The earn-out payment is contingent on Elevated Softgels achieving certain revenue targets, which introduces some uncertainty.
• The initial cash payment was relatively small at $100,000, with the majority of the consideration in stock, which could dilute existing shareholders.
• The stock issued was valued based on the 30-day volume weighted average price, which may not reflect the current market value.

Risks

• The earn-out payment is dependent on achieving specific revenue targets, which may not be met.
• The integration of Elevated Softgels into CV Sciences' operations may present challenges.
• The company's forward-looking statements are subject to risks and uncertainties, and actual results may differ materially.
• There is a risk that the expected cost savings from in-sourcing production may not be fully realized.

Future Outlook

The acquisition is expected to be accretive in its first year and contribute to scaling economics thereafter. CV Sciences plans to in-source production of some of its +PlusCBD branded products, aiming for cost savings and increased flexibility.

Management Comments

• Joseph Dowling, CEO of CV Sciences, stated that the acquisition is a milestone in the company's transition to a global health and wellness company.
• Dowling also mentioned that the acquisition synergies should allow the company to leverage its key assets to drive long-term growth and shareholder value.
• He noted that Elevated Softgels is a stand-alone profitable business and the immediate plan is to increase its existing business.
• Dowling highlighted the plan to in-source the manufacturing of select +PlusCBD branded products, providing an opportunity for meaningful cost savings.

Industry Context

This acquisition aligns with the trend of companies in the nutraceutical and hemp extract space seeking to control their supply chain and reduce costs. By acquiring a manufacturer, CV Sciences aims to improve its operational efficiency and potentially gain a competitive advantage.

Comparison to Industry Standards

• The acquisition of a manufacturing facility is a common strategy for companies in the nutraceutical industry to gain more control over production and reduce costs, similar to how large pharmaceutical companies often have their own manufacturing plants.
• The earn-out structure is also a common practice in acquisitions, where a portion of the payment is contingent on the acquired company meeting certain performance targets, which is similar to deals seen in the broader M&A market.
• The focus on low-MOQ production is a competitive advantage, as it allows for greater flexibility and faster product development, which is important in the fast-moving consumer goods market.

Stakeholder Impact

• Shareholders may benefit from the expected accretive nature of the acquisition and potential cost savings.
• Employees of both CV Sciences and Elevated Softgels will be impacted by the integration of the two companies.
• Customers may benefit from increased product availability and potentially lower prices due to cost savings.
• Suppliers may see changes in their relationships with CV Sciences as the company in-sources more production.

Next Steps

• CV Sciences will integrate Elevated Softgels into its operations.
• The company will begin in-sourcing production of select +PlusCBD branded products.
• CV Sciences will monitor Elevated Softgels' net revenue over the next 12 months to determine the earn-out payment.
• The company will file the Purchase Agreement as an exhibit to its next periodic report.

Key Dates

Keywords

acquisition, softgels, manufacturing, hemp extracts, nutraceuticals, CV Sciences, Elevated Softgels, in-sourcing, earn-out, cost savings