Freedom Leaf Inc. (FRLF) Announces Closing of Acquisition of Green
Lotus Companies
LAS VEGAS, NV -- June 4, 2019 -- InvestorsHub NewsWire --
Freedom Leaf
Inc. (OTCQB: FRLF), a
Nevada corporation, d/b/a Freedom Leaf Health, announced today that
it closed its acquisition of ECS Labs LLC (the “Acquisition”),
including its two wholly-owned operating subsidiaries, which
collectively constitute the “Green Lotus” premium hemp oil products
brand (collectively, “Green Lotus”) on May 31, 2019.
This is a transformative acquisition, which is expected to
generate a substantial increase in revenue, while also providing
Freedom Leaf with a more robust portfolio of products, enhanced
distribution capabilities and penetration in attractive emerging
markets worldwide, most notably Mexico. The Acquisition also brings
Freedom Leaf a new management team, a low-cost supply chain, access
to GMP manufacturing and lab facilities, and a robust sales
team. At closing, Carlos Frias, the founder and CEO of Green
Lotus, was named the new Chief Executive Officer of Freedom Leaf
and joined the Board of Directors. Daniel Nguyen, of Green Lotus,
has been named Chief Scientific Officer of Freedom Leaf and has
also joined the Board of Directors of Freedom Leaf.
In 2018, Green Lotus generated unaudited gross revenue of
approximately $2.2mm with positive cash flow, and in the first
quarter of 2019, the unaudited gross revenue of Green Lotus reached
approximately $1.4mm in the U.S.
The purchase price for the transaction was $14mm of Freedom Leaf
common stock issued at a price of $0.162, which represented the
30-day volume-weighted average price of Freedom Leaf common stock
at the close of trading on May 30, 2019.
Effective as of the closing of the Acquisition, Carlos Frias,
Daniel Nguyen and Alex Frias (collectively, the “Green Lotus
Executives”) entered into two-year employment agreements with
Freedom Leaf (collectively, the “Employment Agreements”).
Subject to the Green Lotus Executives’ continued provision of
services to Freedom Leaf, the Employment Agreements provide for,
among other consideration, cash incentives of $6mm and equity
incentives of $27mm of Freedom Leaf common stock to be issued at a
price representing the 30-day volume weighted average price
immediately prior to their grant.
For additional details regarding the closing of the Acquisition
and the Employment Agreements described above, please reference the
Form 8-K to be filed with the U.S. Securities and Exchange
Commission. Freedom Leaf was advised by Kleinberg, Kaplan, Wolff
& Cohen, P.C. in connection with the transaction.
CONFERENCE CALL HIGHLIGHTS
On May 23, 2019, Freedom Leaf hosted a shareholder conference
call, which, among other things, communicated the following:
- Elimination of Debt & Branded Focus -
In order to more efficiently leverage resources and capital to
build its family of brands in the U.S. and to establish itself as a
leading consumer packaged goods hemp CBD company, Freedom Leaf, as
the buyer, exercised its option to terminate a Spanish greenhouse
purchase agreement with the seller, which resulted in the
elimination of Freedom Leaf’s remaining approximately $4.3mm
payment obligation. This liability represented approximately 90% of
Freedom Leaf’s $4.8mm in total debt as reported at the end of the
third quarter of 2018. In addition to this balance sheet
improvement, Freedom Leaf management expects to save approximately
$670k over the next year in mortgage payments that would have
become due to the seller. Additionally, Freedom Leaf management
expects to eliminate approximately $261k of employee costs on an
annualized basis for expected total cash savings of approximately
$930k.
- Lower Cost Structure - Freedom Leaf
expects the Acquisition will substantially lower its existing cost
structure. Green Lotus’ historical unaudited Cost of Goods Sold is
approximately 30% lower than Freedom Leaf’s, and Freedom Leaf
management has already identified a minimum of $250k of annualized
non-operating expenses that it anticipates will be eliminated.
- Expanded Customer Base - Green Lotus has
entered into a multi-year agreement with CBD Life SA De CV
(“CBD Life”), one of only a limited number of legal entities to
hold CBD importation and distribution permits in Mexico. Green
Lotus received an initial $3 million order in December which
Freedom Leaf expects to begin fulfilling in June 2019. Green Lotus
also recently received a $23mm re-order from CBD Life, which
Freedom Leaf management expects to be fulfilled over the next 12
months.
- Revenue Guidance - As a result of the
Acquisition, Freedom Leaf expects pro forma consolidated revenue of
$8-10mm in the U.S. in calendar year 2019, which Freedom Leaf
management estimates represents approximately 2.0-3.0x Freedom
Leaf’s run rate on a stand-alone basis. On a pro-forma consolidated
basis, including the Mexico contract, Freedom Leaf expects
consolidated revenues of $30mm+ over the next 12 months.
Shareholder Call:
30-day replay of the Freedom Leaf shareholder call that occurred
on Thursday, May 23, 2019 is available on Freedom Leaf’s website
at https://www.freedomleafinc.com/freedom-leaf-shareholder-call-may-23rd/
Green Lotus Acquisition Fact Sheet
Green Lotus Acquisition: On May 31, 2019,
Freedom Leaf Inc. (“Freedom Leaf”) closed its acquisition of ECS
Labs LLC (the “Acquisition”), including its two wholly-owned
operating subsidiaries, which collectively constitute the “Green
Lotus” premium hemp oil CBD products brand (collectively, “Green
Lotus”).
Management: The Board of Directors of
Freedom Leaf (the “Board”) has named Carlos Frias, the founder and
CEO of Green Lotus, as the Chief Executive Officer of Freedom Leaf.
Daniel Nguyen will serve as Chief Science Officer of Freedom
Leaf. Moving forward, Freedom Leaf’s management team will be based
in Dallas, TX, which is the location of Green Lotus’ existing
corporate headquarters and manufacturing facilities. Clifford Perry
and Raymond Medeiros will assume new roles as Directors of
Corporate and Business Development, respectively. After the
Acquisition, the Chief Financial Officer (“CFO”) and finance team
will be transitioned to Dallas. Freedom Leaf has already begun the
process of actively recruiting a Dallas-based CFO. Effective as of
the closing of the Acquisition, Freedom Leaf’s Las Vegas based CFO,
Larry Ruhe, resigned and his duties were assumed on an interim
basis by John Kalkanian. Mr. Kalkanian joins Freedom Leaf after
spending the past two years with Origin House as a Divisional
Controller and Director of Finance. Mr. Kalkanian has been a CFO
and Controller for both public and private companies over the past
25 years and received his MBA from the University of California,
Irvine and a BA in Economics from the University of Michigan.
Board of Directors: After the closing of
the Acquisition, the Board consists of six members, including two
members appointed by Merida Capital Partners, (David Goldburg,
Chairman of the Board, and Independent Director, Dave Vautrin), two
members from Green Lotus (Carlos Frias and Daniel Nguyen) and two
members from the existing Freedom Leaf management team (Clifford J
Perry and Raymond Medeiros). The Board will be focused on executing
a core set of strategic priorities to build a pre-eminent consumer
packaged goods hemp CBD company, which includes driving revenue
growth by continuing to develop a low-cost supply chain, efficient
manufacturing process, and an effective sales and marketing
team.
Products & First Quarter 2019
Revenue: As a result of the Acquisition, Freedom
Leaf will sell hemp CBD products under the Green Lotus
and IrieCBD brands, which includes tinctures, topicals,
gel-caps, vape cartridges, edibles, and beverages currently offered
at over 1,500 locations nationwide. In the first calendar
quarter of 2019, after giving effect to the Acquisition, the
combined companies generated pro forma gross revenue of
approximately $2.2mm in the U.S. – approximately $1.4mm of which
consists of unaudited revenue attributable to Green Lotus and
approximately $835k of which consists of audited revenue
attributable to existing Freedom Leaf operations.
Cost Savings & Operations: Before the
closing of the Acquisition, Freedom Leaf management took steps to
terminate its Spanish operations and reduce other expenses, which
Freedom Leaf management expects will result in approximately $1.4mm
of annualized cost-savings. Effective immediately, IrieCBD’s
manufacturing and fulfillment services will be transferred from
Oakland, CA to Green Lotus’ existing Dallas facilities. Green
Lotus’ historical unaudited Cost of Goods Sold was already
approximately 30% lower than Freedom Leaf’s, and Freedom Leaf
management expects to identify further cost reduction opportunities
after the two businesses are consolidated.
Market Penetration in
Mexico: Green Lotus has an existing
multi-year agreement with CBD Life SA De CV (“CBD Life”), one of
only a limited number of legal entities to hold CBD importation and
distribution permits in Mexico. Green Lotus already received an
initial $3 million order from CBD Life in December under the
agreement which Freedom Leaf management expects to begin fulfilling
this month. More recently, Green Lotus received a $23mm
re-order from CBD Life, which Freedom Leaf management expects to
fulfill over the next 12 months.
Revenue Guidance: As a result of the
Acquisition, Freedom Leaf expects to record pro forma consolidated
revenue of $8-10mm in the U.S. in calendar year 2019, which
represents approximately 2.0-3.0x Freedom Leaf’s run rate on a
stand-alone basis. On a pro-forma consolidated basis, including the
existing orders from CBD Life in Mexico, Freedom Leaf management
expects to record consolidated revenues of $30mm+ over the next 12
months and to generate positive EBITDA over this timeframe.
Contact:
Matt Bartlett
matt@freedomleaf.com
About Freedom Leaf:
Freedom Leaf Inc. is a clean healthcare company with a family of
trusted brands that provide premium hemp-derived CBD products for
greater health, wellness and longevity. IrieCBD is Freedom Leaf’s
flagship brand of consumer health products offering full-spectrum
hemp-derived CBD products in liquid, capsule and cream forms to
support healthy levels of inflammation, immune system balance, mood
and stress management, restful sleep, menstrual discomfort relief,
energy boost and to act as a wellness supplement. Freedom Leaf Inc.
is a fully reporting and audited publicly traded company trading
under the symbol (OTCQB: FRLF).
Visit: www.freedomleafinc.com
About Green Lotus:
Green Lotus is a rapidly-growing
Colorado-based premium hemp oil products brand. Founded by brothers
Carlos and Alex Frias, Green Lotus manufactures and
distributes premium cannabinoid products made from organic
industrial hemp. Green Lotus has grown rapidly
year-over-year since 2016, catapulted in part by the company’s
proprietary formulas and its agile, vertically-integrated supply
chain. Green Lotus is veteran-owned and powered by a young,
diverse team of advocates dedicated to promoting a world where the
healing power of hemp oil is accessible to all people. For more
information,
visit: www.GreenLotusHemp.com #LetsGrowTogether
Safe Harbor Statement:
This press release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, that are intended to be covered by the "safe harbor"
created by those sections. Statements in this press release that
are not strictly historical are “forward-looking” statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements generally can be
identified by phrases such as “believes,” “expects,” “anticipates,”
“foresees,” “forecasts,” “estimates” or other words or phrases of
similar import. Similarly, statements herein that describe Freedom
Leaf’s business strategy, outlook, objectives, plans, intentions or
goals also are forward-looking statements. All such forward-looking
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those in
forward-looking statements. Factors that could cause or contribute
to differences include the uncertainty regarding viability and
market acceptance of Freedom Leaf’s products and services, changes
in relationships with third parties, and other factors described in
Freedom Leaf’s most recent periodic filings with the Securities and
Exchange Commission.
These risks and uncertainties include, without limitation,
changes in general industry or regional market conditions; changes
in consumer and customer preferences for our products; loss of
business from increased competition; changes in strategic
relationships; unfavorable fluctuations in currencies or interest
rates in the regions in which we operate; costs or difficulties
related to the integration and/or ability to maximize the value of
the Acquisition; changes in regulatory conditions; changes in tax
laws; import and export duty and tariff rates in or with the
countries with which we conduct business; and negative impact of
any governmental investigations and associated litigations.