Can Freedom Leaf Turn Corner with Green Lotus Acquisition?

Mouss Kleindler - May 21, 2019

About noon ET on Tuesday, Freedom Leaf (OTCQB: FRLF) said that it has agreed to acquire ECS Labs LLC and its two subsidiaries, collectively constituting the Green Lotus premium hemp oil brand of products for $14 million in an all-stock transaction. The acquisition news has sparked trading in shares of FRLF, which had slumped on Monday to set a 52-week low at 11.3 cents.

With the buyout, expected to close May 27, 2019 pending all requisite approvals, Freedom Leaf will take ownership of a broad product bag including hemp-based CBD tinctures, soft gels, gummies, topicals, cartridges, pet products and drinks.  The Green Lotus brand will join Freedom Leaf’s flagship brands, IrieCBD, a collection of hemp-derived consumer health goods, and NatureBorn, Freedom Leaf’s brand of pet products. 

The Las Vegas-based company also brings on board a 17-person sales team and a multi-year agreement between Green Lotus and CBD Life SA De CV, one of only a handful of companies holding licenses to legally import and distribute cannabidiol (CBD) in Mexico. Shipments under the agreement to CBD Life are expected to commence in the second half of this year, with initial distribution to about 4,000 outlets planned to be expanded to 40,000 outlets in CBD Life’s network in subsequent years.

From its headquarters in Colorado, Green Lotus manufactures and distributes premium cannabinoid products made from organic industrial hemp.  The company generated U.S. sales of $1.4 million during the first quarter of 2019, accelerating from $2.2 million for all of 2018.  Green Lotus was cash flow positive for the full year 2018.

Upon execution of the merger, Marine Corps veteran and Green Lotus founder Carlos Frias will assume the role of chief executive at Freedom Leaf, replacing Clifford Perry.  Further, Richard Groberg and Richard Segerblom will resign from the Freedom Leaf board of directors and Carlos Frias and fellow Green Lotus founder Daniel Nguyen will fill their spots.

Elsewhere, as the new company focuses on hemp-based CBD consumer packaged goods in North and Latin America, it will exit Freedom Leaf’s greenhouse business in Spain.

Shares of FRLF spiked in October to a high of 79.5 cents before beginning a tumultuous slide downward, including the aforementioned low yesterday.  The tide is trying to turn following the news, with shares rising 11.5% from Monday’s close at 14 cents to 15.6 cents on high volume of 1.9 million shares through 2:00 PM EDT on Tuesday.

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