HempFusion Signs Definitive Agreement to Acquire Leading CBD Brand Sagely Naturals

HempFusion Wellness Inc. (TSX:CBD.U) (US:CBDHF) (FWB:8OO) (“HempFusion” or the “Company”), a leading health and wellness Company offering premium probiotic supplements and products containing CBD, is pleased to announce it has entered into a definitive agreement to acquire 100% interest in Sagely Enterprises, Inc. (“Sagely Naturals”), a leader in premium CBD products with mass distribution in more than 14,000 retailers nationwide.

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Sagely Naturals (Photo: Business Wire)

Founded in 2015 by Kerrigan Behrens and Kaley Nichol, Sagely Naturals is the largest female-founded CBD wellness brand. Since its inception, the brand has been on a mission to naturally modernize the medicine cabinet with high-quality, accessible products that help women feel their best. Sagely Naturals maintains a strong presence in the top Drug retailers nationwide and is sold in key retailers such as CVS, Rite Aid, Albertsons, Sprouts, Nordstrom, and many other independent regional grocers and natural food stores in addition to sagelynaturals.com. The company’s products are available in over 14,000 retail locations.

Sagely Naturals has consistently maintained the number one position in CBD topicals, with 23% market share in the Drug channel and 13.8% market share in the Multiple Outlet channel (“MULO”) (according to IRI data). Including ingestibles, Sagely Naturals is the #3 CBD brand and one of the only brands showing consistent growth in the all-time periods within the latest 52 weeks (according to IRI and MULO data). Out of the top 20 selling CBD SKUs in MULO, Sagely Naturals have five SKUs, with the Extra Strength Relief & Recovery Cream being the #1 selling SKU in Chain Drug.

Consumer insights have informed every aspect of Sagely Naturals’ product development, enabling them to meet consumer needs in an approachable and familiar way and build a large and devoted community around their brand. Sagely Naturals has also caught the attention of A-list celebrities, including Cameron Diaz, Zoe Saldana, and Molly Sims, as both consumers and investors.

Strategic Rationale

• 2020 net revenue of over $4.19 million; and when combined with the closing of the APCNA Holdings LLC (“Apothecanna”) transaction, will more than triple HempFusion’s 2020 revenue with significant expansion planned for 2021 and beyond
• Immediate distribution to an additional 14,000+ stores, materially increasing HempFusion’s distribution footprint
• Opportunity to introduce ingestible CBD products into Sagely Naturals’ 14,000+ stores
• Complementary but not directly competing product offerings provide significant cross-platform opportunities through each of the companies’ respective distribution channels
• Product efficiencies across the topicals line while delivering a near-term opportunity for further expansion into ingestible products supported by HempFusion’s proprietary formulations
• HempFusion’s substantial investment into regulatory compliance will help solidify Sagely Naturals’ leadership position in the CBD industry
• Sagely Naturals has been included on HempFusion’s Novel Foods Application Dossier with the United Kingdom's Regulatory Food Safety Agency for future European expansion
• Sagely Naturals’ C-Suite brings operational excellence including best-in-class marketing, proven innovation, and advantaged customer/channel relationships to HempFusion’s family of brands

“Upon closing, the acquisition of Sagely Naturals immediately adds significant value to shareholders. By more than tripling our 2020 revenue (when combined with the closing of Apothecanna), expanding to over 15,000 stores, expanding our distribution strategy to six channels, combining some of the top executive talent in the industry, and bringing together over 75 incredible and best-selling SKUs, HempFusion is in its strongest position to date,” commented Jason Mitchell, N.D., HempFusion’s Co-Founder and CEO. “We expect the combined proforma entity to achieve substantial growth over our historical financials and cement our leadership position in the CBD industry while setting the stage for tremendous growth in 2021 and 2022,” continued Dr. Mitchell.

“Allowing people to do more of what they love has always been at the heart of our mission at Sagely Naturals. HempFusion approaches the industry the right way and possesses the resources required to help us significantly scale our business, increase our market share, and expand beyond our stronghold in the United States to international jurisdictions,” said Kerrigan Behrens, Co-Founder and Co-CEO of Sagely Naturals. “Quality and consumer safety are of the utmost importance to our brand, and Dr. Jason Mitchell and his team have been market leaders in the CBD category in this regard. We are incredibly excited to be joining the HempFusion team,” added Kaley Nichol, Co-Founder and Co-CEO of Sagely Naturals.

Terms of the Agreement

Pursuant to an agreement and plan of merger dated May 24, 2021 (the “Merger Agreement”) among HempFusion, HempFusion Merger Sub 2, Inc., a wholly-owned Delaware subsidiary of HempFusion (“HF Merge Co”), Sagely Naturals and KBKN Equityholder Representative LLC, in its capacity as representative of the holders of equity interests in Sagely Naturals (the “Sellers”), HF Merge Co will merge into Sagely Naturals with Sagely Naturals surviving as a wholly-owned subsidiary of HempFusion, for initial consideration of US$25,000,000 (the “Initial Consideration”) consisting of US$2,000,000 in cash (subject to adjustment for Sagely Naturals’ cash and working capital) and $23,000,000 in common shares of the Company (“HempFusion Shares”) to be issued at a deemed price per HempFusion Share of approximately US$1.021, being the volume weighted average trading price (“VWAP”) of HempFusion Shares on the Toronto Stock Exchange (the “TSX”) for the 30 trading days immediately prior to May 24, 2021 (the “Transaction”). In addition, the Sellers may be entitled to receive an earnout payment of up to US$5,000,000 (“Earnout Payment”) subject to Sagely Naturals achieving certain revenue targets (with a minimum revenue threshold of US$6,020,000) within twelve months of closing (the “Closing”) of the Transaction (the “Earnout Period”), with 40% of any Earnout payment to be paid in HempFusion Shares (the “Earnout HempFusion Shares”) and the balance paid in cash.

The number of Earnout HempFusion Shares to be issued under the Earnout Payment, if any, will be calculated based on a deemed price which is the greater of (i) the VWAP of HempFusion Shares on the TSX for the 30 trading days immediately prior to the 12-month anniversary of Closing, or (ii) $1.25 per HempFusion Share (the “Floor Price”), provided that if, at any time during the period commencing on the date of the Merger Agreement and ending 30 days following the end of the Earnout Period, HempFusion issues any HempFusion Shares (other than under certain arrangements specified in the Merger Agreement) at a price per HempFusion Share (the “Issuance Price”) that is less than the Floor Price, the Floor Price will be automatically adjusted downward to such Issuance Price and the number of Earnout HempFusion Shares will be adjusted accordingly.

All HempFusion Shares issued in connection with the Merger Agreement will be subject to contractual resale restrictions to be released over a period of 12 months from Closing as follows: (i) 33% will be released on the four-month anniversary of the Closing, (ii) 33% will be released on the eight-month anniversary of the Closing and (iii) the remaining balance will be released on the 12-month anniversary of the Closing.

Completion of the Transaction is subject to a number of terms and conditions as set forth in the Merger Agreement, including (among other things) holders of no more than 5% of the outstanding shares of Sagely Naturals exercising appraisal rights, the receipt of approval of the TSX and certain other closing conditions customary in transactions of this nature.

Upon completion of the Transaction, Sagely Naturals will be a wholly-owned subsidiary of HempFusion, with Kerrigan Behrens and Kaley Nichol remaining as Co-CEOs of Sagely Naturals.

ABOUT HEMPFUSION

HempFusion is a leading health and wellness CBD company utilizing the power of whole-food hemp nutrition. HempFusion distributes its family of brands, including HempFusion, Probulin Probiotics, Biome Research, and HF Labs, to approximately 4,000 retail locations across all 50 states of the United States and select international locations. Built on a foundation of regulatory compliance and human safety, HempFusion’s diverse product portfolio comprises 48 SKUs including tinctures, proprietary FDA Drug Listed Over-The-Counter (OTC) Topicals, Doctor/Practitioner Lines and more. With a strong focus on research and development, HempFusion has an additional 30 products under development. HempFusion is a board member of the US Hemp Roundtable, and HempFusion’s wholly-owned subsidiary, Probulin Probiotics, is one of the fastest-growing probiotics companies in the United States, according to SPINs reported data. HempFusion’s CBD products are based on a proprietary Whole Food Hemp Complex™ and are available in-store or by visiting HempFusion online at www.hempfusion.com or www.probulin.com.

Follow HempFusion on Twitter, Facebook and Instagram and Probulin on Twitter, Facebook and Instagram.

Follow Sagely Naturals on Facebook and Instagram.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements and forward-looking information within the meaning of Canadian securities legislation (collectively, “forward-looking statements”) that relate to HempFusion’s current expectations and views of future events. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “expects”, “will continue”, “is anticipated”, “anticipates”, “believes”, “estimated”, “intends”, “plans”, “forecast”, “projection”, “strategy”, “objective” and “outlook”) are not historical facts and may be forward-looking statements and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. These statements speak only as of the date of this news release. In particular and without limitation, this news release contains forward-looking statements relating to closing of the Transaction and related distribution, revenue and sales expansion opportunities, closing of the proposed acquisition of Apothecanna announced on May 17, 2021 and the Company’s other plans, focus and objectives.

Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond HempFusion’s control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the impact and progression of the COVID-19 pandemic and other factors set forth under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in the annual information form of the Company dated March 31, 2021 and available under the Company’s profile on SEDAR at www.sedar.com. HempFusion undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. New factors emerge from time to time, and it is not possible for HempFusion to predict all of them or assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement.

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

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