Debra BorchardtCEA Industries Inc. (NASDAQ: CEADW) announced that it is under a non-binding Letter of Intent (LOI) to buy a leading specialty retailer and manufacturer, which would be paid for with a combination of cash, CEA Industries common shares, and debt. CEA did not reveal the name of the company.
“This proposed transaction offers an exciting opportunity for our shareholders to benefit from a growing and profitable business operating in a high-demand industry,” said Tony McDonald, Chairman and CEO of CEA Industries. “The Target has a demonstrated track record of double-digit revenue growth, consistent profitability, and positive cash flow. Building on the Target’s solid foundation in a fragmented industry, we plan to utilize our strong balance sheet to scale an even larger specialty retail footprint and drive further growth and enhanced levels of profitability. We are excited about the opportunities this acquisition brings to deliver long-term value to our shareholders.”
While CEA wouldn’t divulge the name of the target, it did say the company has more than 30 retail locations over a broad geography, with a deep portfolio of trademarks and intellectual property. CEA told investors it plans to use its strong balance sheet to further expand the target’s retail footprint through the acquisition of additional stores as well as opening de novo stores, enabling broader market reach and customer accessibility. Additionally, CEA said in a statement that it plans to grow the target’s manufacturing business that supplies house brand and white-label products to other retailers.
While the deal is expected to close in the first quarter of 2025, CEA noted that it would still need to get government approval to transfer certain licenses and raise required acquisition funds, if any, and enter into vendor financing.
Revenue plunged
CEA recently reported third-quarter earnings in November as revenue dropped dramatically from $1.7 million in the second quarter to just $391,000 in the third quarter. The company attributed the drop to fewer capital expenditures by cannabis operators in the markets served by the company, in addition to a reduced sales effort.
Cash and cash equivalents were $10.3 million on September 30, 2024, compared to $12.5 million on December 31, 2023, while working capital decreased by $2.0 million during this period. At the end of the third quarter, the company remained debt-free.
Green Market Report wrote in 2023 that the company was considering strategic alternatives, including a sale, merger or other potential strategic or financial transaction.” GMR wrote that CEA posted a net loss of $799,000 for the 2023 third quarter, up from its loss of $694,000 in the second quarter but down from its loss of more than $1 million for Q3 last year. GMR also reported, “The big tell for CEA is revenue, however. The company pulled in just $914,000 in the most recent quarter, down from $5 million for the same period a year prior, which the company attributed to ‘lower bookings over the last 12 months.'”
