(Bloomberg) -- Tilray Inc. is acquiring a Manitoba hemp-food manufacturer for up to C$419 million ($316 million), tapping into its extensive U.S. distribution network and an upcoming line of CBD products.

Manitoba Harvest sells hemp-based granola, protein powder, milk and other food products at more than 13,000 points of sale across the U.S., including Walmart Inc., Costco Wholesale Corp., CVS Health Corp., Kroger Co., and online at Amazon.com Inc.

The closely held company also plans to launch a line of products containing CBD, the popular non-intoxicating compound found in hemp and cannabis, this summer. Proponents argue cannabidiol, the formal name for CBD, can help with everything from arthritis to insomnia, and retailers are watching the growing demand with interest.

“Retailers are seeing hemp mania, it’s one of the fastest-growing products right now,” said Bill Chiasson, chief executive officer of the Winnipeg-based company. “All of them are looking at bringing on products that contain CBD into their portfolio and every one of them has come to us and said they see us as a natural partner.”

Cracking Down

However, CBD’s legal status remains somewhat opaque in the U.S. While Congress passed a farm bill in December that made hemp and its compounds, including CBD, legal under certain circumstances, the Food and Drug Administration has said it’s illegal to market the products as dietary supplements. Some jurisdictions, including New York City, have been cracking down on sales. In Canada, CBD-infused food and beverages won’t be legal until later this year.

The deal, announced Wednesday, will see Tilray pay C$277.5 million in cash and stock up front and an additional C$92.5 million six months after closing. It will issue another C$49 million in Tilray shares to Manitoba Harvest based on the company achieving certain financial milestones in 2019.

Manitoba Harvest posted C$94 million in gross revenue in 2018. Tilray, the second-biggest cannabis company by market value, is expected to report revenue of $40 million for the full year when it reports results on March 18, according to the average of five analyst estimates compiled by Bloomberg.

Farmer Network

“When we looked at Manitoba Harvest we saw a trusted brand with a multi-national supply chain,” said Brendan Kennedy, CEO of Nanaimo, British Columbia-based Tilray. “That was extremely appealing.” Manitoba Harvest’s Canadian farmers jointly grow up to 30,000 acres of hemp and the company has two manufacturing facilities, in Winnipeg and Ste. Agathe, Manitoba.

“We think that supply chain is going to be a valuable asset as we look to the future of the cannabis industry,” he said.

It’s currently illegal to transport CBD across the Canada-U.S. border, so Tilray is looking closely at developing hemp processing facilities in the U.S., Kennedy said.

“It’s very likely that we will deploy capital in the U.S. to take advantage of the opportunities presented through the farm bill at some point in the next 12 months,” he said. “This is an important first step.”

To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Jacqueline Thorpe

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