Listed medicinal cannabis company Cannasouth is hoping to raise $6 million to buy out its joint venture manufacturing and cultivation partners.
The Hamilton-based company said today it had entered into conditional agreements to acquire the outstanding 50% in its cultivation operation and 40% of Midwest Pharmaceuticals, for $3.5m and $1m respectively.
The remaining funds from new capital raised will be funnelled into spending on marketing for export flower sales into its target markets of Israel, Germany and Australia, and new product development.
The firm said it was still finalising the terms of the offer, but will aim to complete it by September.
Chief executive Mark Lucas said the cultivation business now had enough capacity to grow between 1,500 kg to 1,800 kg of pharmaceutical grade flower a year, which at an assumed average wholesale price of $4,500 equates to about $8m in annual revenue.
Cannasouth Cultivation was set up in August 2019 as a venture with Kapiti businessman Aaron Craig, to build a hybrid greenhouse facility on a 45 hectare site in the Waikato primarily for the growing of cannabidiol, or CBD.
In buying out Craig, Cannasouth will pay $2m up front with $1m paid over two equal instalments over 18 months to the Craig family interests.
Craig will also get $540,000 worth of Cannasouth shares at the same price as the capital raise.
The tranche for the Midwest shares will be funded through the issue of $880,000 in Cannasouth shares to Greenmeadows Health, owned by Mark Balchin.
Midwest
Cannasouth bought its current stake in Midwest in October 2019 in a cash and shares transaction for $1.28m.
The Hastings-based manufacturing and packing facility posted revenue of $2.2m for the year to December 2020, though a net loss for the year of $249,532.
Balchin, who will stay on with the group as chief manufacturing officer, will also receive cash payments of $146,000 paid over 18 months.
The purchase is conditional on approvals of “several landlords” and regulators to the change of control in Midwest, prior to Aug 31.
Lucas said the acquisition allows Cannasouth to streamline operations and generate additional revenues from existing operations, while positioning it for good manufacturing practice certified medicinal cannabis manufacturing.
The capital raise follows last May's oversubscribed share placement, which raised more than $6m through the issue of 15.85m shares at an issue price of 38c.
Capital markets advisory firm CM Partners have been engaged to manage the acquisitions and the capital raise.
