Press Release….

Elixinol Global Limited (Elixinol or the Company(ASX:EXL; OTCQB:ELLXF) is pleased to announce that it has entered into a binding agreement for its subsidiary (Elixinol B.V.) to acquire all of the issued share capital of CannaCare Health GmbH (CannaCare), a company incorporated in Germany (Proposed Transaction). The vendors of CannaCare are Mr Frank Otto, Ms Annette-Rosa Oplesch and an entity associated with Mr Michael Oplesch (Vendors). The Proposed Transaction is subject to the satisfaction of certain conditions precedent, the details of which are set out below.

Highlights:

  • Elixinol signs binding agreement to acquire CannaCare Health GmbH (CannaCare), owner of CANOBO, one of Germany’s leading CBD brands with #1 share in Germany’s drugstore channel1
    • Upfront consideration of €9.0m consisting of €3.0m in cash plus €6.0m in Elixinol shares
    • Upon attainment of FY2021 revenues of €12.9m and 20% EBITDA, the maximum earn-out of €15.0m is payable in Elixinol shares making a total potential consideration of €24.0m
    • Germany is Europe’s fastest growing CBD market, forecast to grow at +47% CAGR from 2020 to 2025, to a total market size of US$0.6bn2
    • CANOBO has dominant retail distribution with over 4,500 bricks and mortar retail distribution points, and an extensive range of 20 products consisting of CBD oils, sprays and skincare products which are manufactured in Europe
  • Expected to fast-track revenue and path to profitability growth for the Group:
    • CannaCare delivered €2.6m of revenue in FY2020 with breakeven EBITDA (unaudited) and the earn-out component of the consideration is not triggered until it achieves at least €6.5m revenue in FY2021
    • At the maximum FY2021 revenue earn-out threshold of €12.9m, CannaCare would be contributing >100% growth on standalone FY2020 Group revenue and contribute positive EBITDA
  • Proposed acquisition is highly synergistic, enabling consolidation of European supply chain, ability to leverage existing cost base and capabilities and expand the combined product portfolio into new geographies and categories
  • The combination of CannaCare with Elixinol’s UK business is expected to create a pan-European business of scale, well positioned to capitalise on a burgeoning European CBD market
  • Follows recent down-scheduling of CBD in Europe and aligns with Elixinol’s vision of becoming “a global, hemp derived health and wellness consumer products business”
  • Elixinol Board to be strengthened with the addition of Frank Otto, CannaCare’s major shareholder and media entrepreneur
  • Completion is subject to satisfaction of customary conditions precedent, approvals from the ASX and approval by Elixinol’s shareholders, expected to be sought at the upcoming Annual General Meeting, anticipated to be held in mid-May 2021
  • Management to discuss transaction and provide business update at the Cannabis Investing Forum on March 18 at 5 p.m. ET

Key Agreement terms

The purchase price for the Proposed Transaction will be paid in two tranches. The first tranche will be payable on completion of the Proposed Transaction and will compromise €3.0m in cash, funded from existing cash reserves, and €6.0m paid by the issue of fully paid ordinary shares (Shares) in the capital of Elixinol. Based on an agreed price of Shares of $0.2105, the number of Shares proposed to be issued to the Vendors in the first tranche is 43,864,133 (First Tranche Shares), which represents 14.0% of Elixinol’s current issued capital (subject to shareholder approval). The First Tranche Shares will be subject to voluntary escrow from their date of issue until 31 March 2022.

On or around 31 March 2022, the second tranche of the purchase price will be payable. That portion of the purchase price represents an earn-out and will be structured by the issue of performance securities to the Vendors (Performance Securities). The Performance Securities convert into Shares subject to the amount of revenue that CannaCare achieves in FY2021. The maximum earn-out payable is €15.0m and is dependent on targets related to CannaCare’s FY2021 revenue and EBITDA. CannaCare must achieve FY2021 revenue of at least €6.5m for any earn-out to be payable (CannaCare achieved approximately €2.6m revenue (unaudited) in FY2020). While limiting downside risk, the earn-out structure aligns and incentivises the Vendors to increase the upside potential.

The maximum number of Shares that can be issued on conversion of the Performance Securities is 165,180,893. If the maximum number of Shares are issued to the Vendors on conversion of the Performance Securities, the Vendors will hold approximately 39.98% of the Company’s total issued share capital (based on the issued share capital of the Company as at today’s date).

The Proposed Transaction is subject to certain conditions precedent being either satisfied or waived, including that shareholders approve the Proposed Transaction, the issue of the Performance Securities and the First Tranche Shares. In addition, Elixinol is awaiting ASX’s response to its request for in-principle advice regarding the issue of the Performance Securities. As a result, there is a condition precedent as part of the Proposed Transaction to the effect that any changes to the terms of the Proposed Transaction required by the ASX must be implemented by the parties, otherwise the Proposed Transaction will not proceed. Accordingly, the terms of the Proposed Transaction are subject to the ASX’s response to the request for in-principle advice.

In accordance with the ASX’s guidance on the issue of Performance Securities, the Company has engaged Grant Thornton Australia Pty Ltd to provide an independent expert report to opine on whether the issue of the Performance Securities is fair and reasonable to non-participating shareholders.

The Company anticipates that it will seek shareholder approval at its upcoming annual general meeting, expected to be held in mid-May 2021.

As part of the Proposed Transaction, Mr Frank Otto is to be appointed to the Elixinol Board as Non-Executive Director. The existing CannaCare management team will continue to operate the business with Mr Michael Oplesch becoming a consultant to CannaCare and member of CannaCare’s Advisory Board.

A highly transformative acquisition

Global CEO of Elixinol, Oliver Horn commented, “We are incredibly excited about this transformational opportunity which leapfrogs Elixinol closer to its vision of becoming a profitable, global, hemp derived consumer goods wellness business.

“CannaCare was founded in 2018, is based in Hamburg and manufactures and distributes an extensive range of 20 CBD products which are produced in Europe. CannaCare’s brand CANOBO has very quickly established itself as the leading brand in bricks and mortar retail with a total of over 4,500 distribution points of which 2,200 are with Rossmann – Germany’s #1 drugstore chain; 680 with Mueller; 180 with Budnikowski and a further 1,500 individual pharmacies. CANOBO’s product range consists of CBD oils, sprays and cosmetic products with many of these being organic. CANOBO is Germany’s first CBD brand investing in broad-reach media with numerous TV commercials having contributed to its wide consumer appeal. Similar to Elixinol, CannaCare pursues a capital-light model with an outsourced supply chain. All products are subject to strict quality controls and independent testing.

“By acquiring CannaCare we gain a strong foothold in Europe’s fastest growth market of Germany and, together with our established UK business, will become a leading pan-European business of scale. This acquisition enables us not only to quickly reach critical scale but importantly opens up new opportunities to cross sell our portfolios, leverage the new scale to reduce our cost of doing business and apply best practices across global business. CannaCare is a dynamic, high growth business with an outstanding leadership team. The announcement that CBD had been down scheduled in Europe late last year led us to move quickly to take advantage of what we see as being a highly strategic opportunity to accelerate our globalisation, grow revenue and accelerate our pathway to profitability.”

CannaCare’s major shareholder and vendor Frank Otto commented, “We are delighted for CannaCare to continue its impressive growth trajectory with Elixinol, a global trailblazer in the hemp based food and wellness space. The compatibility of the businesses will give yet another boost to CANOBO on its trajectory to become the leading German brand in the fast growing CBD market.” 

European market overview

In December 2020, The United Nations Commission on Narcotic Drugs (CND) accepted a World Health Organisation (WHO) recommendation to remove cannabis and cannabis resin from Schedule IV of the 1961 Single Convention on Narcotic Drugs. This down scheduling is expected to lead to a novel foods regime for CBD being implemented across Europe. The CND vote recognises CBD’s potential and this improving regulatory environment makes Europe a very attractive growth market.

Europe is the world’s second largest CBD market after the USA and the market is forecast3 to more than quadruple over next 5 years growing from US$0.6b in 2020 to US$2.3b in 2025. Germany is the second largest European market, after the UK, and is forecast to be the fastest growing (47% 5yr CAGR) reaching approximately US$600m by 2025.

Additional benefits to Elixinol

Subject to CannaCare achieving the maximum earn-out (at €12.9m revenue and 20% EBITDA in FY2021), the Proposed Transaction has the potential to double revenue (based on Elixinol Group FY2020 revenue) for Elixinol on a consolidated, pro-forma basis.

Further synergistic opportunities are anticipated in product cost savings, based on increased purchasing volumes and operational efficiencies as we create an integrated pan-European business unit. The contribution of CannaCare is expected to lead to a significant improvement in Elixinol’s EBITDA position and accelerate Elixinol’s pathway to profitability in the near-term (with material long-term synergy potential).

The Proposed Transaction provides a platform to launch the Elixinol brand into the German market, and access additional German speaking countries, such as Austria and Switzerland. Equally, the CANOBO product range creates new commercial opportunities in the UK market, using Elixinol’s existing customer relationships.

Board composition and share register will be improved through the addition of highly influential Vendors, well known within the European market.