Cannasouth Announces Share Purchase Plan

Cannasouth has today announced an offer of existing ordinary shares to raise NZ$3 million pursuant to a Share Purchase Plan (SPP) to existing shareholders to accelerate development of the Company’s key initiatives following the commencement of the New Zealand Medicinal Cannabis Scheme (“Scheme”) on April 1.

Eligible New Zealand shareholders and Wholesale investors in Australia will receive their personalised application forms to apply for up to a maximum of NZ$50,000 of new shares per shareholder, at $0.38 per share. The issue price comprises a 20.65% discount on the five-day volume weighted average price of CBD shares traded on the NZX during the last five trading days prior to the date of this announcement.

Funds raised from the issue of the new shares will be used to accelerate:

• Registration and launch of CBD’s first imported white label medicinal cannabis products;
• Expansion of Midwest Pharmaceutics NZ Ltd’s (60% owned) existing GMP (Good Manufacturing Practice) operating capacity to meet current strong demand from the pharmaceutical, health and wellness supplement sectors and increase existing revenues;
• Development of cannabinoid processing capability at Midwest, including toll manufacturing services;
• Commissioning of the first stage of Cannasouth Cultivation Ltd’s (50% owned) new scalable growing facility and commencing production of medicinal cannabis raw flower sales; and
• Progression of next generation products and supporting clinical research for commercialisation within the Cannasouth Group.

Key dates for the SPP Offer are as follows:

Cannasouth Background

Cannasouth Limited was listed on the New Zealand Stock Exchange (NZX) in June 2019 following an oversubscribed Initial Public Offering, which raised $10 million in new capital for the Company.

Cannasouth is the only publicly listed medicinal cannabis company in New Zealand and currently has circa 2,900 individual holdings on its share registry, with one of these holdings representing another 8,300 underlying individual shareholders.

Since listing in 2019, Cannasouth has cemented its position as a leader in the medicinal cannabis industry in New Zealand. It is now poised to accelerate its vertical integration strategy of ‘seed to sale’ now the country’s regulatory framework is taking shape.

The release of the Government’s medicinal cannabis regulations in December 2019 gave the industry, doctors and patients clarity and confidence. The announcement also gave Cannasouth certainty in terms of getting the business prepared.

With the new regulations now in place and the medicinal cannabis scheme operating from the 1st of April 2020, patients can look forward to increased access to safe, more affordable, effective medicinal cannabis products.

Highlights since listing on the NZX

Since listing, Cannasouth has achieved the following notable milestones:

• Secured significant Research & Development funding from Callaghan Innovation for studies into neuropathic pain/drug discovery, and drug delivery system/optimisation technology;
• Entered into a 50:50 cultivation joint venture (Cannasouth Cultivation Limited), secured resource consent and commenced construction of a world-class, scalable, energy-efficient controlled atmosphere greenhouse cultivation facility;
• Successfully harvested the first three crops of medicinal research cannabis from the Company’s specialist growing facility in the Waikato;
• Expanded with the acquisition of a 60% stake in Midwest Pharmaceutics NZ Limited. Midwest is a Hastings-based GMP (Good Manufacturing Practice) compliant manufacturing and packing facility specialising in the manufacture, re-packing and wholesale supply of pharmaceutical raw materials and the manufacture of dietary supplements and herbal extracts.
• Appointed respected scientist David Gill as Product Development Manager (previously Chief Scientific Officer at animal health multi-national Argenta);
• Appointed Colin Foster (previously GM of Finance of Tatua Dairy) as the company’s new Chief Financial Officer;
• Grown highly skilled human resource capability across the Cannasouth Group;
• Released its first full year audited result and annual report as a publicly listed company.

Current Activities

Cannasouth, through its wholly owned subsidiary Cannasouth Plant Research New Zealand Ltd (CSPRL), currently holds multiple research licenses for its cultivation, extraction, refinement, research and development activities. CSPRL is about to lodge new medicine license applications for its first products. This will involve completing applications for new medicinal cannabis licenses, supply licenses and new manufacture licenses to replace those currently held.

Cannasouth Cultivation Ltd (CCL) is well advanced in the first stage of construction of its state-of-the-art hybrid-controlled atmosphere greenhouse cultivation facility. While construction has been temporarily put on hold during the Covid-19 lockdown, the project team is using this time to progress with planning and system design for the new facility. CCL is in the final stages of preparations for lodging its own license applications for medicinal cannabis cultivation and supply activities.

Midwest Pharmaceutics NZ Ltd (Midwest) currently holds various GMP and medicines licenses. Midwest continues to operate during the Covid-19 Level 4 lockdown as it is considered an essential service, producing pharmaceutical products. Production is currently running at full capacity with the team working hard to keep up with an increase in demand. Midwest is also preparing to apply for new licenses under the medicinal cannabis scheme, including supply and manufacturing licenses.

Focus for next 12 months

• Registration and launch of Cannasouth’s first imported white label medicinal cannabis products;
• Expansion of Midwest Pharmaceutics’ existing operating capacity to meet current strong demand from the pharmaceutical, health and wellness supplement sectors and increase existing revenue;
• Complete manufacturing layout changes at Midwest and install cannabinoid processing equipment to commence offering toll/contract manufacturing services to the industry;
• Secure new medicinal cannabis licenses and ready facilities for the warehousing and distribution of Cannasouth’s first products;
• Complete construction and commissioning of Cannasouth Cultivation’s growing facilities and commence production and sales of medicinal cannabis raw flower; and
• Progression of next generation products and supporting clinical research for commercialisation within the Cannasouth Group.

Application of funds raised through the SPP

Cannasouth is currently well capitalised with more than $7.3 million of cash on hand, no debt and a monthly cash burn of $215,000. However, the additional funds raised from the issue of the new shares will enable the Company to maintain and build on its market leadership by allocating extra resources toward, and accelerating the implementation of, the following initiatives:

• Registration and launch of CBD’s first imported white label medicinal cannabis products;
• Expansion of Midwest Pharmaceutics NZ Ltd’s (60% owned) existing GMP (Good Manufacturing Practice) operating capacity to meet current strong demand from the pharmaceutical, health and wellness supplement sectors and increase existing revenues;
• Development of cannabinoid processing capability at Midwest, including toll manufacturing services;
• Commissioning of the first stage of Cannasouth Cultivation Ltd’s (50% owned) new scalable growing facility and commencing production for medicinal cannabis raw flower sales; and
• Progression of next generation products and supporting clinical research for commercialisation within the Cannasouth Group.

Cannasouth’s Key Strengths

• Fully integrated business model
• Strong balance sheet
• GMP certifications and current revenues from existing Midwest operations
• Ability to produce high quality, low cost raw product
• State of the art, scalable and environmentally friendly cultivation facility
• Expertise and capability to navigate the New Zealand regulatory environment
• Strong product development and research capability
• More than 100 years of combined GMP experience

Further information on Cannasouth can be viewed at the following link https://www.youtube.com/watch?v=iwGmd6SRPvI or by visiting the Cannasouth website at www.cannasouth.co.nz

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