Cannasouth To Buy Out Cultivation And Manufacturing Joint Venture Partners

Leading medicinal cannabis company, Cannasouth Limited has today entered into two conditional agreements to acquire the balance of the stakes that it does not already own in its cultivation and manufacturing joint venture businesses.

Acquisition of outstanding interest in Cannasouth Cultivation Limited

Cannasouth has entered into a conditional agreement with Aaron Craig and his family interests (Craig Family Interests) to acquire the remaining 50% stake in Joint Venture business Cannasouth Cultivation Limited that Cannasouth does not already own.

Cannasouth Cultivation has built a state-of-the-art growing and processing facility that will produce medicinal cannabis flower biomass at highly competitive production cost. It is energy efficient and more environmentally sustainable than indoor cultivation operations.

The facility, designed to produce premium Good Agricultural and Collection Practices (GACP) and Good Manufacturing Practice (GMP) pharmaceutical compliant biomass, is now in the equipment installation and validation phase. It is anticipated that the new facility will have sufficient capacity to generate circa $8 million of revenues per annum (based on conservative current global pricing), subject to Cannasouth Cultivation securing commercial offtake agreements and completing quality certification. The facility has been designed to be scalable.

Cannasouth Chief Executive Mark Lucas says, “There is strong global demand for premium pharmaceutical quality cannabis flower. The timing of the acquisition will bring all future revenues generated from the cultivation facility into the Cannasouth Group’s P&L. It also enables the Company to control all aspects of the cultivation operation.

“Cannasouth would like to take this opportunity to thank the Craig Family interests for their support and expertise as a valued joint venture partner in developing the innovative cultivation facility to such a high standard and in a cost-effective manner.”

The acquisition of the outstanding interest in Cannasouth Cultivation is conditional on the Company raising new capital by 30 September 2021through a capital raising initiative. Settlement for the acquisition of Cannasouth Cultivation is expected to happen shortly after this capital raise condition has been met.

Acquisition of outstanding interest in Midwest Pharmaceutics NZ Limited

Cannasouth has also entered into a conditional agreement with Mark Balchin and Greenmeadows Health Limited to acquire the remaining 40 per cent shareholding in Hawkes Bay-based Midwest Pharmaceutics NZ Limited that it does not already own.

Currently Cannasouth owns 60% of Midwest. The business generates circa $2 million per annum in revenues, which after the completion of the transaction will be consolidated into Cannasouth’s P&L from the date of acquisition.

Mark Lucas says, “The Midwest acquisition provides Cannasouth with the opportunity to streamline operations and generate additional revenues from existing operations, while positioning the business for GMP certified medicinal cannabis manufacturing.”

CEO of Midwest, Mark Balchin, will continue as Chief Manufacturing Officer for the Group.

The Midwest transaction is conditional on the parties obtaining the approvals of several landlords and regulators to the change in control of Midwest on or before 31 August 2021.

Commercial Benefits of the Acquisitions

• Take 100 per cent control of both joint venture cultivation and manufacturing businesses.
• Accelerate pathway to significant revenue generation.
• Improve operational efficiencies across the Group.
• Post-acquisition revenues and 100 per cent of future profits will be consolidated into the Cannasouth Group P&L.
• Opportunity to generate additional revenues from existing operations at Midwest while positioning the business for GMP certified medicinal cannabis manufacturing.

Cannasouth is proposing a capital raising to fund the acquisitions. The Company is currently finalising its capital raising strategy and will release details to the market in due course.

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