Creso Pharma to receive $8.92M funding: attracts Canopy Growth cannabis pioneer

By Trevor Hoey. Published at Oct 7, 2020, in ASX Biotechs

Developer of cannabis and hemp derived therapeutic, nutraceutical, and lifestyle products Creso Pharma Ltd (ASX:CPH) has secured firm commitments from institutional, professional and sophisticated investors to raise up to $8.992 million (before costs) through the issue of approximately 309,021,675 fully paid ordinary shares at an issue price of $0.0291 per share.

This will enable Creso Pharma to restructure its borrowings and strengthen its balance sheet, while also continuing the development of its wholly-owned subsidiary Mernova Medical Inc, as well as its operations in Switzerland.

Creso’s chairman Adam Blumenthal has participated in the placement, committing to shares to the value of $1 million subject to shareholder approval.

Further to this, subject to Creso’s request and mutual agreement, Adam Blumenthal can provide an additional $3 million via funding on the same terms subject to shareholder approval.

Blumenthal has agreed to extend a short-term loan facility to Creso Pharma, whereby, subject to mutual agreement, Creso Pharma may draw down up to $3 million on an unsecured, interest free basis.

If any funds are drawn down, Mr Blumenthal may elect, subject to Creso Pharma obtaining shareholder approval, to convert these funds into shares and options on the same terms as the placement.

A portion of the funds raised under the Placement will be applied to the redemption and cancellation of outstanding convertible notes held by L1 Capital Global Opportunities Master Fund, Lind Global Macro Fund, LP, and Chifley Portfolios Pty Limited.

Each of the secured lenders noted above have agreed to the early redemption and cancellation of their convertible securities which will be achieved through the repayment of a portion of the outstanding convertible notes in cash from funds raised under the placement and the secured lenders agreeing to purchase a reduction in the number of collateral shares that they hold.

Following the completion of the cash payments noted above, the secured lenders will release Creso Pharma from their ongoing obligations in respect of the convertible notes, the convertible securities agreements and the corresponding securities granted over the company’s assets with immediate effect.

Strengthened balance sheet to assist in funding growth initiatives

This restructuring of the group’s lending facilities will reduce costs related to its borrowings and strengthen the company’s balance sheet at a time when industry conditions are providing increasing opportunities and Creso Pharma is at a stage where it has the capacity to ramp up production to meet increased demand for its products.

In tandem with the placement, management announced that world leading cannabis executive Bruce Linton had joined the group as a strategic advisor with a mandate to use his industry experience to progress the company’s global expansion.

His background includes the emergence of Canopy Growth Corporation (NYSE:CGC) from market minnow to a peak market capitalisation of approximately US$15 billion.

As chairman and chief executive Linton secured market support for 16 rounds of financing, totalling more than US$5 billion in capital raises and oversaw upwards of US$3 Billion in 30 merger and acquisition transactions.

He has extensive sector experience and holds multiple positions with international companies.

Linton has also worked with large financial institutions including the World Bank and the depth of industry experience he brings to the company will be invaluable at a time when CPH is on the verge of rapid growth.

Creso Pharma uses GMP (Good Manufacturing Practice) development and manufacturing standards for its products as a reference of quality excellence with initial product registrations in Switzerland, and management will be leveraging off this established presence and brand credibility as one of its growth initiatives.

The company also has worldwide rights for a number of unique and proprietary innovative delivery technologies which enhance the bioavailability and absorption of cannabinoids.

Discussing the appointment of Linton and the company’s broader growth outlook, Creso Director Miri Halperin Wernli said, “Bruce brings a wealth of invaluable knowledge and a deep network of cannabis industry contacts to Creso Pharma and we anticipate that his appointment will greatly assist us in achieving our near term operational milestones and longer term goals.

“We continue to target international distribution agreements in a number of new markets and progress product development initiatives that will unlock considerable shareholder value.”

Funds to be used for global expansion as Mernova cranks up

Management sees scope for expansion into new markets, and part of the funds raised have been earmarked for such initiatives.

This comes only a fortnight after Mernova Medicinal received its initial purchase order from Nova Scotia Liquor Corporation (NSLC) for the purchase of two of the group’s premium strains, HPG 13 and Lemon Haze.

The purchase order from Nova Scotia’s sole distributor of recreational cannabis had a value of C$180,000, but its significance was much broader as it represented the group’s entry into Canada’s retail markets, effectively diversifying Mernova’s revenue streams and building on an established and growing wholesale product sales pipeline.

On a year-to-date basis, Mernova has generated revenues and received purchase orders totalling more than $2 million.

Creso has also signed an agreement with DHS Business for the distribution of hemp products in Portugal and Spain, further expanding its global distribution network.

The group’s nutraceuticals division is continuing to develop new human and animal health hemp and CBD products to complement its flagship cannaQIX® line, bringing further diversification to its product portfolio.

Creso is set to benefit from the TGA’s reclassification of CBD products as anticipated by the recent interim decision, which would allow Australian consumers to purchase CBD products without the need for a prescription.

The interim decision will follow a consultation period with a final decision expected to be reached in February 2021 with effect from June 2021.

This would unlock a major opportunity for Creso Pharma’s CBD and hemp products, paving the way for the company to progress a number of opportunities including the roll out of its global “go-to-market strategy”.

It is important to note that Creso has already commercialised a range of products in human and animal health and has six new products across both portfolios to be launched, being cannaQIX® Oral 10, cannaQIX® Oral 25, CBD Hemp Tea, cannaPEAL, cannaPEAL NITE, and anibidiol EQUI.

The group has distribution agreements in a number of countries including, Australia, New Zealand, the UK, South Africa, Switzerland, Brazil, Scandinavia, Spain and Portugal.

With the company ready to launch a number of new products into markets where distribution agreements are in place, this injection of capital and industry expertise couldn’t have come at a better time.

Given that Creso owns the 24,000 square metre growing facilities in Nova Scotia which has been built to GMP standards, the company is well prepared to meet a potential uptick in demand.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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