Chapmans investment in AZ Pharmaceuticals Inc facilitates entry into medicinal cannabis market

By Trevor Hoey. Published at Jun 26, 2017, in Small Caps

Diversified investment company focused on high-growth market segments, Chapmans (ASX:CHP) announced on Friday that its specialist wholly owned medicinal cannabis subsidiary, Cannabis Investments Limited (CIL), had entered into a Term Sheet with AZ Pharmaceuticals Inc., the owner of the Aunt Zelda’s medicinal cannabis business, to invest US$2 million in Aunt Zelda’s.

This is CIL’s first investment in the medicinal cannabis sector, pursuant to its mandate to invest in high quality, value accretive opportunities in the rapidly emerging global medicinal cannabis sector as flagged in mid-May.

CIL’s mandate is to evaluate and invest in a targeted and select high value-added opportunities in advanced segments of the medicinal cannabis sector. The group will also seek to pursue global licensing and distribution opportunities in order to ensure maximum market penetration and optimise investment returns.

Management highlighted from the outset that its strategy was to focus on the North American region, acknowledged as the world’s largest and most developed medicinal cannabis market.

Aunt Zelda’s is headquartered in California and is a significant player in the medicinal cannabis sector in North America. Since being established in 2010, it has developed an extensive portfolio of human data related to medicinal cannabis-based formulations and treatment protocols.

Aunt Zelda’s is a leading research and data-driven developer and producer of cannabis-based medicines, including cannabis infused oils and cannabis extracts, which are designed to treat a range of medical conditions and illnesses.

Some of its formulas have been licenced to ASX listed Zelda Therapeutics Limited (ASX: ZLD), a company which experienced a substantial share price rerating in the first half of calendar year 2017. The company’s share price increased from approximately 3 cents in March to a high of 14 cents in April.

It should be noted that historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering stocks in these markets should seek independent financial advice.

Chapmans views CIL’s investment in the Aunt Zelda’s parent company as being strategically advantageous. It offers direct exposure to Aunt Zelda’s portfolio of medicinal cannabis data, formulations and protocols, and also provides a mechanism for CIL to derive benefit from licencing deals entered into by Aunt Zelda’s.

Under the Term Sheet, CIL will invest US$2 million in Aunt Zelda’s in order to acquire a 20% direct interest in the group. The investment is to be funded from existing investment capital and debt and is expected to be completed within 30 days.

Consideration for the acquisition will be used by Aunt Zelda’s to fund the further growth and expansion of the business, with a specific emphasis on enhancing its business development capabilities and increasing sales of its medicinal cannabis oils and extracts in the US market, as well as potentially funding its entry into key international markets.

Summing up Chapmans’ entry into medicinal cannabis sector, Executive Chairman Peter Dykes said, “The rationale behind this investment is entirely consistent and complementary with the group’s ‘active’, high conviction investment philosophy to invest in high growth opportunities across a diversified class of industry sectors”.

Dykes highlighted the fact that CIL is a specialist cannabis investment company established by Chapmans to pursue high quality, value accretive investment opportunities in the rapidly emerging global medicinal cannabis sector.

In addition to its initial investment in Aunt Zelda’s, CIL is currently in ongoing negotiations with a number of other targeted opportunities in the medicinal cannabis sector that meet its investment parameters, and management will update the market regarding any material progress relating to these opportunities.

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