Elixinol Global (ASX:EXL) to acquire Cannacare Health

Elixinol Global (ASX:EXL) CEO, Oliver Horn talks about its proposed acquisition of CannaCare Health GmbH (CannaCare) one of Germany’s leading CBD (Cannabidiol) brands following the down scheduling of CBD in Europe late last year in what the Company sees as highly strategic opportunity and important pathway to profitability.

Melissa Darmawan: Hello, Melissa Darmawan for the Finance News Network. Joining me from Elixinol Global is CEO Oliver Horn. Oliver, nice to meet you.

Oliver Horn: Thanks for having me, Melissa.

Melissa Darmawan: You're welcome. Now to the news about a proposed acquisition. What was announced?

Oliver Horn: Look on Monday, we announced the signing of a binding agreement to buy Germany's preeminent brand in the retail channel, which is CANOBO. And the business is called CannaCare, which is a vast, really strategic move as it allows us to get into European's highest gross market, and second biggest CBD market at this stage, Germany. And take a very strategic position there by having the leadership brand really in the retail market with over four and a half thousand distribution points. So a great announcement that we would be sharing with the market on Monday.

Melissa Darmawan: Thanks Oliver. Now to the key points of the deal. What does it mean for shareholders?

Oliver Horn: Look, we are putting it to a vote to shareholders at the first half of May, when we have our AGM. And the board unanimously recommends obviously this transaction to our shareholders for a number of reasons. First of all, the business at the moment or in 2020 is just shy of 4 million Australian dollars. Importantly, it's breaking even. So it's nearing profitability, which is fantastic. Secondly, the cash transaction or the transaction in itself is a very fair multiplier. The upfront consideration for this business is nine million euros. Three million euros are in cash, six million are in script. And that represents around a three and a half times multiplier on the revenue compared to our multiplier that we're trading at, which is four at the moment. So it's a very favorable, I think, transaction mechanic. And then on top of that, there's an earn-out component for the vendors depending on how revenues develop. And that will be payable once they exceed six and a half a million euros or 10 million Australian dollars at 20% EBITDA. So all in all, this is not only strategic for the business, but also from the financials, it makes sense.

Melissa Darmawan: Oliver, what is the timeline and where does this position Elixinol in the CBD market?

Oliver Horn: Look, the timeline is AGM first half of May or maybe a couple of days later. The NOM will go out, the Notice of Meeting will go out very shortly. And then we hope for closing or we aim for closing at the beginning of July. And that means really the business would become our business. And the second half of the year, you will see the financial impact of that in our public accounts. So that's the timeline that we're working towards, but we really… One thing is completion. We really have a two, three journey plan ahead of us. We want to create a pan-European business of scale. We have combined our UK and European or German operations then, and really create a powerhouse in the wellness space. And that's what we are really excited about.

Melissa Darmawan: And are there additional benefits beyond the impact of the financial year 21 financials?

Oliver Horn: Yes, absolutely. One of the immediate opportunities for us that we see is just pooling our supply chain capability and leveraging our combined scale to get more favorable terms with our supplier. So we're definitely looking for cost of goods synergies, but also best practice sharing. I think we have very complimentary skillset between CannaCare and Elixinol UK. And we can stretch those skill sets and learn from each other. I think that's important. And importantly also, cross-selling opportunities. So we've long had the ambition to take Elixinol into the German market. And now that's a real immediate possibility for us through the CannaCare health team equally taking CANOBO brands into other geographies where we are already playing. So a number of benefits are synergies to us, which is all on top of the revenue and the profitability that we expect the business to generate.

Melissa Darmawan: Last question, Oliver. Is there anything else you'd like to add?

Oliver Horn: Look, yes, I think we are extremely relieved. We've done four hard months of work and due diligence throughout Christmas, throughout the Australian summer, which I'm really grateful for because the team has given a lot of their discretionary time to get this deal done. But it really brings us closer to our vision, become a global hemp-derived nutraceuticals and wellness company. And this is a really seismic step and a transformational step in our journey towards that. So yeah, we hope that the market receives it well, and I'm looking forward to presenting it to shareholders in May.

Melissa Darmawan: Oliver Horn, nice to meet you and big congratulations.

Oliver Horn: Thank you, Melissa. It's great to be here. Appreciate your time.

Ends

Source: Finance News Network