MMJ Group Holdings Ltd Stock Market Press Releases and Company Profile
Combine to Create Global Medical Cannabis Company
Combine to Create Global Medical Cannabis Company

Perth, Mar 24, 2015 AEST (ABN Newswire) - PhytoTech Medical Limited (googlechartASX:PYL) and Canadian MMJ Bioscience Inc. Combine to Create a Global, Vertically-Integrated Medical Cannabis Company

Highlights

- PhytoTech Medical Limited (PYL) to merge with MMJ Bioscience Inc. (MMJ) to create a multinational vertically integrated Medical Cannabis (MC) company

- A "merger of equals" that strategically positions PYL and MMJ as a diversified, global, growth-oriented and vertically-integrated MC company, from cultivation of medical cannabis to development and distribution of pharmaceutical and nutraceutical products

- MMJ-PYL's "Farm to Pharma" strategy diversifies the merged group across all key segments of the MC value chain

- Deal consideration (based on PYL's last traded share price of $0.305) of $15.5 million in PYL scrip and an additional $5.185 million in performance shares subject to completion of value creating milestones

- Complementary strategies and asset portfolios to yield significant synergies

- Revenue from sales of a proprietary GMP-produced gastro-resistant Cannabidiol (CBD) pill expected by July 2015

- Near-term license approval for MMJ's Duncan Facility (near Vancouver, BC) under the Marijuana for Medical Purposes Regulations (MMPR) to produce up to 700kgs of MC per annum

- Strong platform set for international growth in both the Canadian and European MC markets

- PYL has sufficient existing funds available to meet the working capital requirements of MMJ until revenues commence, meaning that the transaction does not require an equity raising by PYL

Background

PhytoTech Medical Limited (googlechartASX:PYL), the Australian listed Medical Cannabis (MC) company, is pleased to announce that it has entered into an agreement to acquire 100% of the issued capital of MMJ Bioscience Inc. (MMJ), a Canadian based multinational vertically integrated MC company.

Transaction Overview and Indicative Group Structure

Under the terms of the agreement, the two companies will combine in a "Merger of Equals" via a three-stage deal structure based on MMJ achieving key milestones, detailed below.

The combined group will form a vertically integrated MC company, from MC cultivation to the development and distribution of pharmaceutical, nutraceutical and cosmeceutical products.

MMJ has three fully owned subsidiaries, which will join the merged entity as part of the deal. These include, United Greeneries Ltd (horticulture entity, late stage MMPR applicant in Canada), Satipharm (pharmaceutical and nutraceutical developer and distributer in Europe), AgriChem Analytical (Canadian quality control and testing laboratory for MC, water, soil etc.).

The directors of both companies are confident that the deal is strategically and financially value enhancing to both businesses with significant synergies created to positively impact and enhance the share price of the combined group.

Strategic Rationale for Merger

The merger strategically positions PYL and MMJ as a vertically integrated MC company, with operations across the entire MC value chain and in key MC markets. The combined entity will be involved with the production, research and development and distribution of MC products.

PYL and MMJ have complementary assets and strategic growth profiles, with a high potential for synergies. The combined entity has little product overlap and well-timed expected cash inflows and outflows.

Importantly, the deal brings near and mid-term cash flow from MMJ's subsidiaries, via the sale of a proprietary GMP-produced gastro-resistant CBD pill to customers in the E.U. and through sales of MC to patients in Canada, pending license approval of the Duncan Facility under the MMPR.

Both companies have a global strategy in place with similar pursuits across targeted jurisdictions, creating an expanded platform for global growth.

Financial Rationale for Merger

Merging with MMJ at a pre license stage creates significant upside potential for the combined group. Once fully licensed under the MMPR, the Duncan Facility on Vancouver Island will be able to produce and sell up to 700kgs of MC per year.

Anticipated cash flows from the Duncan Facility in Canada and from sales of CBD supplements in the E.U., are expected to fund future business expansion, including research and development and clinical trials, resulting in a non-dilutive independent drug development company.

The deal is structured based on PYL scrip value (based on a PYL pre-deal share price of $0.305 per share) of $15.5 million upfront and an additional $5.185 million in performance shares subject to completion of milestones.

This compares extremely well to the valuations of other similar transactions currently in the market (in Australian and Canada).

MMJ BioScience Inc. (MMJ) Overview

MMJ is a holding and investment company specialising in supply chain optimisation and product development for the emerging global cannabis market. MMJ has three, wholly-owned subsidiaries:
- United Greeneries ("UG"): Canadian MC cultivation subsidiary

- Satipharm: European pharmaceutical and nutraceutical subsidiary

- AgriChem Analytical: Canadian biochemical quality control testing and Cannabinoid analytics

United Greeneries ("UG"), MMJ's Canadian cultivation subsidiary, controls two facilities with a combined area of 78,000 ft2 and potential production capacity of 11,700 kg/ year. Additionally, there are 18 acres of UG-owned land available for organic expansion that could support an additional ~800,000 ft2 of cultivation area in custom two storey structures.

UG's Duncan Facility is in the final stages of license approval, having received all required clearances and awaiting a final inspection by Health Canada, under the MMPR to begin production at its Duncan facility.

The Duncan Facility is a 16,000ft2 state-of-the-art MC facility on Vancouver Island, BC. Duncan has roughly 10,000ft2 of cultivation area, a 1,000ft2 cleaning area, and is also home to AgriChem Analytical's fully compliant QA/QC laboratory. The MMPR license, once granted, will allow the Duncan facility to produce up to 700kg of MC per annum. The current market price for most MC sold in Canada is CDN$7 to CDN$10 per gram.

The second facility in Lucky Lake, SK, is fully owned by MMJ and consists of a 62,000 ft2 concrete building on over 18 acres of land. The structure is well suited for MC production and awaits final build-out. Strong community support for the project combined with the potential integration into UG's Duncan QC and distribution system, will allow for fast and massive expansion of up to 11,700kg of MC product per annum. The land and infrastructure at the property are capable of accommodating another 800,000ft2 of cultivation area in custom two storey structures in the future (each of which would need to be licensed.)

MMJ does not yet have an MMPR license at either facility but for comparison the anticipated licensed capacities are shown for illustrative purposes only. Once its facilities are licensed, MMJ will be a significant potential producer of MC in Canada under the MMPR.

Globally, MC is at an inflection point - the MC cultivation market in Canada is currently worth $0.2bn, and is expected to grow to $1.3bn by 2024. In Canada, the introduction of the MMPR has created the first federal regulatory system that allows for an investible platform for marijuana. Under the MMPR, medical cannabis users do not need a medical diagnosis anymore but merely require an acknowledgement from a Health Care Practitioner to buy Marijuana directly from a commercial Licensed Producer (LP).

Satipharm, a Swiss subsidiary, develops cannabis based pharmaceutical, nutraceutical and cosmetic products for a variety of conditions. The company has developed a proprietary GMP-produced gastro-resistant Cannabidiol (CBD) pill, which will be legally sold as a dietary supplement over the counter in the E.U. From July 2015, Satipharm is targeting to sell a minimum of 30,000 CBD pills per month quickly ramping up to 135,000 pills per month at a price of 3 Euro each. While suitable for sales as a dietary supplement, the pill qualifies in all aspects of its production and delivery technology for clinical purposes. As one of the many expected synergetic situations between MMJ and PYL, PhytoTech Therapeutics Ltd., PYL's wholly owned Israel-based subsidiary, intends to immediately engage in the clinical testing of safety and bioavailability of this pill for the purpose of integrating it into its pharmaceutical product development.

AgriChem Analytical provides state-of-the-art biochemical quality control testing and Cannabinoid analytics as required under the Canadian MMPR. These services play an essential role in the expansion of the Company's supply base, for furthering Cannabinoid drug development and in UG's strategy to become a supplier of high-compliance services to other LPs.

Cannabinoids & Cannabidiol ("CBD")

Cannabinoids are a class of diverse chemical compounds - including THC and CBD - that are contained in the cannabis plant. Of the primary cannabinoids, Cannabidiol ("CBD") is thought to have the greatest therapeutic potential across the greatest range of diseases. Scientific research has shown that CBD may be therapeutic for many conditions, including chronic pain, cancer, anxiety, diabetes, epilepsy, rheumatoid arthritis, PTSD, sleep disorders, alcoholism, cardiovascular disease, antibiotic-resistant infections, and various neurological ailments. An orally-administered liquid containing purified CBD received orphan drug status in the US in 2014, for use as a treatment for Dravet syndrome, under the brand name Epidiolex. Significant demand coupled with limited supply is helping support very robust prices for CBD extracts and CBD-based products worldwide.

The high therapeutic potential of cannabinoids - particularly CBD - is being recognized by the public, governments, research institutes, pharmaceutical companies and other organizations world-wide. The merged entity is well positioned to take advantage of this growing acceptance and use of CBD as a supplement and potentially as a pharmaceutical. Sales of a proprietary GMP-produced gastro-resistant pill in the E.U. are expected to commence in July 2015 to help address some of this demand.

Teams based in Canada, Australia, Europe and Israeli continue to assess market opportunities for CBD and other cannabinoids vis a vis the combined Company's capabilities and there is no shortage of opportunities on the horizon. The only limiting factor is availability of supply.

Consideration and Funding

Major Shareholders holding approximately 69.3% of the common shares in MMJ have entered into a binding Heads of Agreement with PYL setting out the terms for the acquisition of 100% of MMJ's issued shares (common and preferred) by

PYL for a total consideration of up to 68,000,000 fully paid ordinary shares in the capital of PYL as set forth below:

a) up to a total of 51,000,000 fully paid ordinary shares in the capital of PYL upon settlement (Initial Shares);

b) up to a total of 8,500,000 PYL Shares (First Deferred Shares) each in the event that MMJ is granted a licence to produce under the Marihuana for Medical Purposes Regulations in Canada (MMPR) within 12 months of Settlement (First Milestone); and

c) up to a total of 8,500,000 PYL Shares (Second Deferred Shares) each in the event that MMJ and its subsidiaries (MMJ Group) generate at least CAD$5,000,000 in revenue from operating activities within 36 months of Settlement (Second Milestone).

The deal is subject to customary conditions precedent, including successful completion of due diligence by both PYL and MMJ on each other, approval from the shareholders of both PYL and MMJ, satisfaction of all regulatory hurdles and approval from the MMJ debenture holders to amend the terms of their existing debentures.

In addition, each MMJ vendor must agree to a voluntary escrow on their PYL shares of 3 months, 9 months and 15 months from settlement of the merger (equal thirds). PYL will also be asking all MMJ vendors to enter into structured sell down arrangements should they wish to sell their shares in PYL in the future.

Management and Board

Upon completion of the merger, three nominees of MMJ will join the board of PYL, reinforcing an already strong board and management team.

Boaz Wachtel, Managing Director of PhytoTech Medical Limited commented:

"We are extremely pleased to be partnering with a business that has a complementary asset portfolio and significant potential to become a key MC producer within the near future in Canada. Partnering at this important stage, provides significant benefits and synergies to both parties, and we expect substantial value uplift upon completion of each of the performance milestones structured into the deal. Furthermore, we are excited by the opportunity to produce and supply a GMP-produced CBD pill which, to our knowledge, will be the first of its kind in the MC market."

Andreas Gedeon, CEO of MMJ Bioscience Inc. commented:

"MMJ is at a crucial stage of growth, with two pending MMPR licenses for production facilities in Western Canada and imminent sales to commence of the GMP-produced CBD pill in Europe. We're pleased to be partnering with PhytoTech and are excited by the prospect of working alongside another pioneer in the MC market. The performance milestones are highly achievable and we're confident they will be reached within the anticipated timeframe."

To view the presentation on MMJ that accompanies this announcement, please visit:
http://media.abnnewswire.net/media/en/docs/ASX-PYL-713929.pdf


About MMJ Group Holdings Ltd

Phytotech Medical ASX:PYL

MMJ Group Holdings Ltd (ASX:MMJ) is a global cannabis investment company. MMJ owns a portfolio of minority investments and aims to invest across the full range of emerging cannabis-related sectors including healthcare, technology, infrastructure, logistics, processing, cultivation, equipment and retail. For MMJ's latest investor presentation and news, please visit: https://www.mmjphytotech.com.au/investors/

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Contact

Investor and Media Enquiries:
Jason Conroy
Chief Executive Officer
T: +61-2-8098-0819
E: info@mmjgh.com.au



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