Elixinol Global positions itself as a leading pan-European CBD company by acquiring Germany’s CannaC
Elixinol Global Ltd (ASX:EXL) (OTCQB:ELLXF) (FRA:E8M) has entered into a binding agreement for its subsidiary Elixinol BV to acquire CannaCare Health GmbH, a company incorporated in Germany for an upfront consideration of €9 million in cash and shares.
Upon attainment of financial year 2021 revenues of €12.9 million and 20% EBITDA, the maximum earn-out of €15 million is payable in Elixinol shares, taking the total potential consideration to €24 million.
The acquisition positions Elixinol as a leading pan-European CBD business and is expected to fast-track revenue and its path to profitability growth.
Investors have responded positively driving shares 18% higher to A$0.23 this morning.
Elixinol global chief executive officer Oliver Horn said: “We are incredibly excited about this transformational opportunity, which leapfrogs Elixinol closer to its vision of becoming a profitable, global, hemp-derived consumer goods wellness business.
“CannaCare was founded in 2018, is based in Hamburg and manufactures and distributes an extensive range of 20 CBD products, which are produced in Europe.
“CannaCare’s brand CANOBO has very quickly established itself as the leading brand in bricks and mortar retail with a total of over 4,500 distribution points, of which 2,200 are with Rossmann – Germany’s #1 drugstore chain; 680 with Mueller; 180 with Budnikowski and a further 1,500 individual pharmacies.
“CANOBO’s product range consists of CBD oils, sprays and cosmetic products with many of these being organic.
“CANOBO is Germany’s first CBD brand investing in broad reach media with numerous TV commercials having contributed to its wide consumer appeal.
“Similar to Elixinol, CannaCare pursues a capital-light model with an outsourced supply chain.
“All products are subject to strict quality controls and independent testing.
Quickly reach critical scale
“By acquiring CannaCare, we gain a strong foothold in Europe’s fastest growth market of Germany and, together with our established UK business, will become a leading pan-European business of scale.
“This acquisition enables us not only to quickly reach critical scale but importantly, opens up new opportunities to cross-sell our portfolios, leverage the new scale to reduce our cost of doing business and apply best practices across global business.
“CannaCare is a dynamic, high growth business with an outstanding leadership team.
“The announcement that CBD had been down scheduled in Europe late last year led us to move quickly to take advantage of what we see as being a highly strategic opportunity to accelerate our globalisation, grow revenue and accelerate our pathway to profitability.”
Boost to become leading German brand
CannaCare’s major shareholder and vendor Frank Otto added: “We are delighted for CannaCare to continue its impressive growth trajectory with Elixinol, a global trailblazer in the hemp-based food and wellness space.
“The compatibility of the businesses will give yet another boost to CANOBO on its trajectory to become the leading German brand in the fast-growing CBD market.”
Key agreement terms
The purchase price will be paid in two tranches to the vendors, Otto, Annette-Rosa Oplesch and an entity associated with Michael Oplesch.
The first tranche will be payable on completion of the transaction and will compromise €3 million in cash, funded from existing cash reserves, and €6 million through the issue of fully paid ordinary Elixinol shares.
Based on an agreed price of shares of A$0.2105, the number of shares proposed to be issued to the vendors in the first tranche is 43,864,133, which represents 14% of Elixinol’s current issued capital.
The first tranche shares will be subject to voluntary escrow from their date of issue until March 31, 2022.
On or around March 31, 2022, the second tranche of the purchase price will be payable.
That portion of the purchase price represents an earn-out and will be structured by the issue of performance securities to the vendors.
The performance securities convert into shares subject to the amount of revenue that CannaCare achieves in financial year 2021.
The maximum earn-out payable is €15 million and CannaCare must achieve financial year 2021 revenue of at least €6.5 million for any earn-out to be payable (CannaCare achieved around €2.6 million revenue (unaudited) in financial year 2020).
The maximum number of shares that can be issued on conversion of the performance securities is 165,180,893.
If the maximum number of shares are issued to the vendors on conversion of the performance securities, the vendors will hold around 39.98% of the company’s total issued share capital, based on the issued share capital of the company as of today’s date.
Shareholders and ASX approvals
The proposed transaction is subject to certain conditions precedent being either satisfied or waived, including that shareholders’ approval are received.
In addition, Elixinol is awaiting ASX’s response to its request for in-principle advice regarding the issue of the performance securities and as such, the terms of the transaction are subject to the ASX’s response to the request for in-principle advice.
The company has engaged Grant Thornton Australia Pty Ltd to provide an independent expert report to opine on whether the issue of the performance securities is fair and reasonable to non-participating shareholders.
It expects to seek shareholder approval at its upcoming annual general meeting, expected to be held in mid-May 2021.
An investor briefing will be held on Tuesday 16 March 2021 at 11:00am, AEDT
As part of the transaction, Otto is to be appointed to the Elixinol board as a non-executive director.
The existing CannaCare management team will continue to operate the business with Oplesch becoming a consultant to CannaCare and a member of CannaCare’s advisory board.
CBD market in Germany
Germany is Europe’s fastest-growing CBD market, forecast to grow at +47% CAGR from 2020 to 2025, to a total market size of US$0.6 billion.
CANOBO has dominant retail distribution with over 4,500 bricks and mortar retail distribution points, and an extensive range of 20 products consisting of CBD oils, sprays and skincare products which are manufactured in Europe.
Fast-track revenue, profitability growth
The acquisition is expected to fast-track revenue and path to profitability growth for the group.
CannaCare delivered €2.6 million of revenue in the financial year 2020, with breakeven EBITDA (unaudited) and the earn-out component of the consideration is not triggered until it achieves at least €6.5 million revenue in FY2021.
At the maximum revenue earn-out threshold of €12.9 million, CannaCare would be contributing more than 100% growth on standalone financial year 2020 group revenue and contribute positive EBITDA.
The acquisition is highly synergistic, enabling the consolidation of its European supply chain, ability to leverage existing cost base and capabilities and expand the combined product portfolio into new geographies and categories.
The combination of CannaCare with Elixinol’s UK business is expected to create a pan-European business of scale, well-positioned to capitalise on a burgeoning European CBD market.