$12M Proposed Cash Asset Sale to Strengthen Balance Sheet, with $2.2M of Earn Outs

Melodiol Global Health Limited (ASX:ME1) (‘Melodiol’ or ‘the Company’), is pleased to announce a non-binding Letter of Intent (LOI) with the Canadian based, Nacerna Life Sciences Inc. (‘Nacerna’). The LOI pertains to the sale of Melodiol’s cannabis production facility, equipment and land (‘Sale Assets’), located in Nova Scotia, Canada, for an initial cash consideration of $12m (C$11m). Highlights:Melodiol has signed a non-binding LOI with Canadian-based Nacerna Life Sciences Inc. to sell its Mernova production facility and land in Nova Scotia for an initial $12m in cash considerationLOI includes two earn-out provisions totalling $2.2m which are payable to Melodiol on completion of each earn out provisionsInitial purchase price in line with previously attained appraisals on the building, equipment and land valuing it at between $10.4m and $12m (C$9.5m to C$11m)Transaction proceeds sufficient to repay all existing secured debt, significantly strengthening the balance sheetTransaction expected to allow for working capital to be deployed to Health House and Creso Pharma Switzerland to aid in future growthMelodiol to keep its highly-established Ritual cannabis brand and products and will attempt to continue selling in the Canadian recreational market via sourcing and branded resale of third party productionIn H1 2024, Health House and Creso Pharma Switzerland delivered combined revenues of $5.6m, representing an annualised figure of $11.2m, not including future sales of Ritual branded products in CanadaRitual brand (which ME1 retains) accounted for approximately $6.9m (or 32%) of the Group’s total revenue in FY23 The transaction also includes two earn out provisions of $1.1m (C$1m) each, payable to Melodiol on (1) Nacerna reaching gross revenues of C$50m within 24 months from the closing of the transaction via the Sale Assets and (2) 15,000kg of cannabis being produced at the facility within 24 months of the closing of the transaction.The initial consideration for the Sale Assets is at the top end of the independent appraisals received for the Sale Assets (refer to ASX release: 19 June 2024), which valued the Sale Assets between $10.4m and $12m (C$9.5m to C$11m). Furthermore, the initial consideration is sufficient to repay all of the Company’s existing secured debt, significantly improving the Company’s balance sheet, and is expected to allow for additional working capital to be deployed to Health House and Creso Pharma Switzerland. Health House and Creso Pharma Switzerland generated a combined $5.6m of revenue in the first half of 2024, an annualised run rate of $11.2m. Furthermore, the proposed transaction does not preclude Melodiol from retaining access to and generating revenue from the Ritual cannabis brand that had been produced at the Sale Assets. Following the transaction, Melodiol intends to leverage its ability to purchase third party produced flower (refer to ASX release: 27 May 2024) to attempt to continue marketing its Ritual products in the Canadian marketplace, thereby aspiring to retain some level of sales from the Ritual brand (which generated $6.9m of sales in FY23), even without access to the Sale Assets.About NacernaNacerna Life Sciences Inc. is a licensed medical cannabis and psychedelics health services provider. Nacerna is focused on enhancing the patient’s journey while incorporating its proprietary infuser medical products into the standard of care. Nacerna offers its “Breakwater” branded micro dosing CBD/THC infuser products through national distribution channels.Nacerna Life Sciences Inc operates from a 6,000 sqft Health Canada approved treatment facility and the Nacerna team has extensive experience in novel drug development utilizing cannabis and psychedelic compounds, as well as experience in performing clinical trials.The Nacerna team over their career have successfully worked with Health Canada, Canada Veteran Affairs and other government bodies on a variety of projects.Management commentary:Chief Executive Officer Mr William Lay said: “The sale of the Mernova building, equipment and land is expected to be a pivotal step in the Company’s trajectory. Upon closing, we would be in a position to significantly improve our balance sheet, and focus working capital on Health House and Creso Pharma Switzerland, while also attempting to maintain a level of sales from the Ritual brand in Canada.“We are pleased that the initial consideration is in line with the top end of the independent appraisals received for the Sale Assets, an outcome which highlights the quality of the assets the Company has built.“Following the expected repayment of all secured debt, the Company will be in a stronger financial position, and able to focus all of its efforts on continued growth in the remaining business units, while aggressively pursuing its long-term strategic objective of group cash flow positive. We look forward to providing further updates in due course.” Click here for the full ASX ReleaseThis article includes content from Melodiol Global Health, licensed for the purpose of publishing on Investing News Australia. This article does not constitute financial product advice. It is your responsibility to perform proper due diligence before acting upon any information provided here. Please refer to our full disclaimer here.



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