By Paul McBeth
Aug. 14 (BusinessDesk) - Cannasouth will raise another $1 million from an issue of new shares, just two months after its initial public offer, to fund a joint venture to build and own a cannabis cultivation facility.
The medicinal cannabis research firm, which isn't earning any revenue, is partnering with Kapiti-based business owner Aaron Craig, via his family's Tokomaru Horticulture Industries entity, to establish a new company to build and operate a medical cannabis and hemp cultivation and production facility in Waikato. The joint venture will service Cannasouth's production needs.
Each party will put in $1 million to fund the first phase of operations, although the NZX-listed company's share will come from it issuing almost 2.8 million shares, or about 2.7 percent of issued stock, at 36 cents apiece to the Craig family. That's a premium to the 35.5 cents the stock closed at yesterday, but well down from the 50 cents investors paid in June when it raised $5 million from invited investors and another $5 million from the public. The shares were recently up 1.4 percent at 36 cents.
The joint venture - Cannasouth Cultivation - will start operations by building a hybrid greenhouse cultivation facility and then grow medicinal cannabis for Cannasouth. It will also be open to supplying other cannabis companies both at home and abroad.
"A phased expansion strategy will ensure capital is only deployed when market demand exists for the end product,” Cannasouth chief executive Mark Lucas said.
"This flexibility will enable Cannasouth to adapt to pricing pressures as the market matures to ensure end products remain competitively priced, ultimately reducing the cost to patients."
Parliament passed legislation last year to improve access to medicinal cannabis and introduce quality standards for products. The Ministry of Health last month published proposals on how the framework may operate.
Cannasouth filed its submission last week in support of GPs prescribing medicinal cannabis over specialist prescriptions, well-funded education campaigns, and loose enough regulations to support export opportunities.
The parties have identified a 111-acre plot - 50 hectares - for the site, which can cater to further expansion and potential development. The Craig family has agreed to buy the land at its own cost and lease a portion to the joint venture company as needed.
Cannasouth Cultivation will pay a commercial rent and will have an option to buy a half interest in the land.
The Craig family's other interests include a stake in Reliable Foundations and the Tokomaru Lifestyle deer breeding farm and retreat north of Whanganui.
"My family and I are delighted to be part of the Cannasouth story and the development of New Zealand as a major player in the exciting global medicinal cannabis industry," Craig said.
The shares issued to the Craig family will be subject to a 12-month escrow period.
CM Partners, which was paid a 5 percent brokerage fee for managing Cannasouth's IPO, advised the NZX-listed company on the joint venture transaction.