TW Holdings Ltd (ASX:TWH), which is in the process of a reverse takeover by AusCann Group Holdings Limited has sealed a strategic partnership with one of the world's largest medicinal cannabis companies, Canopy Growth Corporation (CVE:CGC).
AusCann will issue shares equal to 15% of AusCann to Canopy in exchange for access to Canopy’s large range of expertise and intellectual property in cultivation, manufacturing and supply of high quality medicinal cannabis.
A binding agreement has also been finalised by TWH and Australian medical cannabis company AusCann Group for the reverse takeover of TWH following the heads of agreement signed in March 2016.
Executive chairman of Canopy Group, Bruce Linton will join the new AusCann board of directors alongside a strong leadership team that combines experts from public health, policy makers, and medically focused entrepreneurs.
Canopy was the first publicly traded federally regulated cannabis producer in North America and remains the largest and most diversified. It is listed on the TSX Venture Exchange and has a market capitalisation over A$250 million.
Canopy’s core brands are Tweed, the world’s most recognised cannabis brand, and Bedrocan Canada, which produces and sells genetically standardised cannabis varieties.
Canopy operates two indoor production facilities and a large greenhouse with a combined size of more than 46,400 square metres of production capacity, making it the largest legal cannabis producer in the world.
Canopy Transaction overview
A total of 459,300,000 TWH shares will be issued to Canopy, equal to 12.03% of the company, pre-consolidation.
Canopy's shares in TWH (AusCann) will remain in a voluntary three year lock up/escrow. Canopy will be granted a three year option to acquire a further 5% stake in AusCann.
The new shares to be issued to Canopy will be included within the consideration already allocated to AusCann shareholders.
The deal is conditional on completion of due diligence investigations by the parties.
The company will need to re-comply with Chapters 1 and 2 of the ASX Listing Rules, consolidation, capital raising and shareholders approvals.
Additional shares to be issued by TWH
- 1,668,192,121 shares in TWH will be issued to AusCann, equal to 43.7% of the pre consolidation capital. An additional 321,000,000 performance shares are able to be issued to AusCann, based on agreed milestones.
- 805,333,333 shares will be issued to AusCann convertible noteholders, equal to 21.1%.
- 129,174,545 shares will be issued to AusCann transaction facilitators, equal to 3.4%.
- 153,100,000 will be issued to TWH transaction facilitators, equal to 4.0%.
- Current shares on issue are 15.8%.
Other key transaction details
TWH will undertake a capital raising to raise at least $2.5 million.
TWH will undertake a consolidation of its issued share capital on the basis of one new share for every 20 existing shares on issue.
TWH will a meeting of TWH shareholders to obtain all approvals that are required to give effect to the transactions contemplated.
AusCann managing director, Elaine Darby, commented: the Canopy agreement will cement AusCann’s leadership position in Australia’s rapidly developing medicinal cannabis market.
“We are exceptionally happy with this alliance with Canopy Growth Corporation, which has been a global pioneer in the development of medicinal cannabis.
“Our aim is to establish the Australian medical community’s trust in these products and to produce high quality, dependable, economical and clinically validated medicines and this partnership is a massive step toward achieving that aim.’’
While Bruce Linton, Chairman & CEO of Canopy Growth, added: “I’m very pleased to enter into this new international relationship, the first of its kind for a Canadian cannabis company.
“As the Australian government begins to lay out a framework for legal medical cannabis, AusCann has the same opportunities and challenges that Tweed and its sister companies faced several years ago.
"We have confidence that the Australian medical cannabis market will grow similarly to Canada and we think the lessons we learned in our early days will prove invaluable to the team at AusCann.”
TWH chairman, Mr David Wheeler, said the agreement was confirmation that the decision to purchase AusCann was a good one for TWH shareholders.
“We are very excited about the future for the medicinal cannabis market in Australia and once again it has been shown that AusCann is a best of breed company with a strong board and management team and significant international connections."
AusCann was established in 2014 to bring together a team of executives focused upon building an Australian-based, globally connected medicinal cannabis company.
These collaborations include partnerships with European breeding companies, leading universities in Australia, clinical stage biotech companies and US-based groups dealing direct with patients and with a deep understanding of treatment regimes including dosing and protocols.
The current TWH Board will resign, and Dr Mal Washer will be appointed as a non-executive chairman, a medical doctor and former Federal Member of Parliament.
Elaine Darby will be appointed managing director, who has a science/law background and extensive experience with clinical trials and regulatory environments.
Harry Karelis will be appointed as an executive director, who has a science/finance background with extensive capital markets experience particularly in start-ups.
Other board members include Mick Palmer, a former Head of the Australian Federal Police and the Hon Cheryl Edwardes, the former Attorney General and Environment Minister in Western Australia.
The company will change its name to AusCann Group Holdings Limited.
It is expected that TWH will convene a meeting to facilitate shareholder approval in late May 2016.
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