A merger announced today between Creso Pharma (ASX: CPH) and Canada's Red Light Holland (CSX: TRIP) will double the value of the former and create a global psychedelics and cannabis company called The HighBrid Lab.
Under the agreement, Creso will own the majority of the merged entity with The HighBrid Lab to list on the Canadian Securities Exchange under the ticker symbol TRIP.
The HighBrid Lab is expected to have an equity value of $371 million - nearly double the value of Creso's current market capitalisation of $187 million. However, following the announcement Creso shares have plummeted 13.9 per cent.
Combined, the group is expected to have a cash balance of approximately $48 million, providing financial flexibility to progress its growth strategy and build its position as a leader in the psychedelics and cannabis spaces.
For Creso, the merger deal cements the company's transition into being not just a cannabis group but a psychedelics company too, following the announcement it was acquiring Canadian company Halucenex for more than $7 million.
The HighBrid Lab will focus on several key growth areas, including expanding into recreational psilocybin. This builds on Red Light Holland's expertise in the production, growth and sale of "magic truffles" to the legal market in the Netherlands.
Once the merger is complete, The HighBrid Lab will immediately commence selling animal and human CBD products within the USA - a move that is expected to add "considerable revenue".
The merged entity is also looking to introduce new recreational products under existing Red Light Holland brands including combined CBD and mushroom products and ready to drink products with mushrooms, CBD and THC.
"We are very excited to have entered into this agreement with Red Light Holland and to create a company that has the potential to become a world leading psychedelic, CBD and recreational and medicinal cannabis company," Creso Pharma non-executive chairman Adam Blumenthal said.
"There are a number of synergies across the businesses, which will allow the combined company to considerably scale up operations in the near term.
"Red Light's CSE-listed vehicle will allow the combined company to enter the lucrative US market and we anticipate that product sales through our recreational cannabis and CBD subsidiaries will scale up significantly in the short term, underpinning early cash generation and provide additional financial flexibility across the business."
Under the deal, Creso shareholders will receive 0.395 of a Red Light Holland share for each fully paid ordinary share of Creso Pharma held.
Upon implementation, it is expected that the former Creso Pharma securityholders will own approximately 57.4 per cent of the issued Red Light Holland shares, resulting in a reverse takeover of the Canadian company by the Australia-based cannabis outfit .
Red Light Holland CEO Todd Shapiro will lead The HighBrid Lab as CEO and director.
Leading cannabis entrepreneur and Creso strategic advisor Bruce Linton is also expected to join the board of directors of the combined company as a non-executive chairman.
"Having worked with both the Creso Pharma and Red Light Holland teams closely in the past, I am really excited by the potential this combination brings," Linton said.
"As a merged company, The HighBrid Lab has access to four of the highest growth industry segments around, and the team, board and advisory group to make real progress within these verticals.
"I'm really looking forward to rolling up my sleeves and helping The HighBrid Lab get to work!
The deal requires approval from the Supreme Court of Western Australia, shareholders and the Australian Securities and Investment Commission.
A scheme meeting of shareholders will be held on Friday 17 September.
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