Cronos Australia to merge with unlisted Queensland-based cannabis company

Cronos Australia to merge with unlisted Queensland-based cannabis company

CDA Health co-founder Dr Ben Jansen.

Two medicinal cannabis companies have entered into a merger agreement today in a deal worth around $85 million, giving Queensland-based CDA Health control over the Australian subsidiary of Canadian giant Cronos Group (NASDAQ: CRON).

The deal, between ASX-listed Cronos Australia (ASX: CAU) and CDA Health, will comprise a combination of shares and cash, with CDA shareholders to own approximately 73.7 per cent of CAU on completion of the merger.

It comes nearly two years after CAU listed on the ASX following a $20 million IPO, at the time giving the company a market capitalisation of $64.4 million.

In the years since, shares in CAU dropped significantly from its $0.36 per share debut and were trading at $0.10 yesterday, representing a market capitalisation of just $4.87 million.

Since releasing the announcement this morning, CAU has added around $1 million to its market capitalisation as shareholders flocked to the small-cap, sending its share price up 19.05 per cent at the time of writing to $0.12 per share.

Founded in 2018 by Guy Headley, Dr Ben Jansen, Jessimine Jansen and Dr Matua Jansen, CDA has seen rapid growth over the last two financial years, generating more than $21 million in sales for FY21 and is profitable.

CDA operates across various parts of the medicinal cannabis industry and owns medicinal cannabis wholesale distributor Burleigh Heads Cannabis, medicinal cannabis clinics operator CDA Clinics, and hemp-based foods brand Healthy Not High.

Cronos Australia says the merger will provide a material increase in both the size and scale of its operations and represents a route to early profitability for the integrated group.

“The prominent position already held by CDA in the Australian medicinal cannabis industry, when added to the company’s existing operations and strategic opportunities, should deliver synergistic benefits for the integrated group where the combined value exceeds the sum of its parts,” says CAU.

“Post-completion, existing Cronos Australia shareholders will benefit from the significant market share held by CDA and the profitable businesses it operates.

“The current multinational medicinal cannabis products, clinic and consumer operations, public markets and corporate experience, all offered by Cronos Australia, will assist the expansion of the operations of both businesses and maximise the opportunities available to them, with the aim of delivering increased shareholder value for all post-completion shareholders in the company.”

Though CDA Health is taking control of Cronos Australia, the listed entity says it will continue to benefit from its relationship with current majority shareholder Cronos Group, with the Toronto-based parent’s president and CEO to sit on the CAU board post-completion.

“We are looking forward to joining forces with the Cronos Australia team to create a market leader in the Australian listed medicinal cannabis space,” CDA co-founders Guy Headley and Dr Ben Jansen said.

“Since founding CDA in 2018, we have established a successful medicinal cannabis business with our exceptional team and supported by our shareholders.

“The integrated Cronos Australia and CDA business will allow us to take the company to the next level of growth, both in Australia and offshore.”

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