Cannasouth to acquire 60% shareholding in Midwest Pharma for $1.32m

Midwest Owner and Chief Executive Mark Balchin will continue as the CEO of Midwest and will also be appointed by Cannasouth as its Chief Manufacturing Officer following completion of the transaction.

Leading medicinal cannabis company, Cannasouth Limited (NZX: CBD) ("Cannasouth" or "the Company") is pleased to announce it has today entered into an agreement to acquire a 60 percent shareholding in Hawkes Bay-based Midwest Pharmaceutics NZ Limited for a purchase price of $1.32 million.

Cannasouth CEO, Mark Lucas said: "Cannasouth Limited successfully raised NZ$10m in its IPO to develop and grow a sustainable medicinal cannabis business in New Zealand. The acquisition of the Midwest is a significant milestone for the Company. Together with the recent Cannasouth Cultivation Joint Venture, we have now implemented the key strategies required to bring medicinal cannabis to the New Zealand market, when regulations permit us to do so."

Established in Hastings in 2001, Midwest operates a GMP (Good Manufacturing Practice) compliant manufacturing and packing facility specializing in the manufacture, re-packing and wholesale supply of pharmaceutical raw materials, including both actives and excipients and the manufacture of dietary supplements and herbal extracts.

Its products are used by compounding pharmacies, hospitals, universities and pharmaceutical and veterinary manufacturers. Midwest also markets and distributes its own branded products and for the financial year ended 31 March 2019, generated revenues of $1.8 million.

Midwest Owner and Chief Executive Mark Balchin will continue as the CEO of Midwest and will also be appointed by Cannasouth as its Chief Manufacturing Officer following completion of the transaction. Having Mr. Balchin on the Cannasouth senior management team will enable the synergies, integration, and execution required to drive value from the transaction.

Mr. Balchin holds a Bachelor of Technology in biotechnology and bioprocess engineering from Massey University. Before Midwest, he spent 10 years in the pharmaceutical industry, including time in the UK with British multi-national pharmaceutical company, GlaxoSmithKline.

Cannasouth's investment will enable it to use Midwest's existing GMP manufacturing facilities and operations, reducing the time and risk of building its own GMP certified facility from scratch.

"The capital cost, time and resources associated with the construction and establishment of a greenfield GMP certified production facility would be significant," says Mr. Lucas.

"This acquisition reduces the amount of time, capital costs and execution risks associated with the development of such a facility from ground zero."

Mr. Lucas says the investment structure of the transaction maximizes the allocation of capital Cannasouth raised during its recent IPO and is an important step towards implementing the company's vertical integration strategy "from seed to sale".

"This acquisition will provide us with a well-established, top quality operating GMP certified facility currently generating good revenues with the capacity to grow those revenues."

Mr. Lucas says the Midwest acquisition will provide Cannasouth a basis from which to develop its future commercial and operational requirements as a leading medicinal cannabis company in New Zealand.

"We will continue to develop and grow Midwest's existing commercial operations and revenues and at the same time adapt the facilities to meet all regulatory requirements to produce and manufacture medicinal cannabis products as regulation allows.

"We will also be in a position to utilize Midwest's existing licenses and gain additional licenses, along with adding manufacturing and product development expertise to support Cannasouth's business operations."