-- Two global leaders in the medical wellness cannabis industry expected to combine complementary strengths of diversified revenue in multiple markets and channels to create a pro-forma Combined Company with over $50M in annualized revenue, based on Q3 2022.(1)(2)(3)(4) -- Pro-forma Combined Company is expected to have positive EBITDA(5) synergies of between $7M to $9M on an annualized basis within 12 months closing of the Transaction.(1)(2)(3)(4) -- Transaction is expected to accelerate MediPharm Labs' path to profitability, with possibility to reach positive EBITDA(5) and cash flow targeted in the first half of 2024.(1)(2)(3)
BARRIE, ON, Dec. 22, 2022 /CNW/ - MediPharm Labs Corp. TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) ("MediPharm", "MediPharm Labs" or the "Company") and VIVO Cannabis Inc. (TSX: VIVO) (OTCQX: VVCIF) ("VIVO") today announced that MediPharm and VIVO have entered into a definitive arrangement agreement (the "Arrangement Agreement") whereby MediPharm has agreed to acquire VIVO in an all-equity business combination transaction (the "Transaction"). The Transaction is expected to combine two highly complementary businesses, creating a unique and market differentiating international medical cannabis leader. Upon the completion of the Transaction, existing MediPharm shareholders are expected to own between 65% and 79% of the combined company resulting from the Transaction (the "Combined Company") and VIVO shareholders are expected to own between 35% and 21% of the Combined Company.
Under the terms of the Arrangement Agreement, holders of common shares of VIVO ("VIVO Shares") will receive between 0.2110 and 0.4267 common shares of MediPharm (the "MediPharm Shares") for each VIVO Share held, subject to adjustment (the "Exchange Ratio"). The Exchange Ratio at closing will be determined by the amount of interim working capital of VIVO (the "Interim Working Capital"), taking into account any funds advanced by MediPharm to VIVO up to a maximum of $3.75 million, by way of a promissory note (the "Note"). The Interim Working Capital will allow VIVO to continue operations in the ordinary course throughout the proposed closing period. Holders of VIVO Shares will be entitled to receive such number of common shares of the Combined Company as is equivalent to 35% of the issued and outstanding common shares of the Combined Company (or an Exchange Ratio of 0.4267), which may be reduced depending on the Interim Working Capital of VIVO prior to closing, to a minimum of 21% of the issued and outstanding common shares of the Combined Company (or an Exchange Ratio of 0.2110).(1)
Key Transaction Highlights(1)
-- Leading Pharmaceutical Cannabis Company: The acquisition of VIVO will add established Australian and German medical cannabis brand Beacon Medical, an industry-leading medical cannabis clinic business Harvest Medicine, and a longstanding Canadian medical sales platform Canna Farms Medical. -- Direct to Patient Sales:(1)(3) VIVO's medical sales channel, Canna Farms Medical, was the first Licenced Producer in British Columbia and has supported over 60,000 patients since 2014.(6) Following the Transaction, it is anticipated that this platform will provide patients with a more diverse product portfolio that includes existing MediPharm products. Direct to patient sales generally result in a better gross margin with the ability to bypass provincial distributors. VIVO's clinic business Harvest Medicine will allow real-time product feedback and clinical insights on MediPharm products. -- Diversified Revenue Profile with Strong Canadian Base: (1)(3) The pro-forma Combined Company is expected to provide fulsome Canadian market coverage with cultivation and manufacturing expertise, and a full suite of dried flower & derivative products with both established medical and adult-use wellness distribution channels. -- Expanding International Medical Cannabis Opportunity:(1)(2)(3)(4) The pro-forma Combined Company's international distribution will cover European and Asia-Pacific markets through established, revenue-generating agreements. The VIVO Napanee Ontario facility is EU-GMP certified for cultivating and packaging flower and the MediPharm Barrie Ontario facility is GMP certified for flower alternative format medical products. With two distinct international platforms, the pro-forma Combined Company is expected to open many new product offerings for existing distribution channels and geographies. The pro-forma Combined Company would have annualized international revenue of over $20M, based on Q3 2022. -- Revenue and Cost Synergies Realizable in the Near-Term:(1)(2)(3)(4) Using forecasts derived collaboratively by both management teams, along with revenue and cost synergy estimates, the pro-forma Combined Company aims to find positive EBITDA(5) synergies to the magnitude of between $7M to $9M on an annualized basis, and could reach positive EBITDA and cash flow in the first half of 2024. -- Balance Sheet Strength:(1)(2)(3)(4) Anticipated combined cash position of approximately $30 million (as reported September 30, 2022 and including the subsequent sale of MediPharm Labs Australia Pty Ltd.), less than $2.5M in debt on closing, and unencumbered ownership of all major assets. This strength is expected to provide confidence in the Combined Company's balance sheet to execute on its strategic growth roadmap, despite the macro backdrop of capital markets that continue to soften.
Management Commentary(1)
"MediPharm Labs has been actively pursuing M&A opportunities in the industry since June of 2022. When we first met with the management of VIVO, it was immediately apparent that this was a natural fit from a strategy, values, approach and financial perspective. Both companies have a primary medical wellness vs. recreational focus. Both have a strong history in the medical cannabis sector, investing in GMP production, clinical trials and building diversified medical revenue streams internationally. As many cannabis companies solely focused on the Canadian recreational space, both VIVO and MediPharm saw the future in cannabis wellness products and in pharmaceutical drugs containing cannabis. We were mutually focused on the global opportunities for GMP facilities as international regulations evolved with ever higher quality and regulatory standards. Through this business combination, we have identified the potential for millions in cost and revenue synergies to solidify our leadership for the long term"(1) , said David Pidduck, Chief Executive Officer, and Director of MediPharm. "We look forward to expanding our offerings within each others' respective channels, including medical patients, wellness consumers, and through our respective global partners. We have the chance to offer even more options for individuals using cannabis to potentially improve their quality of life."
"VIVO has been exploring options to continue its goals of growth and profitability, of being a best-in-class provider of medical cannabis. By leveraging our broad patient base and EU-GMP investments to date and combining our business with MediPharm we achieve just that. In the current capital markets both inside and outside of our industry, capital investment opportunities are extremely limited and we were attracted to MediPharm as a partner given their cash position of over $19.5M, at the end of Q3, and virtually no debt. As a Combined Company we can service the small outstanding amount of VIVO debt, continue international operations and invest in the future to grow the Combined Company and achieve profitability sooner than by going at it alone", said Ray Laflamme, Chief Executive Officer, and Chairman of the Board of VIVO. "This transaction brings a great opportunity to our employees, shareholders and patients. The clinical trial initiatives at MediPharm with their standardized non-flower pharmaceutical cannabis products align well with our patient-first values and I am excited about the future of what this Combined Company will achieve. Together we are an even stronger, a more diversified and a more credible global medical cannabis player."