With just four months of operating cash in the bank according to last month’s quarterly report, cannabis company Creso Pharma (ASX: CPH) are back in the headlines inking deals with the latest collaborative agreement to potentially enter the Australian body care market via Dr Pickles.
Key to the non-binding Heads of Agreement (HoA) signed is that it can be terminated at any time before 29 July 2022 without cause but in the meantime, Creso Pharma will hope to advance talks in an effort to sell its cannabis-infused products through Dr Pickles’ eCommerce database of 20,000 customers.
As reliable as Dr Pickles sounds as a medical professional, in this instance it is Dr Pickles Pty Ltd which manufactures petroleum jelly based alternatives for people with fresh tattoos. In addition to their 20,000 strong mailing list, they also distribute the gels to 800 tattoo parlours where a 75ml tube retails around $20 each. According to Dr Pickles’ website, their products primarily comprise fresh and fermented Australian pawpaw, coupled with hydrating D-Panthenol.
The underlying intention behind the HoA is that Creso Pharma is hoping to formalise an agreement where Dr Pickles will distribute the Green Goo brand of products which Creso is set to own via their USD $21 million acquisition of Denver-based Sierra Sage Herbs which is still subject to shareholder approval.
The shareholder meeting to approve the acquisition of Sierra Sage had originally been planned for March 2022 but that has since been pushed back with Creso’s latest investor presentation suggesting the acquisition will not settle until June 2022.
According to the Purchase Agreement entered into on 3 February 2022, Sierra Sage and their Co-Founder Jodi Scott can walk away from the deal if the transaction is not settled before 1 July 2022.
Based on the terms of the acquisition, the $21 million purchase was an all-scrip deal where the vendors would be issued CPH shares valued at $0.083 per share which was the 10-day volume weighted average price (VWAP) as at the date of execution of the Agreement.
Since then, Creso shares have fallen significantly to a low of $0.05 per share before a rebound to $0.057 following the announcement of this non-binding HoA with Dr Pickles, which can be terminated without cause and no money having changed hands in the signing of the HoA.
Notwithstanding the loss in value, Sierra Sage vendors will incur a loss if the acquisition reaches settlement and CPH shares do not rebound further, Scott is hopeful that distribution by Dr Pickles will accelerate Green Goo’s launch in Australia.
“We believe our Green Goo products will be well received by Australian consumers because they are all-natural, plant based and highly effective,” said Scott.
“Finding the right partner is critical for us entering Australia and with Dr Pickles we have met another highly successful family enterprise and identified several additional synergies that have the potential to unlock shareholder value. Dr Pickles have built a wonderful brand which holds tremendous appeal with consumers and has a great fun personality.”
For the quarter ended 31 March 2022, Creso Pharma reported $1.6m in customer receipts for a net cash outflow of $3.6m. As per their quarterly cash flow statement, the Company’s $5m in cash at the end of the quarter is enough to fund the Company for an additional 1.4 quarters, or until the end of August 2022.
Should a capital raise take place prior to that, vendors of Sierra Sage Herbs will be hopeful that their all-scrip payment won’t be diluted too much.
With Creso Pharma having confirmed their Annual General Meeting of shareholders will take place on 31 May 2022, it is sure to be one of the more interesting meetings on the AGM calendar.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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