Little Green Pharma to demerge its medicinal psychedelics business

There is an increasingly growing body of research globally into the use of psychedelic medicines to treat various health conditions. To date, this research has produced highly encouraging results and has promoted the development of an extensive psychedelic industry, which has kicked off in North America and the United Kingdom. The industry has now made its way into Australia with legislation and laws surrounding the use and research of psychedelics and cannabis related products becoming more relaxed. 

Little Green Pharma (ASX: LGP) entered the psychedelic space in late 2020 with their subsidiary Reset, with a long term goal of treating mental health conditions, such as PTSD, depression and anxiety. The Company has an existing regulatory framework that makes sure they’re operating within the law and has expertise in cultivation and manufacturing Schedule 9 herbal drugs. 

LGP plans to demerge the subsidiary to allow it to pursue its own goals as a standalone company. This will give shareholders the choice to dictate their preferred investment appetite across their medical cannabis and psychedelics businesses. 

Other companies within the same industry are also expanding and developing their own medicines; Creso Pharma (ASX: CPH) who recently entered the US market after they struck a deal with Colorado-based packaged goods company Sierra Sage Herbs, LLC and the Green Goo brand to distribute their therapeutical and nutraceutical products. As well as Incannex Healthcare Ltd (ASX: IHL) who has excelled in the cannabis space and has begun Phase 2 trials of their cannabinoid product IHL-42X, for its treatment of Obstructive Sleep Disorder. 

Reset has commenced construction of its psilocybin mushroom cultivation facility in Western Australia which is expected to be completed by June 2022. The Company is finalising the psychotherapy protocols for use in clinical trials and has also received approval from the Australian government to import synthetic psilocybin to be used in such trials. 

Reset’s CEO, Shaun Duffy commented “We believe Reset is ideally placed to play a leading role in the evolution of the psychedelic industry in Australia” and “We plan to continue and maintain a close relationship with LGP, operating as a standalone company.” 

The Company will hold a general meeting with shareholders to discuss the demerger and to seek approval. If approved, the demerger is set to be completed in June this year. 

After the demerger, Little Green Pharma will solely focus on its medicinal cannabis business, with operations from cultivation and production through to manufacturing and distribution. The Company has two production sites to yield their white-labelled cannabis products in Denmark and Western Australia – and distributes their product to Australia, Europe and a few other overseas markets. 

In FY21, Little Green Pharma reported over $7m in revenue with net profit after tax of $24m. The accounting anomaly where their NPAT figure was more than 3x revenue was accounted for based on the inclusion of a $24.9m cash inflow defined by the Company as “Gain on bargain purchase”. This was in reference to LGP acquiring Canopy Growth Denmark ApS – which owns a cultivation and manufacturing facility – for $11.1m while its fair value was accounted as $36.1m. 

During this period, the Company experienced record growth in demand in Australia with a 130% increase in new patients totalling 15,000. Meanwhile, gross margin increased 82% in the year ended June 30 2021.

The split will allow Reset to prioritise and focus on advancing psychedelic medicine research. The Company will continue to work under the LGP umbrella and will not be listed as a separate company. 

Since its listing in February 2020, LGP has seen modest share price growth, reaching a peak of $1.17 in February 2021, but stagnating since. At the time of writing, the share price currently sits at $0.55.