After changing its name and identity, cannabis and psychedelics provider Melodiol (ASX: ME1) has decided to sell off two of its most prominent business units, Sierra Sage Herbs and Halucenex Life Sciences to US-based Panacea Life Sciences for $7.56 million in cash and shares.

Panacea Life Sciences focuses on the production, research, and distribution of health and wellness products, including pet care items, which are GMP-certified and primarily derived from hemp and CBD. The Letter of Intent (LOI) also incorporates extra earn-out clauses amounting to $22.6 million. If these conditions are fulfilled, they will offer Melodiol added benefits. 

Chief Executive Officer, William Lay, said, “The provisional consideration terms reflect the significant upside potential of SSH and Halucenex, and the deal has been structured to allow both counterparties to leverage their respective strengths while sharing in the opportunity for future growth. For Melodiol, the proposed transaction also provides the Company with a material non-dilutive cash consideration at an important juncture in its growth phase.” 

He added, “It follows a consistent period of record revenue growth across our continuing operations, and presents the group with a strong strategic rationale to complete the transaction and deploy resources in pursuit of ongoing growth in top-line revenues and cash flow.” 

As per the Company, this strategic step is aimed at enhancing financial flexibility for Melodiol by significantly reducing cash outflows, which amounted to $6.6 million in H2 FY23. Additionally, it allows Melodiol to capitalise on Panacea’s capabilities to drive growth. 

The Company had acquired Sierra Sage Herbs a year ago in August 2022 for $21 million (357,614,203 shares), and it acquired the Canadian psychedelics company Halucenex for $500,000 cash, 29.2 million CPH shares and 17.5 million performance shares. Now, it is selling both for less than $8 million. 

The planned sale of SSH and Halucenex will not only provide Melodiol with funding that doesn’t dilute its ownership but also offers it a stake in Panacea. This opens up the possibility of gaining from Panacea’s health products business in the US.

By divesting SSH and Halucenex, Melodiol can focus on profitability, primarily through the growth opportunities at its other divisions, including Health House International and Mernova Medicinal Inc. The purchase price for the ongoing divestment includes $3.02 million in cash and the remaining amount in the form of Panacea common stock, offering the potential for additional benefits. As a result of this transaction, Melodiol will become the largest shareholder in Panacea, enabling a strategic entry into the US market.

In May 2023, the Company changed its name from Creso Pharma Limited to Melodiol Global Health to represent its “global ambitions”. Now, as it divests its business units and hands them over to Panacea, it is realising those goals while hopefully reviving its cash flow. 

At the end of the June quarter, Melodiol had just over $1 million in cash at bank.