In early 2024, Melodiol Global Health (ASX: ME1), formerly known as Creso Pharma, faced scrutiny from the ASX, regarding corporate governance and financial disclosure which led to a major restructure and rebrand, but now the time has come to offload a major asset in an attempt for survival under its mounting debt obligations.

Melodiol is set to unload its Nova Scotia production facility to Canadian based firm Nacerna Life Sciences Inc. This strategic asset sale is worth $12 million with potential additional payments of $2.2 million (earn out provisions) and is expected to inject some much-needed cash into Melodiol’s coffers. 

The proceeds from the sale are expected to clear all existing secured debit, providing Melodiol with improved liquidity and financial flexibility. With this transaction Melodiol aims to optimise its portfolio, focusing resources on core brands like Mernova and Health House without the production facility within its supply chain. 

Nacerna Life Sciences Inc. is a licensed provider specialising in medical cannabis and psychedelics, focusing on patient care with proprietary CBD/THC infused products under the “Breakwater” brand. Operating from a 6,000 sqft Health Canada approved facility, Nacerna’s team has extensive experience in drug development and clinical trials, collaborating with Health Canada, Canada Veteran Affairs, and other government bodies on innovative healthcare initiatives.

CEO William Lay said: “The sale of the Mernova building, equipment and land is expected to be a pivotal step in the Company’s trajectory. Upon closing, we would be in a position to significantly improve our balance sheet, and focus working capital on Health House and Creso Pharma Switzerland, while also attempting to maintain a level of sales from the Ritual brand in Canada.

“We are pleased that the initial consideration is in line with the top end of the independent appraisals received for the Sale Assets, an outcome which highlights the quality of the assets the Company has built.

“Following the expected repayment of all secured debt, the Company will be in a stronger financial position, and able to focus all of its efforts on continued growth in the remaining business units, while aggressively pursuing its long-term strategic objective of group cash flow positive. We look forward to providing further updates in due course.”

The proposed transaction doesn’t prevent Melodiol from continuing to derive revenue from its Ritual cannabis brand, previously produced at the assets being sold. Post-transaction, Melodiol plans to utilise its capability to procure third-party produced flowers to pursue ongoing marketing of Ritual products in the Canadian market. This strategic approach aims to sustain sales from the Ritual brand, which amounted to $6.9 million in sales during FY23.

Melodiol’s trading update in May 2024, highlighted positive financial performance, with unaudited revenues of $4.8 million in the June 2024 quarter, a 9% increase from the previous quarter, and total unaudited revenues of $9.2 million for the first half of the year 2024, marking a 31% rise year-over-year. This growth was driven by Mernova, Melodiol’s recreational cannabis subsidiary, which secured purchase orders totaling $2.0 million in Q2 CY24.