Melodiol Global Health have announced a non-binding Letter of Intent (LOI) to divest two of its business units – Sierra Sage Herbs (SSH) and Halucenex Life Sciences (Halucenex) – to US-based Panacea Life Sciences (OTCQB:PLSH) for an initial estimated U$5m in cash and scrip – the potential deal includes earn out clauses that could earn Melodiol up to A$30m.

Panacea specialises in the development, manufacturing, research, and distribution of GMP-certified health and wellness and pet care products, chiefly those originating from hemp and CBD, operating a from sophisticated 51,000 square foot, cGMP-certified facility in Golden, Colorado.

The proposed divestment of SSH and Halucenex will not only furnish Melodiol Global Health (ASX:ME1) with non-dilutive funding but also a strategic shareholding in Panacea, which the company says creates an avenue for potential upside exposure to Panacea’s thriving US health products business.

The LOI also includes additional earn-out components valued at up to US$15m, which will allow the company to further increase its shareholding in Panacea should conditions be met following SSH’s potential revenue growth.

Subject to due diligence being satisfied, Panacea would acquire SSH and Halucenex free and clear of all encumbrance for a purchase price totalling up to US$20m.

Escalating sales and expediting profitability

Melodiol says selling its earlier stage business units is a strategic leap towards financial agility, a move which decreases cash outflows while leveraging Panacea’s capacity to drive growth in both entities.

“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,” CEO William Lay said.

“For Melodiol, the proposed transaction also provides the company with a material non-dilutive cash consideration at an important juncture in its growth phase.

“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.”

Strategic expansion into US market

Panacea’s recent operational progress includes acquisitions of eight retail locations offering VAPE and CBD products in Tampa, Florida, generating US$2.9m of annual revenues for the fiscal year ended 31 Dec 2022, and a research collaboration with Colorado State University’s Cannabinoid Research Centre (CRC).

The transaction will enable Panacea to collaborate with SSH and Halucenex, driving growth and progress in each unit.

Post-transaction, Melodiol will be the largest shareholder in Panacea, enabling a strategic expansion into the US market.

This aligns with the Company’s long stated ambition to increase its exposure in US capital markets.

This article was developed in collaboration with Melodiol Global Health Limited, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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