MMJ Bioscience Inc.

MMJ Bioscience Inc.
PhytoTech Medical Limited
ASX : PYL

PhytoTech Medical Limited

March 25, 2015 18:09 ET

ASX-Listed Medical Cannabis Company to Merge With Canadian MMPR-Applicant in One of the Largest Announced M&A Deals to Date in the Canadian Medical Marijuana Space

"Farm to Pharma": MMJ Bioscience Inc. and ASX-Listed PhytoTech to Merge, Creating the First Global, Vertically-Integrated Medical Cannabis ("MC") Company

VANCOUVER, BRITISH COLUMBIA--(Marketwired - March 25, 2015) - MMJ Bioscience Inc. ("MMJ") is pleased to announce a merger between MMJ and PhytoTech Medical Limited (ASX:PYL). The combined entity (MMJ-PhytoTech) will create a unique, vertically-integrated platform with a global operational presence. From potential cultivation of MC in Canada to clinical trials of delivery technologies in Israel, MMJ-PhytoTech will be a leading global medical cannabis company. The merger enables the combined entity to close the MC supply chain loop "From Farm to Pharma," better positioning the Company as a developer and distributor of MC-based pharmaceuticals, nutraceuticals, and cosmeceuticals going forward.

With an implied total value for MMJ of C$21 million this transaction (including performance related consideration), to our knowledge, is the largest announced M&A deal(1) to date in the Canadian medical marijuana space.

Under the terms of the agreement, this transaction is viewed as a ("Merger of Equals"). PYL will purchase 100% of the issued and outstanding shares of MMJ for a total consideration of 68,000,000 PYL Shares. The consideration will be paid in three stages with 75% paid at close and two 12.5% tranches subject to independent performance milestones:

  1. Up to 51,000,000 (75%) fully paid ordinary PYL shares at close of the transaction
  2. Up to 8,500,000 (12.5%) fully paid ordinary PYL shares if MMJ is granted a cultivation license under the MMPR within 12-months of the close of this transaction
  3. Up to 8,500,000 (12.5%) fully paid ordinary PYL shares if MMJ and its subsidiaries are able to generate C$5,000,000 in revenue within 36 months of the close of this transaction.

PYL will appoint three MMJ nominees to the MMJ-PhytoTech Board of Directors. The Board will then consist of seven members including four non-executive members. Andreas Gedeon, the current CEO of MMJ, will assume the role of Managing Director of the combined entity.

MMJ retained Jacob Securities Inc. ("JSI") in January, 2015, to help the Company evaluate strategic alternatives including various M&A and financing opportunities. JSI worked as advisor with respect to this transaction and will continue to work for MMJ as exclusive advisor with respect to future Canadian financings. JSI is a leading investment bank in the cannabis space and has completed over 11 transactions for both public and private companies in this young, but fast growing industry over the last 12 months.

Rationale for the Merger:

Closing the Loop "From Farm to Pharma"

Each company brings a unique and complementary strategic component to the merger resulting in a vertically-integrated MC company with interests spanning the entire supply chain. MMJ-PhytoTech will be capable of independently performing all of the steps required to unlock the true medicinal potential of cannabis. Controlled growing of the biological material, sustainable availability, clinical grade extraction, leading delivery technologies, and scientific evaluation: "From Farm to Pharma".

To view "Closing the Loop 'From Farm to Pharma,'" please visit the following link: http://media3.marketwire.com/docs/mmjphy0325fig1.pdf.

PYL brings a robust Israel-based R&D platform backed by a strong intellectual property portfolio, working in conjunction with leading Israeli research centers, utilising decades of medical cannabis research leadership and science / evidence based patient trials. PYL also has an exclusive research and licensing agreement with Yissum, the prestigious R&D and technology transfer Company of Hebrew University in Jerusalem.

MMJ controls two MC production facilities with a combined footprint of 78,000ft2, currently in the application process under the MMPR program. The Duncan Facility is complete and awaiting pre-licensing inspection prior to being granted a cultivation license under the MMPR. The application for the Saskatchewan-based Lucky Lake facility has just recently been submitted. MMJ's Swiss R&D subsidiary, Satipharm, is working on cannabis-based pharmaceuticals, nutraceuticals, and cosmetics. Satipharm's inaugural product, launching this July, is a first-to-market, proprietary GMP-produced gastro-resistant CBD pill that contains 98% pure CBD. It is expected that this one product will generate meaningful revenues starting in July of this year. Satipharm and its partners have spent several years developing the delivery system used to minimize the destruction of the active compound as well as maximizing its bioavailability. This work is of great interest to the PYL team in Israeli as the same delivery technology can likely be utilised in other cases; one small example of the operational and knowledge-based synergies the merger brings about.

Complementary Strategic Growth Initiatives and Timing of Cash Flows

The companies have complementary assets and strategic growth profiles, with a high potential for synergies. The combined entity has little product overlap and well-timed expected cash inflows and outflows. Importantly, the deal brings near and midterm cash flow from MMJ's subsidiaries to help fund the R&D efforts of the combined entity going forward. Both companies have a global strategy in place with similar pursuits across targeted jurisdictions, creating an expanded platform for global growth.

The timing of cash flows will likely result in far less dilution for both companies, which is a major benefit of the merger. Given the anemic state of the Canadian capital markets for pre-licensed MMPR applicants, the dilution that MMJ would suffer to get to revenues in July would be enormous. Upon completion of due diligence, PYL will lend MMJ C$1,000,000 which should take operations to positive cash flow. As the group increases its R&D efforts - including potentially running clinical trials in Israel - the cash flow from the Swiss and Canadian operations should help to cover a significant portion of the associated costs.

Structure of Combined Entity

To view the Structure of Combined Entity, please visit the following link: http://media3.marketwire.com/docs/mmjphy0325fig2.pdf.

About MMJ Bioscience Inc.

MMJ is a holdings and investments company specializing in supply chain optimization and product development for the emerging global cannabis market. MMJ's Canadian subsidiary, United Greeneries, has two facilities with a combined area of 78,000ft2 both of which are in different phases of the licensing process to become a Licensed Producer ("LP") under the MMPR program. The Duncan facility is currently in the final stages of the licensing process with the facility completely built out and awaiting inspection. United Greeneries' second facility in Lucky Lake, SK is much earlier in the licensing process. Satipharm is MMJ's Swiss-based R&D subsidiary focused on cannabis-based pharmaceuticals, nutraceuticals and cosmetics. The first meaningful revenues for the entire MMJ group are expected from Satipharm in July 2015. MMJ has established a number of key international partnerships placing it in an advanced position when it comes to developing and distributing cannabis and cannabinoid-based pharmaceutical, nutraceutical and wellness products.

About PhytoTech Medical Limited

PhytoTech Medical (ASX:PYL) is a medical cannabis company, which aims to commercialize Medical Grade Cannabis (MGC) and high potential cannabis based therapeutics products to the rapidly growing international market with regulated medical cannabis legislation. With research facilities located in Israel, a global leader in medical cannabis research, the Company is strategically positioned to become a key player in the global MGC market.

The Company is focused on the research, development and commercialization of products for administering MGC, and on new treatments utilizing MGC therapeutic components for various medical conditions. In addition, the Company aims to grow proprietary strains of MGC in California, Uruguay and other jurisdictions.

(1) Referring to actual M&A transactions not go-public or reverse takeovers ("RTO") with CPC or shell companies.

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