Elixinol Wellness Ltd (ASX:EXL) (OTCQB:ELLXF) (FRA:E8M) and German-based CBD business CannaCare Health GmbH have mutually agreed to terminate a share purchase agreement following a changing German cannabis market that revealed financial concerns.
Elixinol will be reimbursed €360,000 by CannaCare to cover costs incurred to date; the acquisition was first announced in mid-March this year.
The two parties have entered a Termination and Withdrawal Agreement, effective immediately, meaning Elixinol will not pay CannaCare the €3 million it agreed to as part of the acquisition deal.
Changing market dynamics
Elixinol global CEO Oliver Horn said the company’s due diligence raised concerns around the rapidly changing German market dynamics.
“CannaCare is a leading brand in the German retail market with a strong distribution footprint and is well-positioned for growth, however, over the recent months the German market has become increasingly competitive, and the additional investment required to achieve profitable growth exceeds our current risk appetite.
“We have therefore taken the difficult decision in the best interest of our shareholders to discontinue the transaction process.
“CannaCare will now be able to realise opportunities that would not have been aligned with our strategy.
“We’ve built very strong relationships with the CannaCare Health team and will continue to evaluate joint opportunities in the future as they arise.”
As well as being no longer be required to pay CannaCare €3 million, CannaCare’s Frank Otto will not join Elixinol’s board, shares will not be exchanged and CannaCare’s management team will not join Elixinol.
Global strategy remains on track
Horn said that the termination would allow the company to focus on its other arms, as it looks for further partnership opportunities.
“Separately, we are pleased with the progress in our US and Australian operations following significant transformation efforts and we are continuing to foster the building momentum,” he said.
“We also benefit from a healthy balance sheet and are evaluating other growth opportunities in our existing markets.”
Elixinol will now focus on building its e-commerce capabilities to ensure a direct consumer relationship has been rewarded, with e-commerce accounting for 33% of total group revenues in financial year 2020, up from 26% in FY19.
This trend has continued into the first quarter of FY21, whereby e-commerce accounted for 40% of total group revenues.
Last month, Elixinol Wellness chair Helen Wiseman said the company was firmly focused on revenue growth and improving profitability outlined the company’s strategy.
“Our key markets for FY2021 will continue to be the US and Europe for Elixinol, and Australia for Hemp Food Australia (HFA).
“In the US, we have adjusted the business and now have a strong team that is well-positioned to drive growth, while being ready to take advantage of any opportunities presented as a result of the market consolidation.”