An Australian-headquartered company, BPH Energy Limited (ASX: BPH) is a diversified firm that holds substantial investments in different sectors, including medical cannabis, biotechnology and resources. The company is engaged in commercialisation of a portfolio of Australian biomedical technologies developed through joint research by leading medical institutes, universities and hospitals throughout Australia.
Initially, the company had investments into biotechnology and oil & gas sector through Cortical Dynamics Ltd, Molecular Discovery Systems and Advent Energy Ltd. Recently, it has expanded its footprint into medical cannabis sector via completion of an initial investment in Patagonia Genetics Pty Ltd (PG Aust). On 30th August 2019, the company notified through an update on the Australian Stock Exchange (ASX) about its medical cannabis investment. Let us take a deep dive into the details of the investment transaction below:
Details of Investment Transaction
The company informed that it has acquired 10 per cent interest in PG Aust with an option to acquire 49 per cent total shareholding in the company via a terms sheet. The details of the investment transaction are summarised in the below figure:
As indicated in the above figure, the 10 per cent interest was acquired via the issue of 150 million BPH shares, a subscription amount of $50,000 in cash into PG Aust and a payment of $50,000 in equal instalments over six months to PG Aust shareholders.
The company also notified that the amount of capital issued by BPH Energy for the interest represents around 5.5 per cent of the capital of the company. This transaction required no shareholder approval as the consideration was met from the shares issued from the existing 15 per cent capacity of the company and the current cash.
BPH Energy also got an option to acquire an additional 39 per cent shareholding in PG Aust in consideration for the issue of 450 million shares in the capital of BPH and a subscription amount of $700,000 into PG Aust. However, the company mentioned that this transaction would be contingent on shareholder approval and appropriate due diligence.
About Patagonia Genetics Pty Ltd
PG Aust is an entity that holds 100 per cent ownership in Chilian company Patagonia Genetics SPA or PG. Based in Patagonia, Chile, Patagonia Genetics is a craft cannabis firm that has a genetic collection of more than 260 unique hemp and cannabis strains, cautiously gathered from the late 1980's industrial hemp cultivations, whose germination rates were confirmed in late 2016 with knowledge of the Agricultural and Livestock Service of Chile (SAG). A major proportion of these are non-hybridized landraces not seen in home markets in more than thirty years, hence their genetic value. Furthermore, Patagonia Genetics believes it to be the sole seed bank in the world to hold the rarest F1 Colombian Red, a strain that was thought to be lost.
The PG collection involves a broad variety of cannabis and hemp strains that have been chosen for their exceptional production yield, medicinal, terpene profile, uniqueness, pest resistance, CBD/THC content and medicinal properties. A crucial element to successful cannabis production is providing the plant pest prevention, quality nutrients and natural products at all stages of their lives that don’t leave a residue. On this ground, Patagonia Genetics has tried to vertically align itself by securing the global offtake rights to Chile’s top cannabis fertilizer, Wonderland Agronutrients brand.
With eleven existing applications under review with the SAG, Patagonia Genetics expects to conduct R&D on its genetic collection, cultivate medicinal cannabis and cultivate stabilized seeds locally before the end of the financial year 2020.
Opportunities of Medical Cannabis Industry in LATAM Region
Over the past few years, the medical cannabis sector has shown significant growth with several ongoing developments enhancing the sector’s feasibility. According to Patagonia Genetics, the future of cannabis is in high-standard outdoor and field grown craft cannabis.
Ten LATAM (Latin American) countries have already legalised cannabis in their markets for medicinal use while three have legalised cannabis for adult usage and there are more than forty licensed producers functioning in the LATAM region, a region that enjoys some of the most promising growing conditions and prime real estate across the globe.
The region also possesses excellent climatic conditions, with good rainfall and lots of sunshine. Along with the availability of acres and acres of arable land, the cost of labour is extremely cheap relative to its North American and European counterparts. Due to its exceptional qualities, the LATAM region has the potential to become the global leader in cannabis production.
As per the company, the LATAM region holds the ability to produce cannabis for nearly 80 per cent less cost than the rest of the world in commercial quantities. With substantial growth prospects available in the medical cannabis industry, the company’s recent investment in the sector is likely to offer huge opportunities going forward.
Stock Performance: On 16th September 2019, BPH was trading at AUD 0.002 (AEST: 11:53 AM). With around 250k shares of the company in trade, the market capitalisation of the stock stands at AUD 5.98 million. The stock has delivered a return of 100 per cent during the last six months.
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