International cannabis company Flora Growth Corp. announced this week that it had signed an agreement to acquire Franchise Global Health Inc., a Germany-based multinational operator in the medical and pharmaceutical cannabis industries. The news comes the same week German officials revealed the government’s plan to legalize recreational marijuana, a move that will create the largest legal adult cannabis market in Europe.
Flora Growth is a global cannabis company with operations in five countries, including one of the world’s largest outdoor marijuana grow operations in Colombia. Under the terms of the agreement, Flora Growth will acquire 100% of the issued and outstanding common shares of Franchise Global Health (FGH). In return, Flora Growth will issue between 36,615,060 and 43,525,951 of its common shares to former FGH shareholders upon closing of the transaction. Completion of the agreement is subject to customary closing conditions, including shareholder and regulatory approvals.
The German Franchise business operates primarily in the import and export markets of pharmaceutical and medical cannabis, serving 1,200 pharmacies in Germany and supplying non-cannabis medical products to an additional 28 countries. The acquisition should accelerate Flora’s expansion into the European cannabis and pharmaceutical markets with prescription drugs, according to a statement from Flora Growth, “and would provide the company with immediate access to a wealth of knowledge and proprietary intellectual property that FGH has developed, including 41 registered cannabis strains in Colombia and the first registered cannabis seed bank in Copenhagen, Denmark, housing 286 strains.
Germany unveils plan to legalize recreational marijuana
Flora Growth’s acquisition of Franchise was announced the same week German authorities revealed details of its plan to legalize the recreational use of cannabis for adults. Under the plan, which is unlikely to be implemented until 2024 and is subject to review by the European Union, adults aged 18 and over would be allowed to possess between 20 grams and 30 grams (about one ounce ) of cannabis for personal use.
Luis Merchan, Chairman and CEO of Flora Growth, says the company’s new presence in Germany gives it access to other emerging markets for legal cannabis in Europe.
“This acquisition should give Flora Growth a crucial foothold in Germany, the region’s most important cannabis market,” Merchan wrote in an email. “Franchising Global Health would strengthen our international business revenues, give us access to pharmaceutical distributors and accelerate the flow of our medicinal cannabis to Europe.”
The all-stock acquisition of Franchise Global Health will result in the indirect acquisition of its subsidiaries, including Hilzingen-based Phatebo GmbH, a major distributor of export pharmaceuticals and medical cannabis to the European Union and ACA Müller ADAG Pharma Vertriebs GmbH (“ACA Müller”), which holds the first German license to import and distribute medical cannabis, granted by government regulators in 2017.
In a statement, Merchan said that “we are connecting our commercial infrastructure and our medical cannabis product portfolio to the German and European medical markets, while gaining direct access to European pharmaceutical distributions. We believe Franchise will significantly increase our international business revenue and provide essential distribution to German pharmacies and a growing wholesale market.
Flora Growth said the combined companies are expected to “produce at least US$3.0 million of annualized cost synergies in the first year following completion of the acquisition, primarily in the areas of the company”.
“Luis and I share the same vision of establishing a leading and sustainable cannabis business. Flora has the right platform to execute this strategy through mergers and acquisitions and organic growth. We are excited to unite our strengths,” said Clifford Starke, CEO and Executive Chairman of Franchise Global Health. “Together, we have a strong revenue base, a proven consumer packaged goods business that can be replicated in Europe, and a successful distribution network. Over the past few months, we have worked tirelessly to identify synergies, reduce costs and build an industry-leading team.