Rua Bioscience plans share issue to buy medicinal cannabis company Zalm for $10 million

Rua Bioscience plans to buy Zalm for $10m. Photo / Supplied

NZ-listed Rua Bioscience has entered into a deal to buy Zalm Therapeutics, a New Zealand-based medicinal cannabis company, for $10 million.

Rua plans to fund the purchase through a share issue.

Zalm has Australia's leading listed medicinal cannabis company, Cann Group, as one of its key shareholders and partners.

Rua said it would acquire Zalm through the issue of new Rua shares at about $0.41 per share.

Rua anticipates completing the acquisition in late January 2022, subject to shareholder approval.

Rua said the purchase would allow significantly earlier access to GMP (Good Manufacturing Practice), export-quality oil products at scale by mid-2022.

It would also allow preferential pricing through a long-term supply agreement as a result of Cann's scale and GMP capability.

Cann is in the final stage of commissioning one of Australasia's largest and most advanced indoor growing facilities, due to start production in January 2022.

"The combination of accelerated speed to market, access to significant volume of variable cost product at market-leading cost will enable us to build a beachhead presence in our target markets well ahead of production coming on stream at Tairāwhiti, significantly strengthening the business model and reducing capital requirements," Rua said.

Rua chairman Trevor Burt said the purchase would help Rua build a meaningful market presence faster and with a greater economy of scale than its current capacity would allow.

"In essence, this deal will accelerate our revenue generation, offering further stability to our local operations, enabling the expansion of our local grower partner programme and fostering our long-term aspirations for local job creation."

Zalm chairman and former Air New Zealand chief executive Rob Fyfe said Rua's acquisition of Zalm would create a premier medicinal cannabis company.

Rua would acquire Zalm's third party supply contract for GMP-grade medicinal cannabis with Cann, including exclusive supply into New Zealand.

The deal structure includes milestone payments, based on achievement of purchase price tiers and supply, at scale, of specific flower and oil products to Rua's global markets.

The agreed purchase price will be satisfied through the issue of new Rua shares at approximately $0.41, with $3.3m paid on completion and remaining consideration paid in equal instalments of $3.3m conditional on Zalm achieving critical production, pricing and regulatory milestones during the period 2022 to 2024.

Assuming all milestones are achieved, Rua would ultimately issue 24,420,0001 new Rua shares to Zalm shareholders. $1.0m of Zalm cash is available to Rua immediately on settlement with about $0.5m held in escrow pending achievement of at least one of two milestones.

Rua shareholders will vote on the transaction at a special meeting to be held in mid-January 2022.

Shares in the company last traded at $0.40, up 1 cent.