Flora Growth Sets A Foothold In Germany Via Acquisition Of Franchise Global Health

Flora Growth Corp. FLGC, an all-outdoor cultivator, manufacturer and distributor of global cannabis products and brands, has signed a definitive agreement to acquire 100% of Franchise Global Health Inc. FGH, a multi-national operator in the medical cannabis and pharmaceutical industry, with principal operations in Germany.

“Through this proposed acquisition, we are connecting our commercial infrastructure and medical cannabis product portfolio to the German and EU medical markets, while gaining direct access to European pharmaceutical distributions,” stated Luis Merchan, chairman and CEO of Flora Growth. “We believe Franchise will significantly increase our commercial international revenue and provide essential distribution to German pharmacies and a growing wholesale market.”

FGH's German reportable segment achieved revenues of CA$30.1 million ($22 million), gross profit of CA$2.1 million and net income of CA$0.4 million in the first half of 2022. FGH’s German businesses operate primarily in the export pharmaceutical and medical cannabis import and distribution markets, servicing 1,200 pharmacies in Germany and providing non-cannabis medical products to 28 additional countries.

This acquisition is expected to accelerate Flora’s expansion into the European cannabis and pharmaceutical markets with prescription medicines and would provide the company with immediate access to a wealth of knowledge and 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. The proposed acquisition would further allow Flora to expand its CBD business in Europe by utilizing FGH’s distribution and logistics capabilities.

The combination of Flora and FGH is expected to deliver at least $3.0 million of annualized cost synergies within the first year following the completion of the acquisition, primarily in the areas of reduced corporate administrative expenses.

“Luis and I share the same vision of establishing a leading and sustainable cannabis business. Flora has the right platform to execute on this strategy through M&A and organic growth. We are excited to join forces,” stated Clifford Starke, CEO and executive chairman of FGH. “Together we have a solid 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.”

About the Transaction

On October 20, 2022, Flora and FGH entered into an arrangement agreement pursuant to which Flora intends to acquire all the issued and outstanding common shares of FGH by way of a statutory plan of arrangement under the Business Corporations Act (British Columbia). As consideration for the acquisition of 100% of the issued and outstanding FGH common shares, at the completion of the arrangement, Flora will issue between 36.6 million and 43.5 million of its common shares, based upon a formula set forth in the arrangement agreement. In accordance with the terms set forth in the arrangement agreement, upon the completion of the arrangement, all Flora common shares to be delivered to the former shareholders of FGH shall be restricted from being sold for a period of ninety days following the completion of the arrangement. In addition, Clifford Starke, the chairman and CEO of FGH, shall have the right to name two designees to serve on Flora’s board of directors immediately following the closing of the arrangement and Starke is currently expected to be one of such designees.

Completion of the arrangement is subject to certain closing conditions customary for transactions of this nature including, among other things, approval of the arrangement by the Supreme Court of British Columbia and the approval of at least 66 2/3% of the votes cast by shareholders of FGH at a meeting of FGH shareholders.

Photo: Benzinga; Sources: courtesy of geralt, lindsayfoxvia via Pixabay

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