Little Green Pharma accelerates medicinal cannabis growth plans with purchase of Danish manufacturing facility

Perth-based medicinal cannabis producer Little Green Pharma (ASX: LGP) has accelerated its global growth plans with the $21.48 million acquisition of a cultivation facility in Denmark owned by Canada’s Canopy Growth Corporation.

Comprising a 21,500 square metre cultivation site and 4,000sq m post-harvest GMP (good manufacturing practice) site, the facility meets European Union GACP (good agricultural and collecting practice) standards and holds a recognised GMP (good manufacturing practice) licence.

It is capable of producing more than 20 tonnes of biomass per annum including 12tpa of cannabis flower for supply as bulk and finished medicinal products.

The new facility immediately increases Little Green Pharma’s cultivation capacity from approximately 3tpa to more than 23tpa, ensuring self-sufficiency and long-term security of supply.

It positions the company as a leading global pure play medicinal cannabis producer and owner of one of Europe’s largest cannabis manufacturing assets.

The deal follows an agreement reached earlier this month with Medezin Sp. z.o.o which will see Medezin distribute Little Green Pharma’s homegrown products into the Polish market.

Share placement

Little Green Pharma acquired the new facility when it bought 100% of the securities in owner-operator Canopy Growth Denmark (a subsidiary of Canopy Growth Corporation), paying 50% of the cash consideration at handover with the remainder due in 12 months.

The initial payment will be covered by a $27.2 million share placement to existing investors, which includes a $15 million commitment from private Australian miner Hancock Prospecting.

Approximately 45.3 million shares at $0.60 each will be issued under the placement, after which Hancock will hold more than 10% of the company.

Proceeds will also be put towards growth of Little Green Pharma’s European sales team; and scaling of the Denmark facility from 25% to 50% capacity.

Lucrative European market

Little Green Pharma managing director Fleta Solomon said the Denmark acquisition would enable faster penetration into the lucrative European market and fast-track the company’s growth plans.

“We now have a platform to leverage our early mover advantage in key European Union markets,” she said.

“The location [of this facility] requires substantially less export and logistics resourcing than sales from Australia into Europe [and] improves our distribution strategy by enabling us to serve European customers from a European base.”

The facility is expected to operate with more effective economics (cost per gram cannabis) to the company’s current manufacturing base at a secret location in WA’s southwest.

It will service the northern hemisphere market, while the WA facility will continue to cater to the southern hemisphere.

Step change

The decision to purchase the Denmark facility has been heralded as a “step change” for the newly-listed company.

“We have been speaking for some time about the need to increase our production capacity to meet growing market demand and our decision point was whether to build or buy,” Ms Solomon said.

“We are confident this is an efficient use of our capital [which] provides more than eight times the capacity of our previous planned production expansion.”

Purchasing was a preferable option to a capacity expansion at the WA facility.

“It gives us what we need, immediately, [compared to] the two-year build and permitting time required to expand our existing WA premises,” she said.

It will also realise a “significantly lower cost of incremental capacity expansion”, with the acquisition cost of approximately $1 million per tonne representing a fraction of the $2.7 million per tonne cost of building equivalent capacity in Australia.

Significant player

Denmark is considered to be a significant player in the pharmaceuticals game, with approximately 17% of Danish exports comprising pharmaceutical or health-sciences products.

The Danish medicinal cannabis industry is operating under a four-year pilot scheme which allows for the prescribed supply of products to Danish patients and the cultivation, manufacture and export of medicinal cannabis to overseas markets.

While the scheme was originally due to end in December, the Danish Government recently decided to enshrine the cultivation, manufacturing and export regime into the local law and extend prescriber permissions under the pilot scheme for a further four years.

Under Danish law, medicinal cannabis manufacturers may export cannabis medicines into countries which also permit the sale of recreational cannabis products.