Elixinol Global announced today it would be selling Hemp Foods Australia to Shanghai Shunho New Materials Technology Co., as well as entering into a licensing agreement in China, Taiwan, Macau, and Hong Kong.
Elixinol Global Limited (ASX:EXL) will be selling its subsidiary Hemp Foods Australia Pty Ltd to Yunnan Lvxin Biological Pharmaceutical Co. Ltd., a subsidiary of Shanghai Shunho New Materials Technology Co., Ltd as the result of a share purchase agreement. The deal stipulates that Shunho will acquire 100% of Hemp Foods Australia for A$500,000, with Shunho also acquiring HFA's assets and liabilities.
Part of the Share Purchase Agreement requires Shunho to enter into a licensing agreement with Elixinol, so that Shunho may become the exclusive licensee, manufacturer, and distributor for Elixinols products throughout China, Taiwan, Macau, and Hong Kong.
The agreement is expected to be completed within the first quarter of 2020, and Elixinol believes the sale of Hemp Foods Australia will incur a non-cash impairment charge of roughly A$12.5 million which will be reflected in the financial results of 2019. Though the company stresses that this will be a short-term cost, and that future cash flow will improve given Elixinol's renewed focus and attention placed upon it's hemp-derived CBD products.
Through the agreement, Elixinol will gain access to Shunho's insights and connections throughout China, Taiwan, Hong Kong and Macau, to serve as the exclusive licensee of Elixinol's various CBD products. Once the Share Purchase Agreement is completed, the licensing will begin, lasting for three years after Shunho's first invoice for any Elixinol product in the aforementioned countries.
Under the agreement, Elixinol will have access to Shunho's facilities and will be able to inspect and audit them, along with the marketing materials and products being manufactured in order to ensure they are of high quality and abide by Elixinol's product standards.
We are pleased at the opportunity Hemp Foods Australia will have under Shunho's guidance and the ability to leverage Shunho's experience in hemp cultivation, manufacturing and distribution, particularly in Asia. Stratos Karousos, Chief Executive Officer of Elixinol
Stratos Karousos went on to say that "during negotiations of the sale of HFA, it became apparent that Elixinol could benefit from Shunho's extensive experience and reputation in Greater China and we have agreed to sign an exclusive licence to Shunho in relation to the manufacturing and distribution of Elixinol branded hemp derived CBD products in China, Taiwan, Hong Kong and Macau which aligns with our global strategy."
In addition to the announcement that Elixinol would be selling Hemp Foods Australia, the company also noted that it would no longer be pursuing its prior goal of applying for a medical cannabis cultivation license in Australia, as was planned through its subsidiary business 'Nunyara.' Part of this decision not to go ahead with the pursuit of a cultivation license will include selling the assets owned by Nunyara, including the land, with the cash proceeds to be put back into the company's CBD operations.
The sale of Nunyara land will result in a non-cash impairment of $4.8 million which will also be included in the financial statements of 2019.
To learn more about Elixinol Global, visit their company HQ here.
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