OnMarket Bidding Closed Cronos Australia Ltd ASX: CAU

Cronos Australia Ltd

Fixed Priced IPOType of Offer
08 Oct 19Offer Open
16 Oct 19Pay By
$0.50Price
$20 millionSize of Offer
$2,000 Minimum Investment
Bell PotterLead Manager

The Cronos Australia Ltd IPO has closed for applications via OnMarket.  Please ensure applications are funded by 5pm on 16 October (AEST) to avoid missing out.

 

OnMarket is receiving applications for the Cronos Australia Ltd IPO during the Exposure Period. More details here.

OnMarket has a limited allocation, and bids over $10,000 may be more heavily scaled back. The IPO may close early, and the Pay By date may change. Duplicate bids under the same investment profile, investor name or residential address may be cancelled.

The IPO is fully underwritten by Lead Manager, Bell Potter.

 

Introduction

Cronos Australia Ltd (ASX:CAU)* is a medicinal cannabis company that plans to enter the medicinal cannabis market in Australia with both THC and CBD cannabis products. Cronos Australia has secured all the necessary Australian licences to operate – including import and export licences. In addition to distributing the in-market brand PEACE NATURALS™, which is sold in Canada and Germany, Cronos Australia intends to also engage in product and brand development, outsourced manufacturing and distribution for Australia and target export markets in Asia (subject to legislative reform in those markets and Cronos Australia obtaining any required approvals and licences).

Cronos Australia was established as a 50/50 joint venture between a global cannabinoid company, Cronos Group Inc (dual listed – NASDAQ:CRON, TSX:CRON – with a market capitalisation of A$4.53 billion) and a Melbourne based private equity firm controlled by the two Executive Directors of Cronos Australia.

On 8 March 2019, Cronos Group Inc announced the closing of a C$2.4 billion strategic investment by Altria Group, Inc.

* subject to receipt of listing approval

Key Investment Highlights

  • Licences have been received from the relevant Australian authorities for Cronos Australia to import, export, cultivate, manufacture and research cannabis.
  • Access to Cronos Group Inc’s intellectual property, including a selection of cultivars from Cronos Group Inc’s genetic bank of approximately 140 cannabis cultivars, as well as licences in respect of certain trademarks, processes and designs, and access to know-how relating to marketing, licensing and design (subject to a licence agreement with Cronos Group Inc).
  • Route to early revenue through the proposed importation and sale of medicinal cannabis products.
  • ‘Asset light’ model, leveraging an outsourced cultivation and manufacturing model.
  • Focused on development of brands and products, particularly CBD Products, in partnership with appropriate creative and design agencies.
  • Supply, manufacture and research agreements in place with Mile High Labs, MediPharm Labs Australia, Peace Naturals Project and the Victorian Government’s AVS.
  • Business development function established in Hong Kong to undertake business development activities in Asian markets as the laws in relation to medicinal cannabis products in those markets continue to evolve.
  • Experienced leadership team in the global cannabis industry, as well as in high growth enterprises, marketing and regulation.

Offer Overview

Industry overview

Cronos Australia operates in the medicinal cannabis industry in Australia. Medicinal cannabis is a term that covers a broad range of products derived from the cannabis plant or the chemical compounds it produces, such as cannabinoids, that are used for the purposes of treating or alleviating the symptoms of a disease, ailment or injury. THC and CBD are the most abundant cannabinoids.

Current and Proposed Business Activities

Cronos Australia was formed to take advantage of opportunities relating to the emerging cannabis industry both domestically and internationally. The vision of Cronos Australia is to become a leading health and wellness company in the Asia Pacific region through the distribution of premium cannabis products.

Cronos Australia’s business model is focused on the creation of shareholder value through a number of interdependent strategic priorities as detailed below:

Cronos Australia Business Model Overview

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To achieve this, the business model is based on a number of strategic pillars that define the growth strategy of Cronos Australia, including:

 

Medicinal Cannabis Licences

Licences issued by the Office of Drug Control (ODC) pursuant to the Narcotic Drugs Act 1967 (Cth) (ND Act) serve to determine who may legally conduct an activity (such as importation), while permits issued by the ODC specifically control the activity (such as the type, quantity and timing of products that may be imported).

To date, five Federal Government licences have been granted to a subsidiary of Cronos Australia by the ODC, including:

  • Medicinal Cannabis Licence (cultivation and production)
  • Cannabis Research Licence
  • Medicinal Cannabis Licence (Manufacturing)
  • Import Licence and Permits
  • Export Licence

A summary of the licences and expiration dates is provided in Section 3.3 of the prospectus.

Growth Strategy

Cronos Australia has a three-phase growth strategy*:

* The timeframes outlined for each phase are indicative and may change.

Key Relationships

Cronos Australia has established a number of key relationships that will assist in the execution of its business model:

  • Cronos Group Inc: The relationship with Cronos Group Inc brings with it the weight of a leader in the global cannabis industry with access to valuable intellectual property including medicinal cannabis brands, genetics and technical expertise. Cronos Global Holdings Inc is a major shareholder in Cronos Australia and Cronos Australia has entered into the IP Licence with Cronos Group Inc and the PEACE NATURALS Supply Agreement with Peace Naturals Project.
  • AVS: AVS is one of Australia’s leading biosciences facilities. Cronos Australia – Operations Pty Ltd has entered into the Technical Services Agreement for a number of key research and development services including the importation and propagation of cannabis genetic material.
  • Mile High Labs: Mile High Labs is a CBD ingredient manufacturing business. Its head office is located in the United States and it has an Asia-Pacific office in New Zealand. Mile High Labs supplies CBD and CBD infused products to companies across the United States and Europe. Cronos Australia – Operations Pty Ltd and Mile High Labs have executed the Mile High Labs Supply Agreement pursuant to which Mile High Labs may supply CBD Products to Cronos Australia.
  • MediPharm: MediPharm Labs Corp., a company domiciled in Canada, is a global leader in scaled, research-driven cannabis extraction, distillation, purification and cannabinoid isolation, and is listed on the Toronto Stock Exchange. The company’s Australian venture, MediPharm Labs Australia, began in January 2017 following changes to Australia’s federal legislation allowing companies to produce medicinal cannabis products in Australia. Cronos Australia has entered into an agreement whereby MediPharm Labs Australia may supply cannabis goods or may manufacture certain cannabis products for Cronos Australia.
  • DHL: Cronos Australia – Operations Pty Ltd has entered into an agreement with DHL Supply Chain for transportation, logistics and warehousing services and also has a trading account in place with DHL Global Forwarding to handle international freight and customs clearance services on behalf of Cronos Australia. These arrangements are required to provide the logistical support to enable Cronos Australia to import medicinal cannabis products into Australia for distribution.
  • Sigma: Sigma is an Australian full-line wholesale and distribution business to branded and independent community pharmacies and to hospital pharmacies. Sigma pharmacy brands include Amcal, Discount Drug Stores (DDS), Guardian, Pharmasave and Chemist King. Cronos Australia – Operations Pty Ltd has entered into the Sigma MOU regarding the potential for Sigma to distribute Cronos Australia products.
  • Medicinal Cannabis Industry Australia (MCIA): MCIA is an Australian medicinal cannabis industry body. Cronos Australia was a founding member of the MCIA with Cann Group Limited (ASX:CAN), AusCann Group Holdings Limited (ASX:AC8), THC Global Group Limited (ASX:THC) and MedReleaf Australia, and through this forum Cronos Australia intends to play a key role in raising awareness of, and promoting, the medicinal cannabis industry in Australia.

Offer Overview

Cronos Australia is looking to issue up to 40,000,000 shares at an issue price of $0.50 to raise A$20 million (before expenses).  The Offer is fully underwritten by the Lead Manager, Bell Potter Securities Ltd.

The company proposes to use the funds raised from the offer for:

  • Product and business development;
  • Patient acquisition / practitioner engagement;
  • Brand creation, development and launch;
  • Contract manufacturing management;
  • Research and development activities;
  • Licensing and regulatory costs;
  • Inventory of finished products;
  • working capital and administration; and
  • Outstanding costs of the Offer

Key Board and Management

Shane Tanner – Independent Non-Executive Chairman

Shane is currently the Chairman of Paragon Care Limited (ASX:PGC) and Rhythm Biosciences Limited (ASX:RHY) and he is an Independent Non-Executive Director of Victory Offices Limited (ASX:VOL). Shane also has significant strategy and transaction experience through the Mayne Group via the IPO of the telecommunications company, Optus Communications. Shane holds Business and Finance qualifications from RMIT University and Swinburne University of Technology.

Rodney Cocks – Executive Director and Chief Executive Officer

Rodney is a Director of NewSouthern Capital, a private equity firm he co-founded which undertakes business in the real estate, energy and digital sectors. Prior to Cronos Australia, he was on the Senior Leadership Team at Linfox and was a Consultant at the Boston Consulting Group. Rodney also served on the Counter Narcotics Team of the British Embassy in Kabul, Afghanistan and with the United Nations in Afghanistan, Sri Lanka, Pakistan and Iraq. Army. Rodney holds a BComm from the University of Melbourne, LLB from the Queensland University of Technology, MBA from the Wharton School, University of Pennsylvania, MPA from the Harvard Kennedy School, Harvard University and is a Graduate of the Australian Institute of Company Directors and the Royal Military College, Duntroon.

Peter Righetti – Executive Director and Chief Operating Officer

Peter is a Director of NewSouthern Capital, a private equity firm he co-founded which undertakes business in the real estate, energy and digital sectors. Prior to NewSouthern Capital, he held senior commercial and leadership positions with private development and construction organisations. He was part of the executive team at ASX listed, Engenco Limited (ASX:EGN) and held senior development and project roles at construction companies including Metricon Group. Peter served as an Engineer Officer in the Australian Army.

He holds a BComm from Deakin University, LLB from the University of New England and is completing an LLM at the University of Melbourne.

Anna Burke AO – Independent Non-Executive Director

Anna served in the Australian Federal Parliament as the Member for Chisholm in the House of Representatives from 1998 to 2016, and was also the 28th Speaker of the Australian House of Representatives. Anna is also a full-time Member at the Administrative Appeal Tribunal. She also had extensive Committee service in the Federal Parliament, including Joint Statutory Committee on Corporations and Financial Services and House of Representatives Standing Committee on Economic, Finance and Public Administration. Anna holds a BA (Hons) and MComm (Hons) from the University of Melbourne. Anna was appointed as an Officer of the Order of Australia in January 2019.

Michael Gorenstein – Non-Executive Director

Michael Gorenstein is a Non-Executive Director of Cronos Australia. Mike is the Chairman, President and Chief Executive Officer of Cronos Group Inc (NASDAQ: CRON, TSX: CRON). Mike is also a co-founder and Member of Gotham Green Partners (Gotham Green). Before joining Cronos Group Inc, Mike was the VP and General Counsel at Alphabet Partners, LP, a New York City based multi-strategy investment management firm, focused on identifying mispriced assets across various industries, asset classes and geographies. Mike graduated from the University of Pennsylvania Law School with a JD, the Wharton School at University of Pennsylvania.

Jason Adler – Non-Executive Director

Jason Adler is a Director of Cronos Group Inc (NASDAQ: CRON, TSX: CRON), the co-founder and Managing Member of Gotham Green, a private equity firm focused primarily on early-stage investing in companies in the cannabis industry. Prior to co-founding Gotham Green, Jason was the co-founder and Chief Executive Officer of Alphabet Partners, LP, a New York City based multi-strategy investment management firm, focused on identifying mispriced assets across various industries, asset classes and geographies. Jason also founded Geronimo, LLC, a broker dealer and member of the American Stock Exchange, that made markets in equity options, and he began his career as a Market Maker at G&D Trading. Jason graduated with a B.A. from the University of Rhode Island.

Lior Harel – General Counsel and Company Secretary

Lior Harel is the General Counsel and Company Secretary of Cronos Australia. Prior to Cronos Australia he was the Chief Legal Counsel of SEEK.com.au (ASX:SEK) with coverage of SEEK’s Australian and Asian businesses. Prior to SEEK, Lior was the Chief Operating Officer and General Counsel of ecommerce and travel business, The Lux Group (cudo.com.au, luxuryescapes.com, deals.com.au). He commenced his career at leading Australian commercial law firm, Arnold Bloch Leibler, rising to Senior Associate in the Corporate/Commercial and Banking and Finance teams. Lior holds an LLB and a BA from the University of Melbourne.

Thomas Howitt – Chief Financial Officer

Thomas Howitt is the Chief Financial Officer of Cronos Australia. Prior to Cronos Australia he was the Chief Financial Officer of Global Kinetics Corporation a pre-IPO life sciences company, Chief Financial Officer and Company Secretary of Simavita (ASX:SVA, TSX-V:SV) a digital healthcare company, Chief Financial Officer and Company Secretary of Genetic Technologies Limited (ASX:GTG, NASDAQ:GENE) a genetic testing company, Chief Financial Officer and Company Secretary of Intermoco Limited (formerly ASX:INT) a remote monitoring and control company, Chief Financial Officer and Company Secretary of Lowell Capital a privately held investment banking group and Manager at EY. Thomas holds a BComm from the University of Western Australia.

Risks

An investment in Cronos Australia is subject to a range of risks including but not limited to failure to maintain required licences, changes in law, growth prospects, supply chain interruption, access to IP and early stage risk. For more information read Section 6 of the Prospectus.  These risks should be considered in detail.

 

Exposure Period

OnMarket is receiving applications for the Cronos Australia Ltd IPO during the Exposure Period.  Applications will be not be processed until the completion of the Exposure Period and no preference will be conferred on applications received during the exposure period.

If a replacement or supplementary prospectus is issued, this will be provided to you along with the opportunity to withdraw your application.

 

Section 734(6) disclosure: The issuer of the securities is Cronos Australia Limited ACN 629 071 594. The securities to be issued are ordinary shares. The disclosure document for the offer can be obtained by clicking on the link above. The offers of the securities are made in, or accompanied by, a copy of the disclosure document. Investors should consider the disclosure document in deciding whether to acquire the securities. Anyone who wants to acquire the securities will need to complete the application form that will be in or will accompany the disclosure document (which can be done via the electronic application form which will become available by clicking the bid button above).

 

OnMarket has a limited allocation. The offer may close early and the 'Pay By' dates may change. Bids over $5,000 may be scaled back more heavily. Duplicate bids under the same investment profile, investor name or residential address may be cancelled.

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