Highlights
Strategic acquisition: Proposed acquisition of Health House, a cashflow breakeven medicinal cannabis distributor generating ~$7.5 million in annualised revenue.
Attractive valuation: Total purchase price of $1.25 million, structured on a cash-free, debt-free basis.
Exclusivity period: LGP has exclusivity until 31 January 2025 to conduct due diligence and finalise a binding agreement.
Operational synergies: Acquisition expected to enhance vertical integration, streamline distribution, and drive cost efficiencies.
Strong market presence: Health House is a pioneer in medicinal cannabis distribution with a robust Australian network.
Little Green Pharma Ltd (ASX: LGP) ("LGP" or the "Company") is pleased to announce it has entered into a binding Letter of Intent ("LOI") with Health House Australia Pty Ltd ("Seller"), granting LGP exclusive rights to acquire HH (Australia) Pty Ltd ("Health House").
"This proposed acquisition represents a key milestone in LGP's strategy to enhance our position as a market leader in the Australian medicinal cannabis sector," said LGP CEO Paul Long. "By integrating Health House’s operations with our existing capabilities, we can unlock significant synergies and deliver even greater value to our patients and stakeholders."
Key transaction details
The acquisition is structured to give Little Green Pharma exclusivity over negotiations with Health House Australia Pty Ltd until 31 January 2025. During this period, LGP will conduct due diligence and finalise a binding agreement to purchase 100% of the shares in HH (Australia) Pty Ltd.
The proposed purchase price of $1.25 million will be calculated on a cash-free, debt-free basis, with adjustments for any outstanding net payables and receivables at the time of closing. To secure exclusivity, LGP will pay the Seller a $50,000 non-refundable deposit and a $25,000 refundable deposit, both of which will be applied to the final purchase price if the transaction proceeds.
LGP retains an option to exercise the acquisition on the agreed terms at any point during the exclusivity period. The transaction structure reflects LGP's strategic approach to minimising risk while ensuring clarity on the terms of the proposed acquisition.
Strategic rationale and synergies
The acquisition of Health House will enhance LGP’s vertical integration and allow the Company to directly manage part of its distribution chain, while realising significant cost efficiencies and expanding LGP’s ability to serve a growing patient base.
Paul Long, CEO of LGP, added: "Health House’s established distribution network and strong market presence perfectly complement LGP’s cultivation and production expertise.
“This partnership marks an important step towards increasing our vertical integration in support of sustainable growth as we continue to work alongside our existing key distribution partners across Australia."
The transaction is also expected to strengthen LGP’s revenue base by incorporating Health House’s approximately $7.5 million in annualised revenue. Furthermore, as a cashflow breakeven business, Health House will provide LGP with a sustainable operational platform while continuing to act as a distribution partner for other premium medicinal cannabis brands.
About Health House
Health House is a pioneer in the Australian medicinal cannabis market, becoming the first company in the country to import medicinal cannabis in 2017. Since then, it has built a reputation as a premier distributor, providing high-quality cannabis products to healthcare providers and patients nationwide.
Operating from a state-of-the-art facility in Western Australia, Health House manages a national distribution network that ensures timely and reliable delivery of medicinal cannabis products. Its annual revenue of $7.5 million reflects its strong market presence and operational efficiency.
Health House’s business model is built on partnerships with leading medicinal cannabis producers, ensuring access to a diverse range of premium-quality products. Its distribution infrastructure and market expertise will significantly enhance LGP’s ability to scale operations and deliver value to patients and stakeholders.
LGP operational and financial performance
LGP’s financial results for the half-year ended 30 September 2024 underscore its operational momentum. Revenue from ordinary activities increased by 36.8% to $17.5 million compared to the same period in 2023. This growth was driven by strong domestic and international sales across its range of flower, oil, and vaporiser products.
Adjusted EBITDA improved significantly to $266,000, a reflection of increased revenue and early signs of economies of scale. The company also achieved a positive operating cash inflow of $738,000, marking a significant improvement from the $1.8 million cash outflow reported in the previous year.
Future outlook
Looking ahead, LGP is well-positioned to capitalise on emerging opportunities in both the domestic and international medicinal cannabis markets. In Australia, the Company continues to benefit from its strong market position and the success of its “House of Brands” strategy, which has driven growth across multiple product categories.
Internationally, LGP has achieved significant milestones in Europe, including robust revenue growth in Germany, France, and the UK. The German market remains a key focus following the legalisation of medicinal cannabis, while LGP’s position as the largest commercial supplier in France further underscores its international credentials.
LGP’s commitment to innovation is evident in its ongoing investment in clinical trials and product development. Recent initiatives include the launch of the Lush Labs brand and new product lines, catering to evolving patient needs. As the Company integrates Health House’s operations, it is poised to enhance its service delivery and create new growth opportunities in the rapidly expanding medicinal cannabis market.
Next steps
LGP will continue its due diligence on Health House and anticipates finalising a binding share purchase agreement within the exclusivity period. The Company will provide further updates to shareholders as key milestones in the transaction are achieved.
Contact details:
David Tasker
Chapter One Advisors
E: dtasker@chapteroneadvisors.com.au
T: +61 433 112 936