Elixinol Dumps Subsidiaries, Racks Up AU$17.3 Million in Fees

One of Australia’s largest cannabis and hemp firms is struggling on the open market as it looks to sell off some of its assets in an effort to focus on the hemp-derived cannabidiol (CBD) market.

Shares of Elixinol Global (ASX:EXL,OTC Pink:ELLXF) slumped 25 percent from market close on Friday (January 31) to the start of the trading session on Monday (February 3) after it told investors it is selling its subsidiary Hemp Foods Australia to a Chinese manufacturing company for AU$500,000.

The cannabis producer is also halting its plans to apply for a medical cannabis cultivation licence for its Nunyara subsidiary and is selling all the assets attached to this operation, including a plot of land.

Elixinol ended the trading day on Thursday (February 6) at a price of AU$0.69 per share.

With the two sales, Elixinol is looking at a total of AU$17.3 million in impairment fees.

Hemp Foods Australia will be sold to a subsidiary of Shanghai Shunho New Materials Technology Co. (SZSE:002565), though the completion of the sale is still dependent on a purchase agreement between the two companies. This deal will name Shunho as the exclusive manufacturer and distributor of Elixinol’s CBD products in China, Hong Kong, Taiwan and Macau.

As a part of the three year licencing agreement, Elixinol will have the ability to audit and inspect the materials, facilities and Elixinol-branded products under Shunho’s name to ensure standards are met.

The sale is set to be completed sometime in the first quarter of 2020, Elixinol said in a press release, and carries a fee of AU$12.5 million. However, the company said the transaction will improve future cash flow and will allow it to focus on its CBD businesses.

“During negotiations of the sale of (Hemp Foods Australia), it became apparent that Elixinol could benefit from Shunho’s extensive experience and reputation in Greater China,” Stratos Karousos, Elixinol Group’s CEO, said in a statement.

The executive said the firm plans to leverage Shunho’s experience in hemp cultivation and distribution across Asia to help follow through with its global strategy.

The Nunyara business was founded in 2014 with the goal of entering the Australian medical cannabis market, and slashing it from its roster will cost Elixinol AU$4.8 million in a non-cash impairment fee.

Nunyara was granted a licence for the production of medicinal cannabis for extracts and tinctures of cannabis and cannabis resin back in July 2019. At the time, the firm expected to obtain a full medicinal cannabis Llicence from the Australian Office of Drug Control.

The sale of the two subsidiaries comes after Elixinol discarded its majority stake in Elixinol Japan by selling it to Takeshi Sakurada, a fellow shareholder, in December.

The firm’s Japanese division was found to have sold non-compliant hemp-derived CBD products during a company-wide review of its global operations.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.