Australis-Folium Merger Forms Potent CBD Company

Aurora Cannabis owned investment vehicle Australis Capital (CSE: AUSA; OTC: AUSAF) announced today that it is converting into a hemp producer through a reverse merger with privately held Folium Equity Holding, a business-to-business (B2B) producer of non-psychoactive cannabinoids, aka CBD.

Australis previously invested in the company earlier this year and will acquire all Folium ownership units that it does not already hold.

Under the terms of the deal Folium members will exchange their units for Australis common shares and hold approximately 89% of the resulting issued shares.

The CBD market holds huge potential with sales estimated to hit $10 billion by 2024 from only $1 billion today.

However, in 2020 the industry faces some challenges as a soaring hemp harvest is putting pressure on wholesale and retail CBD prices.

CBD brands that successfully navigate this price compression will be well-positioned to capitalize on these strong demand trends.

Wholesale CBD Prices in Freefall

Source: Hemp Benchmarks

Vertical Integration Strengthens Supply Chain

If the merger is approved, Folium would become a Colorado-based wholly owned subsidiary of Australis and renamed Folium Biosciences.

The new branding would highlight Folium’s proprietary ecosystem of non-psychoactive cannabinoid products that are guaranteed to be THC-free.

It would also create a powerful vertically integrated organization with enhanced capabilities along the cannabinoid sales chain including streamlined manufacturing and improved distribution channels.

Folium has been in the business for almost five years as a producer and distributor of a wide range of hemp-based CBD products.

The company has experienced substantial growth since its inception and is on pace to grow sales by more than 60% this year.

It was the first hemp company to be granted a Certificate of Free Sale and a Manufactured Food Establishment License by the state of Colorado.

Its broad customer base includes companies in several industries in the U.S. and in 27 international markets.

The company has experienced substantial growth since its inception and is on pace to grow sales by more than 60% this year.

Its newly-built extraction facility, expected to be completed early next year, is designed to generate 10-times Folium’s current production capacity and support growth for years to come.

Australis CEO Scott Dowty said, “AUSA is uniquely positioned to add immediate and material value to Folium with a management team with combined decades of experience in public companies to guide Folium as the newly-legal CBD market in the U.S. continues to grow.”

 

Combination Looks Like a Win-Win

Part of what makes Folium an attractive acquisition is that the company has been operating at a profit since its inaugural year. Even more impressive is that Folium’s growth has been purely of the organic variety and the company has not compromised its balance sheet to do so.

Australis will not be taking on a company that is losing money or carries a heavy debt burden as can be the case with some early stage CBD growth companies.

Innovation is at the centre of what Folium does and as such the company devotes significant resources to cannabinoid research and development. It aims to go beyond the standards for analytical test methodology by performing comprehensive testing along each step of the extraction process.

From Folium’s perspective, hitching its wagon to a successful company in its own right in Australis gives it valuable access to the public markets and a veteran management team that can help drive scale and give it the exposure it needs to reach the next level of growth.

As a result of the announcement, trading in Australis stock was halted on the Canadian Securities Exchange and is not expected to resume until after all necessary regulatory filings are made with the CSE. The merger is subject to Australis shareholder approval which will include a reverse stock split proposal as well as the approval of the CSE.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.