Kanabo Group (KNB ) said it has finished the majority of its due diligence work as part of the proposed acquisition Materia, a European-focused medical cannabis and CBD company.
The Israeli-based medicinal cannabis firm, which made its debut on London’s main market in February 2021, has signed a revised term sheet with Materia which includes binding elements.The parties consider this to be an important step towards completing the deal.
Materia is an independent processor and distributor of medical cannabis and CBD wellness products focusing on the European market, with subsidiaries in Malta, Germany and the UK.
Following the acquisition, Kanabo will control production, from the initial sourcing of raw materials and in-house manufacturing, to distribution to pharmacies and the end consumer.
The full acquisition covers Materials European business, including its Maltese EU GMP certified facility, German medical cannabis wholesaler and UK CBD e-commerce platform.
To date, Kanabo said agreements have been reached on the majority of commercial terms of the proposed acquisition with due diligence being ‘substantially complete’ by Materia.
Both parties have agreed an all share acquisition whereby Materia will be valued at CAN$20m initially (around £12million), with up to an additional CAN$40m (around 24million) payable in new Kanabo shares, upon the attainment of certain post completion performance milestones.
The milestones include, inter alia, commercially producing two total products in Materia Malta; acquiring sales in a new market beyond Germany and Malta, Malta’s ’production facility reaching a breakeven point and reaching sales of CANS$30m and $50m, respectively.
In addition, Kanabo will advance to Materia a further loan of CAN$0.5m (c.£0.29m) in parallel with a CAN$0.5m (c.£0.29m*) investment to be advanced by a major shareholder of Materia.
Commenting, Materia’s CEO Deepak Anand, told investors: “As the transaction has progressed the potential for the combined company to establish itself as a market leader has become even more evident. Materia’s and Kanabo’s assets are highly complementary and together represent a differentiated cannabis company poised to advance the industry.”
Kanabo’s CEO Avihu Tamir added: “We are very pleased with the progression of the transaction since the non-binding heads of terms were announced. I see the decision to merge with Materia as a strategic move that will allow a smooth expansion into our primary markets by solidifying our supply and distribution channels. We are confident that it will enable our enlarged group to lead the UK and German medical cannabis markets over the next few years and I believe it will fulfil our promise to shareholders to create significant revenue.”
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The Board believes that Materia’s complementary infrastructure will be crucial to expanding and strengthening its existing supply value chain of medical cannabis and CBD products.
Materia owns a cannabis processing plant in Malta as well as a wholesaling business in Germany, which currently stands as the largest market for legal marijuana in Europe. “It’s very unique because it allows you to make Malta the doorway to Germany and Europe in general,” Kanabo’s chief executive Avihu Tamir said in an interview with Yahoo Finance UK.
According to City AM, Materia’s Malta facility is able to import cannabis flower from its supply network and process it into EU certified medical cannabis for European export and is worth some €36m, which will fall under Kanabo’s wing once the deal is completed.
Additionally, Materia owns a UK subsidiary (“Materia UK”) which operates in the wellness sector as a distribution platform, selling several leading brands through Handpicked CBD, which aims to be one of the country’s largest CBD e-commerce marketplaces.
Kanabo said it will acquire direct entry into the German market, which was valued at over €200m last year, and is anticipated to remain the dominant market as the European market grows to a forecasted total size of €3.2 billion by 2025, according to Prohibition Partners.
According to reports from Reuters, Materia’s main focus to date has been on the German market, with Executives calling it “market number one, two and three” back in May 2021.
In recent weeks, Kanabo described the six months to 30 June 2021 as an “exciting” period with the company highlighting the “significant progress” made since its IPO earlier this year.
At the time, the Company said it remains committed to building an integrated platform ‘that will generate value from new product development through to production and distribution.’
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