RotoGro: the triple threat poised for Canada’s recreational cannabis market

ASX ANNOUNCEMENT 29 OCTOBER 2018

RotoGro International Limited (ASX:RGI) has today entered into a definitive share purchase agreement with Valens GroWorks Corp. (CSE:VGW) to acquire all of the issued and outstanding shares in the capital stock of Supra THC Services Inc.

The development is a major coup for RGI, with the SPA giving the company cultivation, technology and agricultural services that generate revenue in their own right. Under the agreement, both RGI and VGW will collaborate on an offtake agreement for the sale and purchase of cannabis produce at the new RGI facility.

Thanks to the SPA, RGI is a unique ‘triple threat’ when compared to market peers. This is a particularly advantageous development for the company, with key analysts already flagging the potential for a huge supply gap in the Canadian recreational cannabis market. A recent report by the C.D. Howe Institute projects that current suppliers will meet just 30-60% of the nationwide demand (610 tonnes).

Anindya Sen, who is an economics professor at the University of Waterloo, has made a similar claim, “There will not be enough legal supply, especially during the first half of the year following legalisation, primarily because of the slow rate of licensing producers.”

The total Canadian cannabis market will generate approximately $7.17 billion in total sales in 2019 (according to a recent report by Deloitte). Of this figure, some $4.34 billion is expected via lawful cannabis sales.

RGI looks set to leverage its expanded capability at an opportune moment with the legal ability to produce its own cannabis products in Canada’s recreational Cannabis market. RotoGro is a unique opportunity for its long-term shareholders and those new to the evolution of the RotoGro story.

“We are very pleased with the execution of the SPA, the contemplated transaction, and becoming a shareholder of RotoGro,” Valens CEO Tyler Robson said.

“The acquisition of Supra THC is a massive step forward in the Company’s strategic growth plan to establish itself as a global leader in the cultivation of cannabis and perishable foods,” RGI Managing Director Michael Carli said.

“In addition to initiating a dialogue with Health Canada, we have identified premises where we wish to establish our cannabis operations and the design of layouts for these premises has already begun.

“We have an excellent working relationship with the management team at Valens. We look forward to our future business collaboration for offtake agreements and downstream value-added products and services,” Carli added.

About Supra THC:
Supra THC is a wholly-owned subsidiary of Valens which specialises the processing of cannabis into pure extracts and oils.

Supra THC operates pursuant to a Dealer’s License issued by Health Canada, and is permitted to possess cannabis and its related active ingredients.

The company has performed the following revenue-generating activities:

  • Leading-edge scientific research and development of products related to medicinal cannabis industry
  • Supply of sustained excellent product line
  • Toll processing or licences producers

Of particular interest is Supra’s operation under accreditation using cannabis as the basis for doing so, making it the first Canadian Dealer’s License (ISO/IEC 17025) to be awarded under such terms.

The ISO 17025 accreditation has become the international standard for testing laboratories demonstrating their competency and ability to deliver reliable results.

RGI will apply for an amendment to the license to permit Standard Cultivation.

ASX ANNOUNCEMENT 29 OCTOBER 2018