Two independent appraisals value land and building owned by Melodiol’s Canadian subsidiary Mernova at between $10.4 – $12 million
Appraisals follow strong revenue progress at Melodiol, with $21.6m in revenue delivered for FY23
ME1 inks deal for up to $5m convertible note facility with Harbour Capital Opportunities Fund Pty Ltd
As at close on 17 June 2024, ME1 had a market cap of approx. $1.09m, substantially lower than the appraised value of land and buildings at one subsidiary
Special Report: Melodiol Global Health says its Canadian subsidiary Mernova will use strong valuations of its land and building to attempt to simplify and improve the cannabis company’s balance sheet.
In its latest corporate update Melodiol Global Health (ASX:ME1) says during May 2024, Mernova engaged two independent third party appraisal firms to ascertain the market value of its land and building.
ME1 says after a significant review process, the firms valued the market value of the Mernova property in a range of $10.4m to $12m (C$9.5m to $11m), validating the significant investment it has made in this facility over the preceding years.
ME1 says the appraisals are subject to several assumptions and contain a reasonable exposure time of three to six months.
“As a result of the strong results, the company is considering strategic alternatives to utilise the land and building valuation to simplify and improve its balance sheet, including, but not limited to a sale leaseback transaction or a new secured loan,” ME1 says.
“The intention of this process would be to replace the existing secured noteholders with one group to simplify the structure of the company’s balance sheet, and to pursue a lower interest rate than the current secured note structures and potentially provide additional working capital above and beyond the refinancing.
“The company is reviewing the credentials of various well renowned groups for this purpose and expects to engage one of them in the near term.”
Subsidiaries delivering strong value
ME1 says the appraisals of Mernova’s property underpin the value of its core operational subsidiaries, including Mernova and Health House International, which are driving the company’s growth.
HHI distributes medical cannabis in Australia and other medical products in Europe and was previously listed on the ASX prior to its acquisition by ME1 in May 2023.
Mernova has been a particularly strong performer for ME1 as a licensed producer of cannabis products in Canada for sale under the Ritual brand banner.
Cannabis is legalised in Canada for both medicinal and recreational use with ME1 saying Mernova has further growth potential.
During FY23, ME1 generated $21.6m of revenue, a 148% increase on pcp, and during Q1 FY24, the company generated $4.4m of unaudited revenue, a 91% increase on pcp.
ME1 says its strategy remains to focus on these business units in an effort to drive profitability as quickly as possible.
$5 million convertible note facility
ME1 says it has also entered into definitive agreements for an up to $5m convertible note facility with Harbour Capital Opportunities Fund Pty Ltd (HCOF), subject to shareholder approval, which will be sought at an upcoming general meeting.
The funds will be used to support marketing and sales of the company’s existing products in Canada, Europe, and Australia, and general working capital. Proceeds of the issue may also be used to repay existing debt.
ME1 says the new funding also provides the company with financial flexibility to continue its focus on sustained revenue growth and consistent operating expense reduction.
“While Melodiol pursues its objective of a cash flow positive state on an aggregate basis, it will require additional capital to pursue its strategic objectives,” ME1 says.
‘Working hard to drive profitability’
CEO and managing director William Lay says ME1 is pleased to see the strong appraisal results for Mernova.
“The group has seen significant step ups in revenue versus prior fiscal years and with our focus on core subsidiaries, we are working hard to drive profitability as soon as possible,” Lay says.
“The new convertible notes will be a source of capital that assists us in pursuing this objective.”
This article was developed in collaboration with Melodiol Global Health, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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