Creso teams up with CERES to distribute animal health products

In a commercially material development for Creso Pharma Limited (ASX:CPH, FRA:1X8), the company has executed a non-binding letter of intent (LOI) with leading CBD and plant-based medicines provider CERES Natural Remedies (CERES) (www.ceresremedies.com).

CERES has an established distribution footprint and relationships with over 50,000 stores across the US, and with this deal incorporating the distribution and sale of Creso’s range of CBD and hemp animal health products anibidiol® in the US it has the scope to generate significant revenues.

Importantly, CERES understands the strategic initiatives that need to be applied to scale up new brands as it has travelled this road watching its own branded products grow substantially.

CERES is a leading Vermont headquartered distribution company, specialising in plant-based medicines and CBD and hemp products for the US market.

It is the sister company to Champlain Valley Dispensary, Vermont’s first licensed and only independent medicinal cannabis company.

Champlain Valley Dispensary and CERES are both subsidiaries of High Fidelity, Vermont’s largest independent cannabis company.

Since 2013, High Fidelity has generated US$35 million in revenue and the group currently operates two of the five vertically integrated cannabis licences available in the state and services 70% of registered patients.

Broad customer base with 50,000 distribution outlets

CERES has three traditional retail stores in Vermont and Massachusetts and access to over 50,000 distribution outlets across the country.

It services a number of high-growth customer segments, including conventional and convenience-based grocery stores, colleges and universities, fast food outlets, natural grocers and medicinal and recreational cannabis dispensaries.

In addition to its own branded products, CERES has a strong track record of scaling up regional, national and international brands through its sales channels.

The group has a number of strategic partnerships, including an agreement with VERC Enterprises, one of the largest, independent and family-owned convenience store businesses in the region, with 34 facilities operating in New Hampshire and Massachusetts.

Creso expects to leverage CERES’ established relationships to expand the company’s footprint into the US.

Under the agreement, the parties have agreed to enter into a formal commercial agreement on or before 1 April 2021 setting out the terms upon which CERES will sell Creso’s anibidiol® animal health products through its established distribution network in the US.

Initially, it is intended that CERES will focus on Vermont, Maine, New Hampshire, New York, Connecticut, Massachusetts and Rhode Island while exploring opportunities to target additional states across the US.

Preparing for further positive regulatory changes

Creso and CERES will work together collectively to prepare to sell and distribute within the US market upon legislation occurring which both groups believe will happen in 2021.

The initial term of the agreement is one year (Initial Term), automatically renewing after one year (Renewal Term), unless either party notifies the other of their decision to not renew the agreement within 90 days prior to the expiry of the Initial or Renewal Term.

Initial Term and Renewal Terms are subject to termination for cause upon notice by either party, or upon failure to meet the aforementioned renewal conditions.

CERES will aim to achieve its target of at least A$5 million in sales over a two-year period, subject to federal legalisation of CBD in the US.

Creso Pharma has recently witnessed a considerable shift in the regulation of cannabis globally and management is eagerly awaiting legislative reform in the US.

Pet supplement market expected to deliver CAGR of 40%

Creso and CERES are forming the view that new legislation may occur at some point during 2021 and they are intending to formalise the commercial agreement quickly in order to be able to move swiftly upon such legislation occurring.

The US represents a large, emerging addressable market for Creso, and it is worth noting that the global CBD pet supplements market was valued at US$27.7 million in 2019, and it is anticipated to grow at a 40% compound average growth rate from 2020 to 2027.

This agreement leaves Creso very well placed to benefit with sales expected to materially add to the company’s growing revenue profile, and on this note non-executive chairman Adam Blumenthal said, “Entering the US market with a high calibre partner such as CERES is a major achievement for Creso Pharma and we look forward to working with the group to outline progress of the launch of anibidiol® across the country.

“Importantly, CERES has an established distribution footprint and relationships with over 50,000 stores across the country, as well as a track record of scaling up its own branded products and international offerings.

‘’To this end, we are very confident that our animal health products will be well received.

“We will continue to monitor regulatory and policy shifts in the US to ensure the company and CERES are primed for launch and expect first sales to add to the company’s revenue streams.

“Creso has a number of exciting growth initiatives across all key operating business pending and we look forward to updating shareholders as they materialise in the coming months.”

CERES executive director Shane Lynn highlighted the robust industry growth in saying, “We are excited to partner with Creso Pharma to introduce the company’s industry-leading animal healthcare products to the US market.

‘’We continue to witness rapid demand for CBD and hemp-based pet health products through our network and anticipate anibidiol® to be very well received.”

Financial show record revenues to come in 2021

The company just released its preliminary financial reports for the year, which as expected show a series of impairments, debt clean ups and one off costs that come with a balance sheet clean up, which are now done with.

Sales in the reporting period were also impacted by COVID from the previous corresponding period, however are now expected to ramp back up.

CPH has now tidied its balance sheet with the repayment of all convertible notes and reduction of some debt, and is well positioned to capitalise on strong revenue growth.

The strong share price performance in the second half of the year has allowed Creso to raise funds via “in the money” options and has helped with cash flow requirements substantially.

This is a result of:

• on-going implementation of strategic initiatives
• favourable global regulatory policy-Appointment of world renowned Cannabis expert Bruce Linton as senior advisor
• strong revenue growth in Mernova

Creso also has a number of growth initiatives pending, including the launch of its pre-roll joint range, and entry into the emerging hash market.