Creso Pharma to be acquired by Canadian listed PharmaCielo Ltd (TSXV: PCLO) for AUD$122m at AUD$0.63 per share

Investment Highlights

• Creso Pharma Limited (“Creso Pharma”) has entered into a definitive agreement with Canadian cannabis company PharmaCielo Limited (TSXV:PCLO) (“PharmaCielo”), for a recommended acquisition of Creso Pharma by PharmaCielo
• PharmaCielo is a leading cannabis company listed on Canada’s TSX Venture Exchange with a current market capitalisation of approximately CAD$675 million
• PharmaCielo is the Canadian parent of Colombia’s premier cultivator and producer of medicinal cannabis oil PharmaCielo Colombia Holdings S.A.S, the largest cannabis producer in Colombia, and a fully licensed producer of medicinal cannabis oil products in Colombia
• The acquisition will be effected by a scheme of arrangement between Creso Pharma and its shareholders, and a separate concurrent scheme of arrangement between Creso Pharma and its listed optionholders
• PharmaCielo has a robust balance sheet with a current cash balance of approximately CAD$40 million
• Creso Pharma shareholders will receive 0.0775 PharmaCielo shares for every Creso Pharma share held representing a value of AUD$0.63 based on the PCLO VWAP1
• Creso Pharma listed optionholders will receive 0.0185 PharmaCielo shares for each Creso Pharma listed option held representing a value of AUD$0.15 based on the PCLO VWAP1
• Holders of Creso Pharma performance shares, performance rights and other unlisted securities will also be eligible to receive PharmaCielo shares subject to agreed ratios
• Creso Pharma securityholders will hold approximately 13% of the issued shares in the PharmaCielo following implementation, with PharmaCielo shareholders holding the remaining 87%
• The offer price of AUD$0.63 for each Creso Pharma share will be paid in PharmaCielo shares determined at a fixed price of AUD$8.1261/CAD$7.61661 being the PCLO VWAP.
• The Creso Pharma Board of Directors unanimously recommend shareholders and listed optionholders vote in favour of the Share Scheme and the Option Scheme respectively, in the absence of a superior proposal and subject to an Independent Expert opining that the Schemes are in the best interests of Creso Pharma securityholders

• Creso Pharma security holders do not need to take any action at the present time
• The proposed transaction is expected to create a well-capitalised, publicly traded company with a strong growth profile and significant strategic advantages

Creso Pharma Limited (ASX:CPH) (“Creso Pharma”) is pleased to announce it has entered into a scheme implementation agreement with PharmaCielo Limited (TSXV:PCLO) (“PharmaCielo”), under which PharmaCielo will acquire Creso Pharma (“Implementation Agreement”).

PharmaCielo is a TSXV listed cannabis company, which is a fully licensed producer of medicinal cannabis oil products in Colombia and is the largest cannabis producer in Colombia. Implementation of the proposed acquisition will combine two complementary cannabis companies to create a well-capitalised, publicly traded company with a strong growth profile and significant strategic advantages.

The acquisition will be conducted through a scheme of arrangement between Creso Pharma and its shareholders (“Share Scheme”) and a separate concurrent scheme of arrangement between Creso Pharma and the holders of listed options (“Option Scheme”) (together, the “Schemes”). The Share Scheme is not dependent on the Option Scheme proceeding. However, the Option Scheme will only proceed if the Share Scheme proceeds.

Acquisition Highlights

• Creation of a vertically integrated supply chain: The acquisition will result in the combination of PharmaCielo, a global leader in terms of price, quantity and quality in cannabis cultivation, production and extraction, and Creso Pharma, an early mover in human and animal cannabis-based products, to create a vertically integrated supply chain.
• Experienced Board and management team: PharmaCielo benefits from the combined experience and expertise of its management team and board. PharmaCielo is led by top executives from an alumni of global companies and organisations including Philip Morris International, the World Health Organisation, Bayer, Citigroup, and American Express. The PharmaCielo board will be strengthened by the addition of Creso Pharma’s Co-Founder and CEO, Dr Miri Halperin Wernli, as a director of PharmaCielo following implementation of the Schemes.
• Expansion of commercial networks: PharmaCielo’s sales networks in South America, Mexico and Italy will add to Creso Pharma’s active commercial network and sales presence in thirteen countries, including Australia, New Zealand, Brazil, Switzerland, Germany, France, the Netherlands and the United Kingdom.
• Expansion of product portfolio: The acquisition will expand PharmaCielo’s on-shelf product portfolio with Creso Pharma existsing products to be made available via PharmaCielo’s global market presence, especially in South America.
• Continued participation for Creso Pharma securityholders: Creso Pharma securityholders will retain continued participation in a global medicial cannabis company with greater capitialziation enabling aggressive market and sale development.

Scheme Consideration

As stated above the acquisition will be implemented through a Share Scheme and an Option Scheme.

Under the Share Scheme, Creso Pharma shareholders will receive 0.0775 PharmaCielo shares for each Creso Pharma share held representing an offer price of AUD$0.63 per Creso Pharma share (based on the three day VWAP of PharmaCielo shares for the three trading days ending 4 June 2019 of AUD$8.1261 (“PCLO VWAP”)). This is a 50% premium to Creso Pharma shareholders based on the closing price of Creso Pharma shares on 6 June 2019.

Under the Option Scheme, Creso Pharma listed optionholders will receive 0.0185 PharmaCielo shares for each listed option held. This ratio represents an offer price of AUD$0.15 per Creso Pharma listed options based on the PCLO VWAP.

The Share Scheme is not dependent on the Option Scheme proceeding. However, the Option Scheme will only proceed if the Share Scheme proceeds.

On approval of the Share Scheme by the relevant Australian court, unvested Creso Pharma performance rights and performance shares will vest, and holders will be entitled to participate in the Share Scheme on the terms above as a Creso Pharma shareholder. Holders of the various other classes of unlisted Creso Pharma securities will be offered PharmaCielo shares based on ratios detailed in the Implementation Agreement.

The Schemes and the related arrangements for the various other classes of unlisted Creso Pharma securities imply a total equity value of AUD$122million for Creso Pharma. The PharmaCielo share price is likely to change between the date of this announcement and the date of implementation of the Schemes, which will affect the implied equity valuation.

Acquisition Terms

The Share Scheme and the Option Scheme are subject to customary conditions for a transaction of this nature, which are set out in full in the Implementation Agreement, a copy of which has been released to the ASX today in a separate announcement. These conditions include, amongst other things, shareholder approval (in the case of the Share Scheme), listed optionholder approval (in the case of the Option Scheme), and, in the case of each Scheme relevant Australian court approval, TSXV approval for the quotation of the new PharmaCielo shares to be issued to Creso Pharma securityholders, no material adverse change and no prescribed occurrences or material breach of warranty in relation to Creso Pharma and PharmaCielo respectively. Approval of PharmaCielo shareholders is not required.

The Implementation Agreement includes customary deal protection and exclusivity terms, including “no shop”, “no talk”, “notification”, “matching” obligations for the benefit of PharmaCielo, a break fee of AUD$1.2 million that is payable by either party to the other in certain circumstances and a cost reimbursement fee of $450,000 payable by Creso Pharma to PharmaCielo if the Share Scheme is not approved by Creso Pharma shareholders. The exclusivity provisions in favour of PharmaCielo are subject to customary exceptions to enable the Creso Pharma board members to comply with their fiduciary or statutory duties.

PharmaCielo has also agreed to appoint Creso Pharma’s Co-Founder and CEO Dr Miri Halperin Wernli as a director of PharmaCielo following implementation. The terms and remuneration of Dr Miri Halperin Wernli’s appointment with PharmaCielo are being negotiated and will be subject to the approval of Dr Miri Halperin Wernli, PharamCielo and Creso Pharma. Creso Pharma confirms that the agreed terms will be announced to the market.

Further details are set out in the Implementation Agreement attached to this announcement.

Loan Agreement

As a condition of the Share Scheme, PharmaCielo has agreed to advance Creso Pharma a CAD$3,500,000 secured bridge loan pursuant to an amendment to Creso Pharma’s existing loan trust deed, originally entered on 26 April 2019. The proceeds of the loan are expected to be used by Creso Pharma for its general working capital requirements.

The loan will be repayable on 31 December 2019. However, if the Share Scheme is not approved by Creso Pharma shareholders, the loan will become repayable on the date which is four (4) months after the date of the meeting.

Creso Pharma Director’s Recommendation

The Creso Pharma board of directors unanimously recommends that Creso Pharma securityholders vote in favour of the Schemes in the absence of a superior proposal and subject to an Independent Expert opining that the Schemes are in the best interests of Creso Pharma securityholders. Subject to those same qualifications, each Creso Pharma director intends to vote all the shares and listed options that they hold in Creso Pharma in favour of the Schemes.

In agreeing to publicly recommend the Schemes, the directors of Creso Pharma have taken into account: (a) the attractive value attributed to Creso Pharma by PharmaCielo under the proposed transaction; (b) significant short-term investment requirements to execute Creso Pharma’s strategic growth plan; and (c) the potential synergies between Creso Pharma and PharmaCielo as a result of their complimentary business offerings and growth strategies.

Indicative Timetable and Next Steps

Creso Pharma securityholders do not need to take any action at the present time.

Creso Pharma shareholders will be given the opportunity to vote on the Share Scheme and Creso Pharma listed optionholders will be given the opportunity to vote on the Option Scheme at the scheme meetings to be held later this year.

Subject to the approval of Creso Pharma shareholders and listed optionholders, and the other conditions of the Schemes including regulatory and court approval being satisfied, the Schemes are expected to be implemented in September/October 2019. These dates are indicative and subject to change.

A Scheme Booklet containing more detailed information relating to the Schemes, reasons for the Directors’ recommendation, an Independent Expert’s report and details of the scheme meetings will be sent to Creso Pharma securityholders shortly. Creso securityholders should read the Scheme Booklet and seek appropriate advice before making a decision on how to vote.

Creso Pharma will keep the market informed in accordance with its continuous disclosure obligations.

Advisors

EverBlu Capital is acting as corporate advisor and will be entitled to a fee of 3% of the deal value following successful implementation. Steinepreis Paganin is acting as legal counsel to Creso Pharma.

Cormark Securities Inc. is acting as financial advisor and McMillan LLP and Minter Ellison are acting as Canadian and Australian legal counsel respectively to PharmaCielo.

Management Commentary

PharmaCielo CEO David Attard says: “PharmaCielo’s proposed acquisition of Creso Pharma harnesses the synergies between us and creates a combined company poised to become a global powerhouse in the medicinal cannabis industry. Upon closing of the transaction the combined company will quadruple our global footprint with presence in more than a dozen countries spanning North and Latin America, Switzerland, Europe, the Middle East, Australia and New Zealand.

“The acquisition will afford us the opportunity to bring our high-quality Colombian oil production to market immediately and expand into higher-margin, branded product sales faster by harnessing the expertise of a proven and highly engaged commercialisation team possessing both an immediately available product portfolio and active international sales channels.”

Creso Pharma Co-Founder and CEO Dr Miri Halperin Wernli says: “This arrangement with PharmaCielo is an incredible opportunity for Creso Pharma securityholders to benefit from being part of a best in class and well-capitalised global medicinal cannabis company. The combined companies will offer a unique combination of assets and professional skills across the cannabis value chain that will lay the foundations for significant international expansion of cannabis products of the highest quality for the benefits of patients and consumers.

The quality and scale of PharmaCielo’s cultivation and oil extraction operations in Colombia complements our focus on meeting global demand for the highest quality cannabis-derived therapeutic, nutraceutical and animal health products through increased access to the necessary quality and volume of oil production”.

Investor Enquiries Media Enquiries EverBlu Capital Julia Maguire | The Capital Network E: [email protected] E: [email protected] P: +61 2 8249 0000 P: +61 419 815 386

About Creso Pharma

Creso Pharma brings the best of cannabis to better the lives of people and animals. It brings pharmaceutical expertise and methodological rigor to the cannabis world and strives for the highest quality in its products.

It develops cannabis and hemp derived therapeutic, nutraceutical, and life style products with wide patient and consumer reach for human and animal health. Creso Pharma uses GMP (Good Manufacturing Practice) development and manufacturing standards for its products as a reference of quality excellence with initial product registrations in Switzerland. It has worldwide rights for a number of unique and proprietary innovative delivery technologies which enhance the bioavailability and absorption of cannabinoids.

To learn more, please visit: www.cresopharma.com

About PharmaCielo Limited (TSXV:PCLO)

PharmaCielo Limited (TSXV:PCLO) is a global company privately held and headquartered in Canada, with a focus on processing and supplying all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors. PharmaCielo’s principal (and wholly owned) subsidiary is PharmaCielo Colombia Holdings S.A.S., headquartered at its nursery and propagation centre located in Rionegro, Colombia.

The boards of directors and executive teams of both PharmaCielo and PharmaCielo Colombia Holdings consist of a diversely talented group of international business executives and specialists with relevant and varied expertise. PharmaCielo has recognised the significant role that Colombia’s ideal location will play in building a sustainable business in the medical cannabis industry. The company has built a compelling business plan focused on supplying the international marketplace.

To learn more, please visit: www.pharmacielo.com

Forward Looking Statements

This announcement contains forward-looking statements with respect to Creso Pharma and its respective operations, strategy, investments, financial performance and condition. These statements generally can be identified by use of forward-looking words such as “may”, “will”, “expect”, “estimate”, “anticipate”, “intends”, “believe” or “continue” or the negative thereof or similar variations. The actual results and performance of Creso could differ materially from those expressed or implied by such statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Some important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, competition and government regulation. The cautionary statements qualify all forward-looking statements attributable to Creso Pharma and persons acting on its behalf. Unless otherwise stated, all forward-looking statements speak only as of the date of this announcement and Creso has no obligation to up-date such statements, except to the extent required by applicable laws.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.