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Little Green Pharma (ASX:LGP) - Managing Director Fleta Solomon. - The Market Herald
Managing Director Fleta Solomon.
Source: Little Green Pharma.
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  • Little Green Pharma (LGP) recently announced it is acquiring a Danish cannabis company with the help of Gina Rinehart's Hancock Prospecting
  • It's a significant move for the ASX-lister, as it gives the company the backing of a the big end of town - the Australia's resources sector
  • LGP says the $15 million funding injection will help the business expand its cultivation capabilities and growth strategy
  • The company also says the backing opens the door to further resource investment in the cannabis sector and brings more legitimacy to the treatment
  • Little Green Pharma shares are trading at 85 cents each at the close of market on Wednesday, July 21

Little Green Pharma's (LGP) decision to buy a Danish cannabis business was significant for a number of reasons.

However its most significant impact was bringing the big end of town - the Australian resources sector - into the cannabis space.

Billionaire Gina Rinehart's Hancock Prospecting invested $15 million in the company in support of the Denmark deal, opening the door to other potential resources-backed investments.

LGP said the investment was encouraging as it brought attention not just to its own operations, but also the broader medicinal cannabis sector in Australia.

The cannabis company at the heart of the deal

Founded back in 2016, LGP describes itself as a first-mover in the cannabis market.

This is because LGP was the first Australian cannabis company to produce locally-grown medical-grade cannabis products, as well as the first Australian medicinal cannabis producer to export products from Australia.

Since those milestones, the company has expanded its cannabis cultivation facility in WA's South West, where it has historically grown and produced its cannabis-based flower and oil medicines.

These medicines can be accessed via the Special Access Scheme, an Australian Government program that controls the access of certain therapeutic goods.

Meanwhile, along with being the first local producer and exporter, LGP last year became the first cannabis company to team up with a health insurer to make its treatments more affordable.

LGP's Managing Director Fleta Solomon said the company had spent the past few years working to improve Australian patients' access to cannabis medicines.

"Little Green Pharma has always had Australian patient access at the forefront of everything we do," Ms Solomon said.

"We are proud of our partnership with national private health insurer, Health Insurance Fund of Australia (HIF), to further support improved access to and affordability of medicinal cannabis products through the payment of a rebate to eligible HIF members."

A game-changer deal for an ASX-listed business

Little Green Pharma announced it had agreed to buy the Denmark facility last month, signing a deal to acquire the site from one of the biggest cannabis companies in the world, Canopy Growth Corporation.

Canopy's old facility in the European nation hosts a 21,500 square metre cultivation site as well as a 4000 square metre manufacturing space, enough room to produce 20 tonnes of cannabis biomass per annum.

The site also complies with Good Agricultural Collection Practices (GACP) and Good Manufacturing Practice (GMP) guidelines, similar to LGP's existing site in WA.

The company had previously flagged further expanding its cultivation and manufacturing spaces to keep up with demand. However Ms Solomon said the Denmark deal represented an immediate opportunity to bring its growth plans forwards on a cost-effective basis.

"The acquisition of this world-class cannabis facility was a clear strategic fit with LGP’s existing operations and capabilities," Ms Solomon said.

"It immediately provides LGP with additional cultivation and manufacturing capacity, while accelerating our capacity expansion and market penetration plan by up to two years.

"The Denmark facility provides more than eight times the capacity of our previous planned production expansion and provides both cost and time savings."

To cover the C$20 million (A$21.53 million) cost of buying Canopy's Denmark facility, LGP launched a $27.2 million capital raise.

That's when Ms Rinehart's Hancock Prospecting entered the fray, with the privately-owned business subscribing for $15 million worth of LGP shares under the fundraise.

The top end of town

The historic Australian mining company walked away from the raise with a more than 11 per cent stake in LGP, one of many businesses it's invested in over its more than 60-year history

It's a significant investment for LGP, but a minor investment for Ms Rinehart's business, which reportedly netted more than $4 billion in profits last year.

Commenting on the funding, Hancock Prospecting's General Manager of Business Development Dan Wade said he wanted cannabis to become more readily available as a medicinal treatment.

"In supporting LGP’s investment in its new facility and becoming a substantial shareholder, we hope to help many thousands of Australian and overseas patients access much-needed cannabis medicines," Mr Wade said in June.

"We believe medicinal cannabis has a vital role in helping to treat a range of chronic conditions. We’re pleased to support an Australian medicinal cannabis company that continues to put patients first and contribute to the development of this helpful and emerging industry."

Cannabis comes to the forefront

Beyond providing help to extend LGP's manufacturing capabilities, Hancock Prospecting's investment also marks the first time a large-scale resources business has taken an interest in cannabis.

Ms Solomon believes the move brings an added layer of credibility to the drug, which is still in its infancy as a medicine in Australia.

Medicinal cannabis became legal to grow in Australia only in 2016 and patients could not access the drug until the following year. Even now it remains tightly controlled.

LGP said having the backing of a large company would go a long way towards helping the drug gain further legitimacy, in terms of funding and growth.

"We are very honoured and proud to have such significant investors back our business model and growth strategy, and support our vision of solving real patient problems," Ms Solomon said.

Shares in Little Green Pharma were trading at 85.5 cents each at the close of market on Wednesday, July 21.

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