The Creso Pharma Ltd (ASX: CPH) share price is sinking on Thursday after announcing merger plans.
In morning trade, the cannabis and psychedelics company's shares are down 5.5% to 17 cents.
Why is the Creso Pharma share price sinking?
Investors have been selling the company's shares after it announced an agreement with Ontario-based Red Light Holland to combine businesses and create The HighBrid Lab.
Management notes that this will create a leading global psychedelics and cannabinoid company with an implied pro forma equity value of A$371 million (C$347 million). This is based on the closing price of the shares of Creso Pharma and Red Light Holland on 15 June 2021.
According to the release, the agreement will see Red Light Holland acquire all the issued listed shares and options of Creso Pharma. Under the terms of the agreement, shareholders will receive 0.395 of a Red Light Holland share for each fully paid ordinary share of Creso Pharma.
Why merge?
The HighBrid Lab's proposed non-executive Chairman, Bruce Linton, commented: "Having worked with both the Creso Pharma and Red Light Holland teams closely in the past, I am really excited by the potential this combination brings. As a merged company, The HighBrid Lab has access to four of the highest growth industry segments around, and the team, board and advisory group to make real progress within these verticals. I'm really looking forward to rolling up my sleeves and helping The HighBrid Lab get to work!"
This sentiment was echoed by Red Light Holland's CEO and Director, Todd Shapiro.
He said: "Red Light Holland has significant capital and expertise, and is motivated for growth. The company understands the sensitive complexities of the ingredients we deal with, while ensuring we continue to make a bold yet careful push to provide and increase access for immediate revenue generation and brand expansion. Our core principle is to compliantly lead with edgy consumer packaged goods focused on positive outcomes, while balancing a responsible, regulated and educational use approach through technology and innovation."
"Merging with Creso Pharma, who also has significant cash on hand, and formulating The HighBrid Lab, with Bruce Linton as Chair of the Board, means we can expand our premium product offerings globally in the high growth CBD, THC and psychedelic sectors. Together we are bullish on developing world class products with naturally occurring ingredients in clever and innovative ways for both humans and pets, which completely aligns with Creso Pharma's R&D and sales approach," he added.
Mr Shapiro will lead the merged company as CEO and a director.
What now?
Shareholders will be given the chance to vote on the proposal in the near future. The release explains that the transaction will require the approval of 75% of the votes cast by Creso Pharma shareholders, as well as court approval.
Though, judging by the Creso Pharma share price performance today, that may be far from guaranteed. It appears as though some investors are unsure by the company's plans.
