Auscann (ASX:AC8) share price climbs higher on sale agreement

The Auscann Group Holdings Ltd (ASX: AC8) share price has been on the move today following the sale of its DayaCann holdings.

When the news broke, shares in the cannabinoid pharmaceutical company rose to 15 cents, however they have since retreated.

At the time of writing, the Auscann share price is marginally higher at 14.2 cents, up 1.4%. This compares to the All Ordinaires Index (ASX: XAO) which is up 0.6% to 6,557 points.

So, let’s see why Auscann sold off its stake in DayaCann.

Sale of joint venture interest

According to the release, Auscann advised that it has entered a sale agreement with GrowForChile SpA (GFC) and Telor International Limited. The offloading of its 50% interest in its Chilean joint venture, DayaCann SpA, will see Auscann focus on its core business interests.

The deal will involve the transfer of the company’s loan with DayaCann to GFC. In addition, Auscann will receive an upfront payment of US$200,000 and further payments that amount to US$1.5 million.

Auscann formed an evenly split joint venture with Fundación Daya in Chile in November 2016. The goal was to cultivate and supply global markets with cost-effective medicinal cannabis.

Today, DayaCann is the only commercial-scale medical cannabis company in Chile that has obtained production licences to grow multiple harvests. Until recently, DayaCann produced over 1,000 kilos of dried cannabis flower every year. However, the Chilean government has limited the supply of cannabis to patients and has not approved the export of medical cannabis to international markets.

Auscann stated as a result of the anticipated developments, it sees its Chilean join venture become a non-core activity. Furthermore, the company noted its strategy has evolved to expand its offering of differentiated cannabis products.

Management commentary

Auscann CEO Mr Nick Woolf commented on the sale agreement:

The DayaCann joint venture became a non-core activity for AusCann due to the restrictions imposed by the Chilean government on the use and export of medicinal cannabis from Chile.

This Agreement strengthens AusCann’s capital position and enables management to focus on the Company’s core strategy of building value through R&D and a differentiated portfolio of cannabinoid-based pharmaceuticals, the first being our unique hard-shell capsules already launched into the market.

Auscann share price summary

The Auscann share price has tumbled in 2020, losing more than 50% of its value since the beginning of the year. Although higher today, the company is sitting just above its 52-week low of 13.5 cents, which was reached last week.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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