Myconic Capital Corp Capital Corp acquires KGK Science in $16.5 million deal

28-May-2021 - Last updated on 14-Jun-2021 at 16:27 GMT

©Getty Images - metamorworks

Related tags CBD and Hemp Mergers and acquisitions

Contract research organization KGK Science Inc. will be acquired by Canadian investment issuer Myconic Capital Corp., it was announced yesterday. The deal is valued at as much as $16.5 million.

KGK is being sold by its owner, Auxly Cannabis Group, a publicly traded manufacturer of cannabis and CBD products. Auxly first acquired KGK in mid 2018 in a deal valued at about $12.3 million.

“This is an exciting day for KGK as we look to bring our years of experience as a leading CRO into the field of psychedelics research, which holds great promise for helping people overcome a wide range of illnesses,” said Najla Guthrie, president and CEO of KGK. “We’ve gained invaluable insight from our partnership with Auxly and look forward to continuing our relationship and helping them bring safe and effective cannabis products to market.”

Robert Meister, CEO of Myconic, commented: “The investment that Myconic is making to acquire KGK is very exciting and I look forward to welcoming the KGK team and their valuable expertise to our company.

“On behalf of the Board of Directors, I would like to commend Auxly on their professionalism and transparency throughout the Transaction thus far and look forward to our companies working together for many years into the future, long after the closing date,” added Meister.

Transaction details

The transaction with Myconic is expected to close by June 7. The details of the transaction are as follows:

$1.5 million in cash payable on the closing date
$1.0 million in cash payable six months after the closing date
$10.0 million in common shares in the capital of Myconic in four separate tranches
$1.5 million milestone payment, payable in cash or Myconic shares, at the option of Myconic, if KGK achieves gross revenues of $8 million in any 12-month period during the two years following the closing date $2.5 million credit against future KGK services, reflected in a 10-year service agreement between Auxly and KGK.

“KGK is an outstanding CRO that knows how to unlock value in emerging industries through clinical work and will be an excellent fit with the team at Myconic,” said Hugo Alves, CEO, Auxly.

Auxly path to profitability

Auxly released its financial results for the first quarter of its fiscal 2021 today. The company reported a 1% year over year rise in sales, bringing in $10 million in revenue for the period ending March 31, 2021, compared to $9.9 million for the year previously.

The company touted at the same time the launch of a number of new products, including a CBD topical cream. While the company’s bottom line seems to be improving somewhat, Auxly still recorded a negative adjusted EBITDA of $6.9 million for the quarter, compared to a negative $8.3 million for the year previously.

“This agreement with Myconic is a win-win for Auxly and its shareholders in both the short and long-term, as the additional capital can be deployed into our core business and accelerates Auxly’s path to profitability, while continuing our long-standing relationship with KGK to leverage their deep clinical expertise as we continue to bring innovative cannabis products to market that meet our consumer promise of quality, safety and efficacy,” added Alves.

Editor's Note: On June 1, 2021, Myconic Capital Corp changed its name to Ketamine One