Elixinol Wellness Limited (EXL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Elixinol Global's 2021 Annual General Meeting in respect of the 2020 financial year. My name is Helen Wiseman, and I'm the Chair of the Board. And joining me today is our Executive Director and Global CEO, Oliver Horn; Non-Executive Director, Paul Benhaim; and our colleagues, Ron Dufficy, Global CFO; and Teresa Cleary, our General Counsel and Company Secretary; and also Jane Lowe from our Investor Relations team. Representing our auditors for the 2020 annual report is Leah Russell of BDO. Now before we begin, it's really important to acknowledge the traditional owners of the land from where I speak to you today, the Gadigal people of the Eora Nation, and pay my respects to elders past, present and emerging. And although we're not able to meet in person, I am pleased that we can come together virtually to update you on your company, conduct formal business and listen to any comments you may have and answer your questions. Today's meeting is being held online via the Zoom platform. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. We will conduct today's AGM in three main parts. After this brief introduction, through which I'll introduce the voting procedure, I will give the Chair's address, I'll then hand over to Oliver, who will provide a business update and then we'll turn to the formal business of the meeting. Questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, we will not address them until the relevant time in the meeting. Please also note that your questions may be moderated. Or if we received multiple questions on the same topic, we may amalgamate them together. We do only have an hour for the meeting today. So depending on how many questions we receive, and we do welcome them, we may not get to every question or we may run out of time to answer all your questions. If you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit the Submit or Enter button as the vote is automatically recorded. You do have the ability to change your vote up until the time I declare that voting is closed. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time. And I will give you a warning before I move to close the voting. After Oliver's presentation, I will formally step through the voting resolutions. But before handing over to Oliver, I would like to make a few comments as chair about the year past and the year ahead. And firstly, as this is my first AGM as Chair of Elixinol Global, I'd like to take a moment to introduce myself and explain why I took the role. I've always had a passion, a strong passion for working with businesses that enhance people's well-being. And this is evidenced through the Board positions I've held over the years with companies in the health, wellness and food industries. And when I first started working with Elixinol Global in April last year as a non-executive director, I felt immediately aligned with the company's mission to make a positive contribution to people's health, wellness and the planet through the power of hemp products. And I soon saw how seriously the company takes this philosophy and how it permeates throughout the entire business, from the quality of Elixinol and Hemp Foods Australia products right through to the way that the company interacts with partners, suppliers, customers and staff and yourselves. When I was offered the position of Chair in September last year, I was inspired and excited to be able to bring my knowledge and experience to help the company achieve its vision of building a global hemp-derived health and wellness consumer products business. And it is with this vision in mind that our strategy has undergone a substantial evolution over the past 12 months. Now we are steadfast in our pursuit of becoming a long-term sustainable business that is strongly positioned to grow. Now at a macro level, the industry is in a period of correction and consolidation. Many companies that jumped onboard the cannabis train have since realized that they don't have what it takes to sustain their businesses through the flux of what has been a volatile period for the industry. And this, of course, has been compounded by an unexpected global pandemic. The global pandemic has constrained growth for CBD companies in an already competitive market. According to cannabis research firm, the Brightfield Group, before the beginning of the pandemic, there were over 3,500 brands of CBD products in the U.S. market. Now Brightfield expects that some 2,000 of those brands will have exited the market in 2021. So what differentiates Elixinol from many of these cannabis companies is our sound financial position and long-term commitment to the sector. We are not an opportunistic new market entrant, but we are pioneers in this sector with a long heritage in the hemp industry. We have a deep understanding of hemp, which began more than 25 years ago through our founder, Paul Benhaim. We are focused on building a solid global business that is agile enough to take advantage of the opportunities that are now presenting themselves. And I believe that this period of market consolidation places us in a strong position to cement our leadership position and create a long-term sustainable business. Whilst the U.S. market continues to mature and is now in a period of consolidation, the European market is one of high growth. And we are actively exploring both organic and M&A opportunities. Our proposed acquisition of CannaCare Health is a perfect example of a well-considered and profitable investment. As one of Germany's leading CBD brands with #1 share in the company -- in the country's drugstore channel, this acquisition will position Elixinol as a leading pan-European CBD player and will accelerate our path to profitability. This is why I was so excited about it. But first, I'd like to spend a few minutes looking back at the past 12 months, including some of the significant changes that we undertook and milestones achieved. And what we've been looking to do is to reset the business and build solid, sound fundamentals from which to move forward. Firstly, the launch of Elixinol brand in 2020, you can see it there on your screen, enabled us to leverage our CBD capabilities into the much bigger and more widely understood nutraceuticals and supplements categories. As a direct result of our brand relaunch and product innovation, we've seen greater retail acceptance, particularly in the U.K. and Ireland with new listings in Well Pharmacy, Superdrug, leading TV home shopping channels and Boots Ireland. On the financial front, our balance sheet was substantially strengthened through an oversubscribed capital raise that was completed last December. We have a commitment to tight financial control that yielded a much leaner, rebased, ongoing cost structure. Despite all of this, with COVID-19, 2020 brought unforeseen challenges and an adverse impact on consumer foot traffic to physical venues. This, in turn, impacted our revenue growth, particularly with our plans in traditional bricks-and-mortar retail markets. And as we start to enter a post COVID-19 environment and as more markets open up, what I will say is that we are in a very strong position to capitalize on opportunities, thanks to the tough decisions and hard work we undertook as a business over the past year. There were silver linings from COVID, including our shift to becoming a digital-first organization. Our focus on building e-commerce capabilities to create that direct consumer relationship has been rewarded. So in FY 2020, our e-commerce revenue accounted for 1/3 of total group revenues. This was up from 26% in FY 2019. And this trend has continued into the first quarter of this financial year with e-commerce now accounting for 40% of total group revenues. Another big positive over the past financial year was the improving performance of Hemp Foods Australia. Hemp Foods Australia achieved strong growth in 2020 and now, with leaner operations and improved margins, accounts 1/3 of the group revenue. It is the largest and one of the most recognizable hemp food brands in Australia. And we look forward to seeing business continue to improve during the course of FY 2021. So looking ahead to the next 12 months, we are firmly focused on revenue growth and improving profitability. We envisage that we will need to make some strategic investments in order to get the scale and the reach that we need to achieve this. Our key markets for FY 2021 will continue to be the U.S. and Europe for Elixinol and Australia for Hemp Foods Australia. Now in the U.S., we have adjusted the business, and we now have a strong team that is well positioned to drive growth whilst being ready to take advantage of any opportunities presented as a result of the market consolidation. We are aiming to appoint an independent Board Director in the coming months in order to strengthen our in-market presence and our network. In Europe, we will be looking to capitalize on the intense industry interest and market growth. With rising consumer demand and an increase in competitors coming into the market, we need to be more aggressive to continue to build brand dominance and market leadership. And that's exactly what we intend to do. In Australia, growing Hemp Foods Australia's #1 position will remain the focus through increased product innovation and dedicated marketing strategies. In parallel, we are working on strategies to secure Australian distribution of Elixinol CBD products via the Special Access Scheme. So in closing, I'd like to thank the management team who have been exceptional in their drive and approach to transition Elixinol towards becoming a world-leading hemp-derived health and wellness consumer products business. The management team's strengthened strategic, commercial and governance capabilities position the company perfectly for the next phase of our development. I'd also like to thank our employees across the globe and here in Australia because a sustainable business is built on engaged and high-performing teams. However, cost-reduction measures, coupled with severe impacts and limitations due to COVID-19 restrictions, led to a very challenging working environment for our people. And I'd like to reiterate, on behalf of our Board, how thankful we are and how proud we are of our teams because they worked tirelessly throughout the year, bringing their commitment and their dedication in spite of this challenging environment. And lastly, I'd like to take the opportunity to thank you, our shareholders, for your ongoing support and shared belief in the company as we have undergone this significant business transformation. And I'd like to reaffirm to you all that delivering long-term shareholder value remains at the core of our business and our decision-making process. And with that, I'd now like to hand over to our Global CEO, Oliver Horn. Thanks, Oliver.

Thank you, Helen, and a very good morning to you all. As Helen just highlighted, you're seeing a completely new Elixinol emerging and transforming itself towards a leaner, digitally led and truly global wellness business. We've made great progress in transforming the business throughout the last 12 months and in creating a global natural health and wellness consumer products business. And it's my pleasure today to be updating you in more detail. In everything we do, we pursue our mission of making a positive contribution to people and the planet by harnessing the best of nature. Our heritage lies in hemp. And we are true hemp experts with over 25 years of experience through our Founder, Paul Benhaim. We've built our business around hemp because the hemp plant is one of the most eco-friendly plants in the world. Hemp rapidly captures CO2 from the atmosphere, regenerates the soil, supports sustainable farming as it doesn't require any pesticides. It prevents soil erosion, needs little water and every part of the plant can be used. Hemp is a super fruit, can be used to make fabrics, plastics, building materials and importantly, has unique medicinal properties. In a time where we all need to step up and positively contribute to our future, we at Elixinol are proud to be champions for natural and sustainable wellness solutions. The last 12 months have been equally busy, rewarding and challenging. And I hope you agree that our new Board, management and our teams have put Elixinol in the most favorable position to seize the opportunities emerging as economies are recovering from severe COVID restrictions and the regulatory environments move towards embracing CBD. Throughout the last 12 months, we have simplified our business model, shed low-value activities whilst reducing our cost base by 45%. At the same time, we've completed the relaunch and transition to making Elixinol a fresh nutraceutical consumer brand that is differentiated through its product formulations, which include active ingredients with proven health benefits. On the back of the relaunch, we've broadened our Elixinol brand reach by making new inroads into European markets with distribution agreements into key retailers. We have retained and optimized our Hemp Food Australia business, which now accounts for 1/3 of group revenues at break-even levels. And at the back of improving our fundamentals and an increasingly positive regulatory environment, we've completed a very successful and oversubscribed capital raise towards the end of 2020. We then immediately focused our attention on entering the most strategic European CBD market by signing a binding agreement to acquire 100% of Germany's leading retail brand, CANOBO. Throughout the global pandemic, the inability to travel and a rapidly consolidating U.S. market, we truly had a very busy yet rewarding year. As a result, in front of you today is a very different and entirely new Elixinol, one that is consumer-led, leaner with stronger brands, well-funded and excited about the future. Following the extensive and ongoing efforts in transforming our business, it is therefore only natural that today, we are proposing to you to rebrand our Elixinol Global corporate entity to become Elixinol Wellness. We've come from a place of wellness and we've always been a company delivering wellness solutions. Rebranding ourselves to Elixinol Wellness is a natural yet symbolic step in our journey of creating a global wellness consumer products business that makes a positive contribution to people's health, wellness and the planet. Importantly, it signals our desire to create and innovate true wellness solutions in an authentic wellness organization, where people are supported to invest in their well-being. Our 2020 financial accounts showcase the results of efforts made. Whilst revenues did decline largely due to COVID impacts on our retail business and our exit from low-value bulk and private-label activities, we worked hard to reduce our cost base by 45% and reduced EBITDA losses by close to 50% when comparing the second to the first half of 2020. Very importantly, in a volatile market environment, we strengthened our funding position to nearly $28 million as a result of an oversubscribed capital raise. These figures clearly demonstrate our resolve into the trajectory in restoring long-term profitability. As already shared with you, our Q1 results have been impacted by severe COVID restrictions and typical post-Christmas quarterly seasonality, resulting in a 26% decline in revenues versus prior quarter. While this is disappointing, it is in line with the U.K. and U.S. market trends. However, we've seen a gradual improvement in monthly performance as COVID restrictions are easing and consumer sentiment is improving. It is encouraging to see that both the U.K. and the U.S. are reporting increasingly positive customer conversations as COVID restrictions are being eased and economic stimulus packages are kick-starting the economies. The U.K., in particular, started to receive new replenishment orders from Well Pharmacy, Superdrug and Ideal World home shopping TV, signaling a gradual return to normalized trading. Throughout the quarter, revenue steadily grew month-over-month. We've continued to manage operating cash expenditures tightly, reducing cash outflows by a further 11%. And we achieved a blended gross margin of 58% as we continue to focus on our branded consumer goods sales, in particular in e-commerce channels. As a result of these dynamics, we remain in a strong funding position, having cash reserves of $23.3 million whilst continuing to generate robust margins with reduced operating expenditures. We can also confirm that as part of the European Industrial Hemp Association's Novel Food Consortium, we have submitted our U.K. novel foods application to the U.K. Food Standards Agency in time to remain on shelf whilst the application is being processed. Toxicology studies are a key component of the scientific dossier that needs to be submitted as part of the application. And our Novel Food Consortium will commence trials over the coming months, which will subsequently be submitted to the FSA for assessment. And we remain confident that our complete application will be approved. In summary, I believe that we are in a very strong position to emerge from the global pandemic as a thriving business. But no matter how strong our business fundamentals are, it is our products and our brand that need to win with consumers. We're incredibly proud that due to our rebranding and repositioning efforts, the Elixinol brand is retaking a leading position in the sea of brands in the U.S. According to the Brightfield research group and in a sea of thousands of brands, Elixinol in the U.S. is ranked within the top 20 brands for level of effectiveness, packaging appeal, price and repurchase intent, confirming that we have a very competitive offering and that our product strategy is resonating with consumers. On key brand health metrics, such as repurchase intent and overall satisfaction, Elixinol performs on par with industry leader Charlotte's Web. These metrics are proof that following our repositioning and marketing efforts, Elixinol is seen as a high-quality, premium and effective brand. To continue this positive trend, we are set to launch the new Elixinol Let Nature Shine campaign. More and more consumers are seeking alternatives to traditional pharmaceutical drugs. And this marketing campaign has been designed to reflect and capitalize on this global macro trend by amplifying our positioning as a brand that harnesses nature and key natural active ingredients. The marketing campaign and new tagline you see here today will launch over the next few weeks. The creative is highly differentiated as a great standout and will undoubtedly attract new consumers to the brand. Over the coming months, we will further strengthen Elixinol's brand health and consumer appeal through a well-researched innovation agenda. During the last 6 months alone, we relaunched a wide range of innovative products, such as a range of water-soluble tinctures in the U.K.; the first U.S. CBD product with Ginfort containing 13x more ginger actives than any other product; our new liposome product with improved bioavailability and taste; and also a fresh -- a refresh of our entire U.S. functional capsule range. Hemp Foods Australia, meanwhile, launched a premium range of hemp food products under the Hemp Gold brand and a new Australian-grown hemp seed product, which achieved wide distribution, including at Costco. As we rejuvenate ourselves as a company, we also have to constantly rejuvenate our product offering and are looking ahead. And now we will only accelerate our innovation efforts across all business units. I'm also pleased to report that our digital-first strategy of prioritizing e-commerce channels is showing positive results across all regions. Revenue average order value and conversion rates all performed well throughout the January to March period, and we expect this positive trend to continue. We have and continue to enhance the user experience for our websites and added functionalities, like Apple Pay, Android Pay, Afterpay as well as money-back guarantee, customer product reviews and will shortly roll out subscription of loyalty programs. In addition, we're focusing heavily on adding e-retailers and affiliates to our network, thus giving consumers more opportunity to buy Elixinol and Hemp Foods Australia products. We are particularly proud of our very high conversion rates, which are close to 6% and far exceeding industry benchmark. As a result of these efforts, revenues from e-commerce in Q1 accounted for 40% of total group revenues. And this compares to 33% for Q4 2020. We've largely established our global e-commerce capability throughout Q4 and are still only at the beginning of our journey. I'm therefore very confident that we will continue to see good progress over the coming months. Attracting new talent and agents of change to our global business is a key ingredient for leapfrogging our competitors once again and building sustainable competitive advantages into our global business. We're incredibly proud to have attracted two exceptional leaders that bring with them market-leading experience and know-how. Success in the Americas is arguably a prerequisite for building a flourishing global business. Rob Hasselman has joined Elixinol Wellness group, bringing with him 16 years of J&J experience in the health care sector as well as having been Sales and Marketing Director for Ecofibre and VP, Sales & Marketing for Wellspring Pharma Corporation, where he transformed the business through numerous M&A initiatives. Beata Silber will be joining us as Global Head of R&D and Innovation on the 24th of May. We've created a global R&D/innovation function reporting directly to me to emphasize the importance and focus Elixinol Wellness is placing on bringing unique, safe and efficacious product solutions to our global markets. Centralizing this capability also allows us to avoid cost duplication as Beata will be guiding all regions in their efforts to create breakthrough innovation. Beata has a PhD in Neurocognition and was granted a prestigious European Marie Curie Post Doc. Fellowship in France. Beata spent 10 years with Nestlé, working as Nestlé's Head Research Centre in Switzerland as a Research Scientist, Project Manager, Science Communications Manager and Brand Health Innovation Manager. Returning to Australia after 10 years in Switzerland, Beata joined Swisse Wellness, leading the Research & Science Claims and Communications Team. Beata was quickly promoted to the Global R&D and Innovation Director role for the H&H Group in early 2019. We are incredibly excited about Rob and Beata joining us in helping to accelerate our transformation to a thriving science-led global wellness business. We look forward to sharing with you our new cost initiatives in the Americas and in our global innovation pipeline throughout the third quarter. Now, with our business in good shape, a strong brand, a fresh product offering and new capabilities, we're now looking forward to the further easing of COVID restrictions and importantly, this prospect of continued rapid regulatory progress. The long-term outlook for the CBD industry remains positive, with U.S. expected to grow at plus 26% CAGR between 2020 and 2025 and the EU market predicted to grow at 34% CAGR over the same period. In the U.S., the CBD industry continues to wait for the FDA to review scientific data about the safety of CBD and develop a regulatory pathway, allowing the sale of CBD products as dietary supplements and as a food additive. Whilst regulatory progress will undoubtedly be positive, we expect the FDA to regulate no sooner than the end of this year. Whilst the long-term U.S. outlook remains positive, we do expect the CBD category to remain under pressure in the near term due to intense competition and an accelerating industry consolidation and shakeout that will result in smaller players exiting the market. Europe, in the meantime, has the most positive regulatory outlook. The U.K. allows CBD to be regulated as a novel food. And we are pleased that our application has been submitted to the FSA in time, thus allowing our products to continue to be sold while the FSA reviews the application. In the short term, we do expect disruptive trading patterns across retailers as FSA is implementing new novel foods regulations. And there remains a lack of visibility which companies' applications have been accepted and are being approved. As a result, retailers are currently somewhat hesitant to invest in the CBD category. In the EU and following a ruling by the European Court of Justice, CBD is no longer classified as a narcotic. And it's widely expected that the EU will recommence the novel foods registration process, which has been put on hold halfway through 2020, and we are well prepared for that moment. In contrast to the EU or the U.S., Australia is regulating CBD as a pharmaceutical product and has de-scheduled CBD to Schedule 3, allowing for TGA registration, subject to approval of extensive safety and efficacy data. We do not foresee this as an attractive opportunity, given the high cost to enter and limited market size, and we'll therefore focus on our efforts to bring Elixinol products back to the Australian market by the Special Access Scheme Schedule 4 and 8. In summary, we believe that all geographies provide significant long-term opportunities. The short term will be impacted by positive regulatory change, a gradual recovery from COVID restriction and an industry consolidation in the more mature CBD markets. All of these dynamics will favor the more established, compliant and financially sound players like Elixinol. I would now like to turn your attention to the most strategic and important resolution put in front of you today, the proposed acquisition of CannaCare Health in Germany. This acquisition is transformational in such that it has the potential to shift our global business further towards Europe, which we consider a highly attractive market to generate near-term returns in. Germany is the most strategic growth market in Europe besides the U.K. and is expected to grow almost 7x from EUR 82 million today to EUR 560 million in 2025. As mentioned earlier, the European Court of Justice has ruled that CBD is not a narcotic and can be reclassified as a novel food, giving European markets a more stable regulatory outlook towards CBD. CannaCare is an exceptional business insofar as having built a profitable business model early on whilst creating a leading bricks-and-mortar consumer brand with wide-reaching national distribution. The CANOBO brand, with its wide range of 20 products, including a new skincare range promoted by German Let's Dance judge and media personality Jorge González, has quickly become the country's leading CBD consumer brand, thanks in large part to the team's marketing expertise and advertising strategy. CANOBO can be found across more than 4,500 retail outlets across Germany, Austria and Switzerland and is the undisputed leader in the German drugstore channel with an estimated market share of 42%. Supported by media personality in Jorge González, CannaCare very successfully launched a comprehensive CBD skincare range throughout April. It is testament to the great product design, price point and marketing capability that the range has not only achieved listings in major national accounts, such as Müller, Budnikowsky and famila, but that replenishment orders are already being replaced. Müller, Germany's third-largest drugstore chain has confirmed that this new range is the best-selling new cosmetic line in their stores. The wide-reaching media coverage and high-impact marketing activities, together with the early in-store success, is giving us the reassurance that skincare will become the biggest growth driver for the CannaCare business in 2021. The acquisition of CannaCare will deliver Elixinol Wellness immediate material scale in Germany while creating significant long-term value through a high-growth market trend, identified cost synergies and potential cross-selling opportunities. The regulatory environment in Europe is arguably the most favorable towards CBD. And in this environment, we see ample opportunity to further grow the CANOBO brand as well as launching Elixinol brand into the German market. Given that CannaCare's business is materially identical to that of our existing U.K. business, we see further synergies in creating a pan-European business that combines key business functions and thereby reducing the cost of doing business. We will also be able to leverage our increased purchasing power with suppliers and capitalize on the team's expertise across the European region. The CannaCare team is already working on bringing Elixinol to the German market, and early retailer conversations have been positive. Very importantly, the CannaCare business is already profitable and is expected to positively contribute not only to revenue growth but importantly to cash generation. We're particularly excited about welcoming CannaCare's well-credentialed leadership team to the Elixinol business, led by Oliver Haist as Managing Director. Oliver has built the business from the ground up and brings with him decades of German FMCG and branded consumer goods experience. Oliver holds all key customer relationships, and he's looking forward to leading the continued growth of the company. Oliver will report directly to me as a key member of the global leadership team. Our EXL Board will be strengthened by the addition of media entrepreneur, Frank Otto, as Non-Executive Director based in Germany. Frank is one of the sellers of the CannaCare business and a serial entrepreneur, founder and investor in the media industry. In the early '90s, together with Time Warner and Sony Television, he became co-founder of the European music television channel, VIVA. Frank Otto is part of the Otto family who owns the Otto Group, one of Germany's largest mail-order companies and currently one of the world's biggest e-commerce companies. Frank's experience, business network and passion for the hemp industry will be an incredible asset to the Elixinol Wellness Board. I'd now like to hand over to our Global CFO, Ron Dufficy, to take you through the proposed transaction in more detail. Over to you, Ron.

Thank you, Oliver. On behalf of the executive team and the Board, we are very pleased to bring the CannaCare transaction to the consideration of our shareholders. The proposed acquisition of CannaCare is expected to fast-track revenue growth and accelerate Elixinol's pathway to profitability. In the opinion of management, our advisers and the Board, the terms of the acquisition are highly attractive to our shareholders. The purchase price is to be paid in 2 tranches, an upfront amount of EUR 9 million, comprising EUR 3 million in cash and EUR 6 million in Elixinol scrip. These shares are to be issued at a fixed price of $0.2105 per share and will equate to dilution of approximately 12%. This up-front consideration implies a 3.5x ratio of enterprise value to revenue based on FY 2020 revenue and 2.2x based on Q4 annualized run rate. As outlined in Section 7 of the Independent Expert's Report, these multiples compare very favorably with comparable transactions in our industry. In addition to the upfront amount, a performance-based earnout of up to EUR 15 million is to be paid entirely as Elixinol scrip. Eligibility for the earnout is conditional upon the achievement of financial milestones. For any earnout to be payable, the CannaCare business is required to generate revenues of at least EUR 6.5 million in FY 2021. Additionally, the EBITDA-to-revenue ratio must be at least 20% or else a 50% reduction will apply to the earnout. Earnout shares will be priced using a 15-day volume weighted average, or VWAP, prior to their issue date of March 31, 2022. Assuming business performance drives the maximum earnout and the VWAP is $0.2105, the total dilution, including up-front shares, will be approximately 33%. In summary, assuming the CannaCare business achieves its earnout thresholds, its FY 2021 revenue would represent between 66% and 133% growth on Elixinol's FY 2020 audited group revenues. In FY 2020, CannaCare reported unaudited revenues of EUR 2.6 million, which equates to AUD 4.3 million. In line with our expectations during Q1 FY 2021, CannaCare has delivered unaudited revenues of EUR 0.9 million, equating to AUD 1.5 million. Supported by a successful skincare launch, strong growth is expected throughout the balance of FY 2021. The combination of CannaCare and Elixinol's existing London-based business is expected to create an EBITDA accretive pan-European business of scale. Subject to shareholder approval, the transaction is expected to complete on 5th of July 2021, upon which time the company will issue the up-front consideration shares. These consideration shares will be subjected to a voluntary escrow period through until 31 March 2022. The determination of the earnout will be made following release of Elixinol's audited FY 2021 financial statements with earnout shares to be issued on 31 March 2022. Back to you, Oliver.

Thank you very much, Ron, for the overview. We're now looking forward to an exciting second half of the year, particularly with the easing of COVID restrictions expected to provide tailwinds for our brick-and-mortar distribution. Our core priorities are now to kick-start our U.S. and U.K. businesses following severe COVID restrictions, integrate CannaCare into the Elixinol Group whilst fueling the CANOBO growth, further shifting our business to digital channels and continuing with our brand-building, cost optimization and margin enhancement initiatives. Calling out the U.S. business in particular, and as mentioned earlier, in introduction of our new President of the Americas, Rob Hasselman, we're working on an aggressive transformation agenda that will result in a world-class digital marketing business that is agile, efficient and will enter new channels to restore sustainable growth momentum. In summary, I hope that today has given you the confidence that the new Elixinol Wellness business is well positioned to capitalize on consumers' growing appetite for natural wellness solutions. The global market for CBD and hemp food products are set for a sustained strong growth trajectory. And we are now well set up to participate in this growth across the Americas, Europe, Australia and New Zealand. Our business transformation has materially improved core fundamentals, and we continue to shape and optimize the business for the opportunities right here and right now. Our new leaders will add new energy and expertise to accelerate our path to growth and profitability. Our brands are getting stronger, and even Chris Hemsworth was actually spotted recently in Byron Bay buying our hemp seeds product, as you can see here. And our new marketing and innovation initiatives will further enhance the consumer appeal. Our digital-first strategy is materially improving profitability and has become a key component for all global business units. We made good progress. But work has only just begun, and we are already for and excited by the prospects ahead of us. I'd like to thank you all for your continued support, trust and belief in our vision to create a global wellness business that does good for the people and the planet. And finally, before handing back over to our Chair and as a token of our appreciation, we've created an exclusive offer for you, our investors. Australian investors can enjoy 40% off on all Hemp Foods Australia products when ordering online by using the code that is on the screen here now. Likewise, U.S. and U.K. and Europe investors can enjoy 40% off on Elixinol products by using the relevant codes that are on the screen. We hope you take advantage of this offer to experience the quality and health and wellness benefits for our products firsthand. And with that, I would like to thank you for your attention, and now pass you back to our Chair, Helen, for the business of our AGM. Thank you.

Great. Thank you, Oliver. Love those discounts. So let's get into the formal part of our voting. So I'll now open up the floor to questions from shareholders, noting that there will be an opportunity to ask questions about specific resolutions when we move through to that more formal part of the meeting shortly. [Operator Instructions] I note we have received a number of shareholder questions in advance. And whilst we may not have time to get through all of the questions today, we will endeavor to answer as many as possible. And so taking into account those questions that we did receive in advance, I'd like to answer a couple now. So Jane, could you please read out the questions?

Sure. Thank you, Helen.

So the first question is you've spoken a lot of the COVID impact in Q4 and Q1. What are the impacts in the next quarter or over the short term?

I'd like to take that, Jane. Thank you. And thanks for the question. Look, I think COVID has been different across all regions. But -- so in short, I would argue that we only see a gradual recovery in the retail environment. But I'm certain that throughout the second half, towards the tail end of 2021, we see pretty normalized trading. But there's different dynamics across each market. And one dynamic in the U.K., for example, has been that while retail is starting to open up, the retailers are actually challenged getting supplies in for some of their core bread-and-butter SKUs, particularly on vitamins and supplements that have supply shortages. And we've seen some disruption in reordering patterns from retailers, where they're focusing on those bigger categories to restore normal trading. And those new categories like CBD are probably second priority at the moment, so -- but having said all that, I would be confident in saying second half, towards tail end of 2021, we see pretty normal trading again.

Thanks, Oliver. I did have one additional question. How long do you expect your current cash to last?

I think that one's for me. Well, thanks to the trust placed in us by our shareholders, we're well-funded. At the end of March, we had just over $23 million of cash on hand. And during the March quarter, the group used cash in operations of $3.6 million. So this run rate implies that we have over 18 months of runway. However, over time, we expect the cash -- our cash flows to improve through maintaining ongoing tight cost controls and continually looking for opportunities to reduce our cost base. And also as key markets start to recover from COVID impacts, we expect our top line revenue to start to improve.

Thanks, Ron. No further questions at this time, Helen.

Okay. Thank you very much. So we will have more opportunities for questions, but let's move to the formal business of the meeting.

So the notice of meeting, dated 15th of April 2021, was circulated to members, and I will take that notice of meeting as read. And I would like to advise that I, as your Chair, intend to vote all undirected proxies in favor of all resolutions. And as each resolution is tabled, a slide will show the results of the proxy votes on the screen. Are there any questions relating to the procedures of the meeting? Jane, I'm asking you on that one.

No questions at this time. Thanks, Helen.

All righty. So let's move then to the business of the meeting. The first order of business today is to receive and consider the financial report, the directors' report and the independent auditor's report of the company for the financial year ended 31st December 2020. And a copy of the annual report was made available on the company's website, the ASX platform and was sent to those shareholders who requested of it. And again, I will take those reports as read. Jane, any questions?

Not at this time. Thanks, Helen.

Okay. Well, we will now move to the resolutions for voting. And thank you, everyone. So the first resolution of the meeting is to consider and, if thought fit, to pass the following as an ordinary resolution of the company that Mr. Paul Benhaim, who retires in accordance with clause 6.1(f)(i) of the company's constitution and being eligible for reelection, be reelected as a director of the company. Further details about this resolution are contained in the explanatory memorandum that accompanied the notice of meeting. And the directors, with Mr. Benhaim abstaining, unanimously recommend shareholders vote in favor of the resolution. Do we have any questions in relation to this resolution, Jane?

No, we don't, Helen.

Okay. So here are the proxies that have been received in relation to this resolution. And if there is no further discussion, I will now put to the meeting resolution #1. So please, would you now select either for, against or abstain for resolution 1? [Voting]

I will now move to the second resolution regarding the Elixinol Global Limited remuneration report. And the remuneration report was contained within the 2020 annual report, which is available on the company's website and was posted to shareholders on request. And again, I will take that remuneration report as read. Please note that in accordance with section 250R(3) of the Corporations Act, the vote on this resolution is advisory only and does not bind the directors or the company. So the resolution, you can see it on the screen, but I will read it out properly, is as follows: that the company's remuneration report for the financial year ended 31st December 2020, as set out in the directors' report, be adopted. I'd also just like to advise shareholders that Elixinol Global Limited will disregard any vote stated in the voting exclusion statement related to resolution 2, and indeed the resolutions which are set out in that exclusion statement in that notice of meeting. And the final thing I would say on this resolution is that in the interest of governance, the Board does not make a recommendation to shareholders in relation to this resolution. Jane, do we have any questions on this resolution?

No questions on this one. Thanks, Helen.

Okay. Thanks, Jane. Thank you. So I'll now put to the meeting resolution #2. And here are the proxies that have been received in relation to this resolution. So please, would you now select for, against or abstain in relation to resolution #2? [Voting]

Okay. The third resolution is to consider and, if thought fit, pass the following as an ordinary resolution of the company: that, for the purposes of ASX Listing Rule 7.2, Exception 13 and for all other purposes, the Elixinol Global Limited Equity Plan, as described in the explanatory statement accompanying and forming part of this notice of meeting, be approved for the issue of securities under the plan. And further details about that resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. And you can see, it's here on the screen. Jane, do we have any questions on this resolution?

No, we don't. Thanks, Helen.

Okay. So I will now put to the meeting resolution 3. And here are the proxies that have been received in relation to this resolution. So please, would you now select either for, against or abstain for resolution #3? [Voting]

Thank you. So turning to the fourth resolution, and this is to consider and, if thought fit, pass the following as an ordinary resolution of the company: that, for the purposes of ASX Listing Rule 7.4 and for all other purposes, ratify the issue of 48,209,265 fully paid ordinary shares in the capital of Elixinol Global Limited at an issue price of $0.17 per placement share on the terms and conditions set out in the explanatory memorandum accompanying the meeting notice. Do we have any questions on this resolution, Jane?

No, we don't. Thanks, Helen.

Okay. So I will now put to the meeting resolution #4. And here are the proxies that have been received in relation to this resolution. And again, please, would you now select either for, against or abstain for resolution #4? [Voting]

The fifth resolution of the meeting is to consider and, if thought fit, to pass the following as an ordinary resolution of the company: that, for the purposes of ASX Listing Rule 10.17 and clause 6.3(a) of the company's constitution, the maximum aggregate amount payable to non-executive directors by way of directors' fees be increased by $150,000 from $350,000 to $500,000 per annum. And there's just one point I would like to make here. Because we are going to be -- or looking to expand our director pool, we are not looking to increase the existing directors' fees. I think it's really important to make that point. So Jane, do we have any questions on this resolution?

Yes. I do have one for you on this resolution, Helen, which is, is there any -- sorry, is there an update on your plans to appoint a further independent director to the Board?

Okay. Thanks, Jane. So as part of the CannaCare Health acquisition, and we'll come to that resolution, is appointing Mr. Frank Otto as a director of the Board. So that will bring the Board to 4 members. But it does mean that we will have 3 non-independent directors. So we felt it was critically important that we should conduct a search to find 1 further independent director, which will also bring, I guess, their dimension to the Board. We are in advanced discussions. But at this stage, we're not about to appoint an independent director. But as soon as we do look to make such an appointment, we will, of course, keep the shareholders appraised. So we're close but not quite there. Any other questions, Jane?

No. Thanks, Helen. No more at this time.

Okay. So I now put to the meeting resolution 5. And can you put up the proxies for that resolution, please? Okay. So please, would you select either for, against or abstain for resolution #5? [Voting]

Okay. Thank you, everyone. So resolution 6 is to consider and, if thought fit, to pass the following as an ordinary resolution of the company, and that is: that, subject to the passing of resolution 7, that, for the purposes of ASX Listing Rule 7.1 and for all other purposes, the issue of 43,864,133 shares to the vendors, as that term is defined in the explanatory memorandum, or their nominees at a deemed price of $0.2105 per share on the terms and conditions set out in the explanatory memorandum, these be approved as part consideration for the company's acquisition of all of the issued share capital of CannaCare Health GmbH. And thank goodness, that resolution is up on the screen. It's not the easiest one to read. Jane, do we have any questions on this?

Yes. We do have two questions on this one, Helen.

So the first is how does CannaCare's acquisition impact the company's cash position and path to profitability?

Thank you, Jane. I'll take that one. Well, the CannaCare business is already profitable and is expected to be EBITDA accretive from day 1. From a cash flow perspective, the CannaCare business already operates under a capital-light model, similar to what Elixinol's been transitioning to. If we assume that CannaCare business achieves its earnout objectives, then it would be contributing revenues of between $2 million and $4 million -- sorry, EBITDA of between $2 million and $4 million in 2021. And assuming some modest growth assumptions going into 2022, that would mean that we'd be achieving payback on our cash component of our investment within 18 months.

Thank you, Ron. Okay. One further question, perhaps for Oliver. Are there plans for further acquisitions on the horizon?

Thanks, Jane. In short, yes and no. So we have no concrete plans. There's no advanced discussions or anything that we're having. But it's absolutely part of our strategy. So we realize that if we are to get to profitability quickly, we need to increase our scale. And we believe that the U.S., as far as a key opportunity, where we can achieve scale because the market is going through consolidation, shakeout, there's distressed assets currently in the market, and we feel that there's an opportunity for an M&A event to get us revenue -- increase our revenue significantly and realize cost synergies to create a profitable business in the U.S. So it's absolutely on our strategical road map but no specific conversations at this stage with any target.

Thanks, Oliver. Helen, no further questions at this time.

Yes. That's great to get those questions in advance. So I will now put to the meeting, resolution #6. And here are the proxies that have been received in relation to this resolution. So again, please, would you select either for, against or abstain for resolution #6? [Voting]

Thank you. So let's turn to resolution #7. And that is to consider and, if thought fit, to pass the following as an ordinary resolution of the company. So subject to the passing of resolution 6, which I'm pleased to see has been passed: that, for the purposes of ASX Listing Rule 7.1 and for all other purposes, the issue of 3 performance securities that may convert up to a maximum of 165,180,893 shares to the vendors, as that term is defined in the explanatory memorandum, or their nominees on the terms as described in the explanatory memorandum, this be approved as part consideration for the company's acquisition for all of the issued share capital in CannaCare Health GmbH. And I'd like to highlight the Independent Expert's Report prepared by Grant Thornton, which has been provided with the notice of meeting. And the Independent Expert Report opines on the fairness and reasonableness of the performance securities. And the Independent Expert has concluded that the issue of shares on conversion of the performance securities, if the relevant performance conditions are satisfied, is fair and reasonable to shareholders. And this is in accordance with the requirements of ASX Guidance Note #19. And the resolution is notably set out on the screen. Jane, do we have any questions on this one?

No questions at this time on that one. Thanks, Helen.

Okay. So I now put to the meeting resolution #7. And here are the proxies that have been received for that resolution. So again, please, would you select for, against or abstain for resolution #7? [Voting]

Okay. Thank you. So let's move to -- we have 2 more resolutions left. So resolution #8. And this is to consider and, if thought fit, to pass the following resolution as a special resolution of the company: that, for the purposes of section 157 of the Corporations Act and for all other purposes, the name of the company be changed to Elixinol Wellness Limited. Jane, any questions for this one?

No questions on this one. Thanks, Helen.

Okay. We've got 2 minutes left. So I now put to the meeting resolution #8. And here are the proxies that have been received in relation to this resolution. And again, please, would you vote either for, against or abstain for resolution #8? [Voting]

Okay. Thank you. So resolution #9, and this is to consider and, if thought fit, to pass the following as a special resolution of the company: that, pursuant to and in accordance with ASX Listing Rule 7.1A and for all other purposes, shareholders approve the issue of equity securities up to 10% of the issued capital of the company at the time of the issue calculated in accordance with the formula prescribed in ASX Listing Rule 7.1A.2 and on the terms and conditions as described in the explanatory memorandum. Questions, Jane?

No questions. Thanks, Helen.

Okay. Thank you. So I'll now put to the meeting resolution #9. And here are the proxies received in relation to this resolution. And again, please, would you select either for, against or abstain in relation to this resolution? [Voting]

So that was the final resolution. Before closing the voting system, I'd just like to give an opportunity to ask if anyone wants to ask one additional question, that's all we've got time for. But I did promise it. So Jane, is there any other questions that we've received?

Yes. I do just have a question here actually relating to the share price.

So perhaps one for Oliver, how do you explain the recent movement in EXL's share price?

Thanks, Jane. Look, obviously, I don't like to speculate on share price. It's a [indiscernible]. But I probably just draw everybody's attention to 2 facts. One is our share price over the last 3 months arguably has outperformed that of CBD peers. While the whole category has been seeing a decline, we've been the more stable. And I think it really is testament to our sound financial position and the cost strategies that we've been driving and our strong brand investments. So yes, it's a declining category. We've been the best performer in that. And we are very reassured by that. The second point that I was making is probably the Independent Expert's Report that Helen just referred to, which really values our share price pre the CannaCare acquisition between $0.21 and $0.24, I believe. So judging by the Independent Expert's Report and certainly my management team's view is that we are undervalued at this stage.

Thank you. I'll hand it back to you now, Helen.

Thank you for that. And ladies and gentlemen, that concludes our discussion on the formal items of business. I will shortly close the voting system. I'll just leave about another minute. Please ensure that you've cast your vote on all resolutions. And I'll now pause to allow you time to finalize those votes. [Voting]

Okay. Thank you very much, everyone. Voting is now closed. The results of these votes will be released to the Australian Securities Exchange later today. And this concludes the 2020 AGM of Elixinol Global Limited. Thank you very much indeed for your participation and support. Thank you.

Thank you.