Kanabo Grp Plc Regulatory News (KNB)

Kanabo Group PLC

("Kanabo" or the "Company")

Update on Acquisition of Materia

& Further Investment

Further to the announcement of 26 July 2021, Kanabo Group Plc (LSE:KNB), a medical cannabis R&D Company that focuses on the distribution of cannabis-derived products for medical patients and wellness CBD consumers, announces that it has finished the majority of its due diligence work as part of the proposed acquisition of the European businesses of 11157353 Canada Corp. (the "Proposed Transaction"), which trades under the name of Materia ("Materia").

Kanabo and Materia have therefore signed a revised term sheet which includes binding elements ("Head of Terms"), and the parties consider this to be an important step towards completion of the Proposed Transaction. As previously announced, the Proposed Transaction contemplates the full acquisition of Materia's European business, including its Maltese EU GMP certified facility, German medical cannabis wholesaler and UK CBD e-commerce platform.

HIGHLIGHTS

· Agreement reached on majority of commercial terms of the proposed acquisition;

· Due diligence on Materia substantively complete;

· All share acquisition agreed, valuing Materia at CAN$20MM initially (c.£12million*), with up to an additional CAN$40MM (c.£24million*) payable in new Kanabo shares, upon attainment of post completion performance milestones;

· Both the Initial Consideration and the Earn-Out Consideration to be satisfied through the issue of new ordinary shares in the Company;

Update of the Proposed Acquisition

Kanabo has completed the majority of the due diligence on Materia and commenced the work on the regulatory documents required to complete the Proposed Transaction. The Parties have also begun planning the integration of the companies once the transaction is completed.

Whilst this announcement contains details of the Term Sheet, the Proposed Transaction is still subject inter alia to the agreement of formal documentation and conditional on, among other things, the receipt of all necessary regulatory consents.

The Consideration:

The Head of Terms states that the consideration for the Proposed Transaction, which will be subject to the execution of the Share Purchase Agreement and completion, will be satisfied via an initial payment of CAN$20m (c.£12million*) (the "Initial Consideration"). In addition to the Initial Consideration, Materia will be paid an additional consideration of up to CAN$40m (c.£24million*), subject to achieving certain operational and financial milestones (the "Earn-Out Consideration") including, but not limited to:

· Commercial production of two total products in Materia Malta;

· Sales in a new market beyond Germany and Malta;

· Malta production facility reaching a breakeven point.

· Sales of CANS$30million (c. £17.73million*) for the 12-month period to December 31, 2022;

· Sales of CAN$50miliion (c. £29.55million*) for the 12-month period to December 31, 2023; and

Both the Initial Consideration and the Earn-Out Consideration are to be satisfied through the issue of ordinary shares in the Company.

Loan Facility:

In connection with entering into of the Term Sheet, Kanabo will advance to Materia a further loan of CAN$500K (c.£295K*) in parallel with a CAN$500K (c.£295K*) investment to be advanced by a major shareholder of Materia. This Kanabo loan will form part of a C$3M (c.£1.77million*) credit facility (the "Credit Facility") to be drawn down in certain tranches based upon agreed uses. If for any reason the Proposed Transaction does not complete within six months from the date of the last tranche advanced under the Credit Facility, Materia will pay 10% interest to Kanabo per annum from the date of drawdown until full repayment of the Credit Facility, and under certain circumstances, Materia will be responsible to reimburse a portion of Kanabo's costs incurred through the acquisition process.

About Materia:

Materia's medicinal cannabis assets include its Maltese, German, and UK subsidiaries ("Materia Malta", "Materia Germany", and "Materia UK" respectively). Materia Malta operates a European Union Good Manufacturing Practices ("EU GMP") certified facility, through which Materia Malta is able to import cannabis flower from its global supply network of cultivators and process it into EU GMP certified medical cannabis products. The Company anticipates that Materia Malta will be particularly well placed to process any new extracts developed by Kanabo. Materia Germany is a fully operational pharmaceutical wholesaler, with EU GDP and EU GMP certificates, enabling it to import and sell medical cannabis products directly to thousands of German pharmacies. Materia UK sells several leading CBD and wellness brands through Handpicked CBD, which aims to be one of the UK's largest CBD e-commerce marketplaces, and which now features Kanabo's own CBD line, as announced on 22 September 2021.

Materia CEO Deepak Anand commented Materia, "As the transaction has progressed the potential for the combined company to establish itself as a market leader has become even more evident. Materia's and Kanabo's assets are highly complementary and together represent a differentiated cannabis company poised to advance the industry."

Kanabo CEO Avihu Tamir commented, "We are very pleased with the progression of the transaction since the non-binding heads of terms were announced. I see the decision to merge with Materia as a strategic move that will allow a smooth expansion into our primary markets by solidifying our supply and distribution channels. We are confident that it will enable our enlarged group to lead the UK and German medical cannabis markets over the next few years and I believe it will fulfil our promise to shareholders to create significant revenue."

* based on the exchange rate of Canadian Dollar to Pound as of 2st November 2021.

For further information, please visit http://www.kanabogroup.com/ or contact the following:

About Kanabo Group Plc

Kanabo Group Plc is an R&D company currently selling a range of wellness CBD Products in the Primary Markets and Medical Cannabis Products. The company's core strategy is to increase revenues from the sale of its Retail CBD Products in the wellness sector and to grow the Kanabo brand through its marketing initiatives.