Spin-offs are a common practice to unlock value by separating one portion of a business from another. As a stand-alone company, the spun-off unit often sees an improvement in both top and bottom lines, rewarding shareholders that were in for the process. All of the top 10 biggest spin-offs to ever have occur, happened during the 21st century, which included Altria (NYSE:MO) spinning-off Philip Morris International (2008) and Kraft Foods (2007), which in turn spun-off Kraft Foods Group (2012); Abbott Labs (NYSE:ABT) sending AbbVie (NYSE:ABBV) (2013) out on its own and Canada’s BCE Inc. (TSX:BCE) (NYSE:BCE) spinning-off Nortel Networks (2000).
Of course, most spin-off transactions aren’t close to that magnitude, but the principle of unlocking value and relieving the parent company of some financial burdens are the same regardless of enterprise value.
Relevium Technologies Inc. (TSX-Venture:RLV) (OTCQB:RLLVF), a diversified company operating in the health & wellness and cannabis markets, is working on spinning-off both of its wholly-owned subsidiaries, BGX E-Health and Biocannabix Health Corp.
This isn’t the type of operational moves one would expect from a company with a paltry $2.77 million market capitalization. Especially not when considering the one deal has a $10.0 million component to it.
Relevium’s BGX E-Health is a multi-brand company with an expansive line of nearly 60 over-the-counter (OTC) supplements and skin care products. The company’s product offering includes a cutting-edge line of weight-loss, anti-inflammatory, heart, vision, beauty and fitness supplements sold through the Bioganix®, Push & Pull System® and LeefyLyfe® brands. Leefy Lyfe is BGX’s OTC Organic Hemp formulated brand combining the same quality of ingredients as those found in Bioganix® and Push & Pull® with the benefits of CBD.
The Bioganix® line has attracted a loyal following on Amazon.com, keeping it amongst the best-selling products in the Health and Personal Care category.
BGX E-Health is being spun-off in a non-conventional manner. Relevium executed a letter of intent with Newscope Capital pursuant to which Newscope is acquiring all the shares of BGX E-Health, along with $2.35 million in debt, for total consideration of $10.0 million. The net of $7.65 million is being paid to Relevium as $500,000 in cash and $7.15 million in Newscope Capital stock resulting in 14.3 million shares of the soon to be new issuer.
Effectively, it is a bit of a reverse merger as a spin-off with Relevium still obtaining a large ownership position in BGX E-Health, without the liabilities, at the same time, Relevium will be able to record the revenues generated from its subsidiary.
In November, Relevium entered into a LOI to acquire a Montreal-based contract manufacturer for the purpose of bringing production of BGX E-Health products in-house. Per the acquisition agreement, Newscope has acquired the rights from Relevium to complete the buyout.
Elsewhere, Relevium intends to split operations of its Biocannabix Health unit. The company currently operates two segments: consumer packaged goods and pediatric biopharma. Management is contemplating creating a new public entity with the biopharma operations, giving the public direct access to a vertically integrated business specializing in pediatric endomedical formulations, meaning using cannabinoids from cannabis and hemp to treat a variety of childhood diseases and conditions. The company intends to spin-off this asset and return value to its loyal shareholders in the form of a dividend.
The business, which is flying under the radar of the public today, already has operations in Canada (sales, import/export, research), Colombia (cultivation, extraction, clinical work) and Germany (licensing and distribution). The company is ripe to tackle Canada following the acquisition of rights to the Cannakids™ brand for the Canadian market, including intellectual property, patient data database and formulations. Relevium can leverage future revenue from production in Colombia at its 25 hectare property (expandable up to 85 hectares) in the mid-term while it develops novel drugs for long-term upside.
The company estimates the initial property will be able to produce 170,000 kilograms of dried flower annually at an estimated cost of production of just $0.53 per gram.
Cannabis stocks big and small have been hit hard in the last year, most losing at least half their value. The negativity will soon subside and the next great cannabis rally will begin, this time undergirded by fundamentals rather than speculation. To that point, Relevium considering bringing its biopharma business public ahead of the market turnaround could prove to be one savvy and properly timed move.