Investee Company Updates: Northern Leaf & OTO

Seed Innovations Limited

08 September 2023

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014, as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

8 September 2023 

SEED Innovations Limited

("SEED" or the "Company")

Investee Company Updates:

Northern Leaf & OTO International

SEED Innovations Ltd, the AIM-quoted company investment company providing shareholders with exposure to early-stage health, wellness and medical cannabis companies, to which, in normal circumstances, they have limited access to, today provides updates from two portfolio companies, Northern Leaf plc ("Northern Leaf") and OTO International Limited ("OTO").

Northern Leaf

Northern Leaf, a Jersey based medical cannabis producer, has provided a positive shareholder update in respect of recent progress both operationally and financially.

·    Following receipt in May 2023 of Good Manufacturing Practice (GMP) accreditation by the UK's Medicines and Healthcare Products Regulatory Agency (MHRA) for its flower product as an active pharmaceutical ingredient^[1] in June 2023 Northern Leaf was accredited Good Agricultural and Collecting Practice by Control Union Medical Cannabis Standard (IMC- G.A.P)  for its cultivation facility in Jersey. Northern Leaf expects this will enable it to sell into the rapidly growing Israeli medical cannabis market[2].

·    Supply agreements have been received for initial sales into Germany and Australia, with a number of other supply agreements into various jurisdictions under discussion.

·    Raised a further at least £1 million of pre-IPO money in addition to the £3 million pre-IPO fundraise earlier in 2023. This latest round is via a Loan Note with discretionary rights to convert at a percentage discount to a future IPO price and remains open until mid-September for final subscriptions, therefore there may be an increase to the overall raise.

·    This additional fundraise provides further working capital to the business as work towards a possible AIM IPO continues.

The Company owns 1,236,331 ordinary shares in Northern Leaf representing 2.2% of Northern Leaf's issued share capital before this latest funding.

Commenting, Ed McDermott, CEO of SEED said:

"I am pleased to share Northern Leaf's recent developments. As a company focussed on becoming a key player in the European medical cannabis supply chain, the addition of GACP accreditation to the Home Office permissions and GMP accreditation already granted, puts Northern Leaf in a good position to sell products more widely, already evidenced with an uptick in supply agreements with a number expected to follow.

"To date, Northern Leaf has delivered on its plans and with additional pre-IPO funding also secured and work towards an AIM IPO picking up pace, we believe that Northern Leaf has potential to deliver real growth to our portfolio."

OTO

SEED updates shareholders on portfolio company OTO, the omni-channel premium wellness brand known for its use of holistic plant ingredients and CBD, following their purchase of former portfolio company, South West Brands Limited ("SWB") (announced via RNS 20 April 2023). OTO's acquisition of SWB further diversified OTO's business.

OTO has recently undertaken a fundraise to fund working capital through to the end of 2023 through the issue of a convertible instrument with both floor and ceiling prices for conversion at a significant discount (70% to 90%) to the £29.5M indicative enterprise value reported for OTO post the SWB purchase. Whilst repayments of the SWB Convertible Loan Note held by SEED, totalling £167,000, have commenced, with full repayment expected in the foreseeable future, SEED is taking a cautious and prudent valuation approach and impairing the combined loan and equity position by approximately 75% in light of both the tough current market conditions and likely needs of OTO to raise further funding in 2024.  It is the hope of SEED that this valuation will be able to be increased again in the future once the business and environment at OTO improves.

As at 31 March 2023, the SWB position was valued (based on the anticipated OTO transaction) at £590K (equity £423K and loan of £167K).  We currently expect that this will be reduced to circa. £146K in SEED's interim financial statements as at 30 September 2023 (represented by £38K in equity and £108K loans). This revaluation will reflect repayments made on the loan of £12,500 and write-down of the investment value of £431,500, being approximately 3% of the carrying net asset value of SEED's investments as at 31 March 2023.

Further commenting, Ed McDermott, added:

"We are disappointed to note the dilution resulting from a down round at OTO so soon after the acquisition of our original investment SWB. We acknowledge the challenges of raising capital in the current market environment and are hopeful that OTO has secured the funds it needs at this point. We understand that OTO is making some good progress operationally and we hope to share altogether more positive updates soon. SEED has adjusted the valuation of OTO equity against our NAV at this time but maintain the expectation for the eventual full repayment of our loan, albeit within a lengthened timeframe."

- Ends -

For further information on the Company please visit:    www.seedinnovations.co   or contact: 

Ed McDermott  Lance de Jersey	SEED Innovations Ltd	E: [e-mail]
James Biddle  Roland Cornish	Beaumont Cornish Limited,  Nomad	T: (0)20 7628 3396
Isabella Pierre  Damon Heath	Shard Capital Partners LLP  Broker	T: (0)20 7186 9927
Catherine Leftley  Ana Ribeiro Isabelle Morris	St Brides Partners Ltd,  Financial PR	E: [e-mail]

Notes 

Seed Innovations Ltd 

SEED Innovations is an AIM quoted investment company focused primarily on disruptive high growth life sciences and technology businesses particularly within the medical cannabis arena. The Company's strategy is to identify early-stage opportunities that have an upcoming investment catalyst and grow its portfolio in terms of value whilst limiting the number of investee companies to a level where relevant time can be devoted to each. 

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[1] https://tools.eurolandir.com/tools/Pressreleases/GetPressRelease/?ID=4340830&lang=en-GB&companycode=uk-kul&v=r2021).

[2] Source: https://knb.is/45QwzWk

 

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