Topic: Synbiotic plans to acquire CannaCare Health, raise additional capital and broaden its management in order to be able to capitalize on favourable dynamics of the German cannabis market.

In detail, Synbiotic inteds to acquire a 69% stake in CannaCare Health, a leading German manufacturers and wholesalers of high-quality CBD products such as CBD oils, wellness and sports sprays (regenerative) and sleep support solutions. The shares will be contributed as part of a capital increase in kind through the issuance of 862k new shares at a price of € 5.2 per share. FY23e sales of CannaCare Health should stand at roughly € 2.5m (eNuW). As part of the deal, CannaCare’s previous shareholder Frank Otto is also committing to investing at least € 3m during the planned cash capital increase and convertible bond.

What’s more, Daniel Kruse, the founder of five portfolio companies of Synbiotic, joins the group’s management board as Executive Director. Together with Lars Müller, he will be responsible for driving growth going forward. Furthermore, it is planned to propose Frank Otto as a new member of the Board of Directors at the next AGM.

Fresh capital to support growth & a potential entry of the medical market. Following a smaller capital increase in May this year (€ 1m collected at € 6.31 per share), Synbiotic announced another cash capital increase of € 2.4m (467k shares at € 5.2 per share) and a convertible bond (€ 5.2m) to strengthen the balance sheet and support further growth. This should allow the company to further consolidate the market and or enter the medical cannabis market. Here, we would expect positive newsflow during the next six to twelve months.

Mind you, with the "Cannabis Act", Germany will not only allow adults to own 25 grams of cannabis, grow up to three plants and establish non-profit cannabis clubs, but medical cannabis will no longer be classified as a narcotic drug (BtM). This could notably impact the narrative. Access to medical cannabis, while considered a narcotic, is difficult. If this barrier falls, it should become as easy as getting a prescription for ibuprofen 600, which would strongly impact the development of patient numbers going forward.

In light of the share price weakness since the beginning of the year, we reiterate our BUY rating with a new € 9 PT (old: € 44) based on DCF.