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Cannabis Maker to Go Public in Reverse Merger With Oil Producer

Jun. 13, 2023

A cannabis oil company is poised to go public next week in a landmark deal, sidestepping Canada’s downtrodden traditional IPO route after merging with a long-standing, listed crude producer.

Zyus Life Sciences Inc. completed a reverse takeover of Phoenix Canada Oil Co. Ltd. on June 9, raising C$20.1 million ($15.1 million). The company, which makes cannabinoid drugs to treat pain for osteoarthritis and bone cancer, is set for its trading debut as Zyus Life Sciences Corp. (ticker ZYUS CN) on Canada’s TSX-Venture Exchange on June 19, according to its press release..

“We tried to go the IPO route,” Chief Executive Officer Brent Zettl said in a phone interview. But back then, “the markets were headed south” and “there were no takers because nobody wanted to be the lead investor.”

Reverse takeovers are a popular way to go public in times of market volatility, allowing companies to negotiate directly with a handful of institutional investors, according to University of Calgary finance professor Ari Pandes.

“When you’re doing an IPO, the market can turn on you,” he said. By contrast, in a reverse takeover “you’re not trying to get wide investor participation,” which in turn can lead to lower costs for marketing a deal and less regulatory scrutiny.

Stock issuances of all types — including IPOs and secondary offerings — are down sharply in Canada this year. On the TSX-Venture, IPOs were 62% below last year’s level through the end of May, raising just C$7.8 million compared with C$116.5 million in the same period a year ago, according to data from the exchange operator TMX Group.

READ: April 19, Canada’s Listless IPO Market Has Crisis of Confidence: ECM Watch

As IPO proceeds have fallen, companies including Zyus are opting for a faster path to market — buying a company with an existing public listing rather than pursuing a new one of its own. There have been five reverse takeovers so far this year on the TSX-Venture, which is roughly the same as the year-ago period. Moreover, the Zyus deal is the largest reverse takeover on the exchange in 2023, more than double the C$9 million raised by Waroona Energy Inc. and the C$8.4 million by LSL Pharma Group Inc.

Zettl, a Canadian medical marijuana pioneer who sold CanniMed Ltd. to Aurora Cannabis Inc. for C$1.2 billion in 2018, said he’s plowed C$62 million of his own money into Zyus. The company is using the reverse takeover to fund its capital needs, he said.

“You need money and I don’t have enough for the three drugs that we have in process,” he said, adding that the company is looking to pursue further clinical trials for US Food and Drug Administration approvals for its treatments.

©2023 Bloomberg L.P.


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