STENOCARE A/S (“STENOCARE”) today announces that the Board of Directors, with the support of authorization from an extraordinary general meeting on the 16[th] of March 2020, has decided to conduct a rights issue of shares that can provide the company a total of DKK 29.8 million prior to issuing costs.  The general public is also invited to subscribe for shares in the rights issue. The Board of Directors has also decided on a so-called oversubscription reserve, of an additional total DKK 15 million, to be utilized if the rights issue is over-subscribed. Combined, the rights issue and the oversubscription reserve will, fully subscribed, raise gross proceeds of DKK 44.8 million and net proceeds of DKK 41.5 million. Full terms and conditions and more information is published on https://stenocare.com/investor-relations/share-issue-2020/ (https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fstenocare.com%2Finvestor-relations%2Fshare-issue-2020%2F&data=02%7C01%7C%7Cd010b429bd8e45b53bc708d7f1988523%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C637243509752255947&sdata=MZA%2BMNZHmwy%2BE%2Buhc3BpRBP0qjM9ctR6WfWUIxM1bN4%3D&reserved=0).

Motive for the rights issue

Today, STENOCARE announced its ambition to and detailed strategy for establishment of firm European market-leadership in medical cannabis. The strategy is described in details in the prospectus and brochure that was released at the same time.

STENOCARE has been a profitable company from the end of its first quarter of operation (Q4-18) net of IPO cost and for all of 2019. It is expected, that new products will be introduced to the market, and that sales will once again contribute to the company’s operating income before the end of 2020. Also, STENOCARE has cash in the bank (more precisely DKK 11.3 million as per 31 March 2020) which is enough to cover the basic operation until the expected re-emergence of sales as described above. Consequently, the purpose of and strategy behind the issue is not to support the financing of ongoing operational activities, but rather to bolster the company in its aggressive pursuit of wider European market leadership.

STENOCARE is facing a number of unique opportunities, driven by the fact that the company is already a recognized (early) market leader in a market that is expected to grow faster than most, if not any other market in the coming years. It should be made clear, that while STENOCARE would be able to continue independently, even without any proceeds and whereas the contemplated investments could be scaled back as required or avoided, that would not be satisfactory. Therefore, in the event of limited subscription in the upcoming rights issue, STENOCARE will pursue other available financing avenues (debt, equity, or a combination) to secure that ample funds are available to realize STENOCARE 2.0.

Use of proceeds

Assuming full subscription including the oversubscription reserve and with total transaction costs of DKK 3.3 million, STENOCARE will receive net proceeds of approximately DKK 41.3 million. These funds will be allocated as follows:

DKK 10 to 25 million (about 50%): World class indoor cultivation at scale, phase 2

In addition to the investments planned in the current cultivation facility project (which is fully funded ahead of this Issue), STENOCARE is contemplating to further expand its capabilities and assets by adding GMP compliant processes, in-house extraction and a generally upgraded set-up. This investment is expected to be funded from the current rights issue. Details are withheld for competitive reasons.

DKK Up to 5 million (about 10%): Research and development

In its pursuit of a pharma strategy where the development of advanced formulations, designed to address specific conditions and related assets is key, STENOCARE will work in partnership with research organisations, such as Solural Pharma, to take Medical Cannabis to the next level. This is an agenda designed to take STENOCARE and Medical Cannabis beyond the current generic definition and towards special formulations, products and brands for individual needs and medical conditions. The planned investment is not yet committed.

DKK Up to 20 million: International expansion and operational buffer

STENOCARE intends to establish its business in more markets where the legislative environment is suitable for expansion for its business. In 2019, a subsidiary was established in Ireland with the aim to import products from STENOCARE’s suppliers and later commence export of products from the Danish production facility. Also, STENOCARE has identified a handful of other target countries for expansion.

The exact funds required to execute on the international strategy will depend on the extent to which local representation is necessary and the amount of local competition. STENOCARE’s current formula for international growth is cash effective as it is driven largely by local distribution partners subject to approval of STENOCARE from local regulators. Further funding to fuel additional international growth may be of relevance at a later point in time. Beyond allocations for the purposes described above, full subscription will lead to the establishment of unallocated working capital reserves of DKK 10-15 million. The STENOCARE management team is very much aware that international expansion and brand-building can be costly and wants to be able to act forcefully should strategic opportunities emerge that would include direct investment. This could be opportunities to purchase (distressed) assets that would allow STENOCARE to buy rather than build in its pursuit of becoming a leading European brand in high-end Medical Cannabis.

Thomas Skovlund Schnegelsberg, CEO of STENOCARE, comments:

By offering this Rights Issue with pre-subscription rights to existing shareholders and a 25% discount through the transfer of free Bonus Shares delivered by the Founders, we wish first of all to acknowledge our base of +4,000 shareholders. At the same time, with our new listing on Nasdaq First North Growth Market Denmark, we hope to welcome many more, new investors to take part in the STENOCARE 2.0 journey”.

Pre-subscription commitments and conversion of loans

Beforehand, STENOCARE has agreed on pre-subscription commitments corresponding to approxi­mately DKK 8.3 million, corresponding to approximately 58% of the rights issue volume. This includes cash subscription by the Founders of DKK 2.2 million. Pre-subscribers will receive an allotment of all new shares subscribed for in connection with the allotment of new shares under the offering. In addition, existing loans of DKK 9.0 million will be converted within the offering as much as possible or, to the extent that there is no room for conversion within the offering, as an addition to the offering. The combined and already secured presubscription of DKK 17.3 million also represents the minimum subscription of the Issue.

Summary of the offering

Subscription period:27 May – 11 June, 2020.
Subscription price:DKK 20 per new share.
Pre-emptive rights:All existing shareholders at the end of the record date will receive subscription rights (1 per share). Six (6) subscription rights are required to subscribe for one new share in the issue.
Bonus shares:For every three (3) new shares subscribed for, subscribers receive one bonus share free of charge from the founders – adding up four (4) shares in total. This corresponds to a general discount of 25%. Important clarification (for the avoidance of doubt): Please be informed, that the bonus shares in the issue are existing shares that are surrendered by and transferred from the founders to the subscribers that receive allocation in the issue.
Volume of issuance:The offering consists of 1,490,460 shares at the most. Fully subscribed, the rights issue will raise proceeds of up to DKK 29.8 million. Reservation has been made for a further subscription of 750,000 new shares corresponding to DKK 15.0 million (oversubscription reserve, ref. below) on same terms as the rights issue with allocation preference granted to existing shareholders.
Total proceeds at full subscription:DKK 44.8 million gross (including oversubscription reserve of DKK 15 million) and DKK 41.5 million net after cost.
Record date:Record date is 26 May, 2020. Last day of trading in STENOCARES share including the right to receive subscription rights is 20 May, 2020. First day of trading in the share excluding the right to receive subscription rights is 25 May, 2020.
Shares before the rights issue:8,942,762 shares.
Valuation (pre-money):DKK 178.9 million calculated as 8,942,762 shares at DKK 20 per share. Valuation applies before as well as after bonus share allocation as bonus shares are existing shares, leading to a non-dilutive discount in favor of the subscribers.
Pre-subscription which is the minimum size of the Issue.The total pre-subscription is DKK 17.3 million or 58%. This includes:
  1. Cash subscription: Pre-subscribers amount to DKK 8.3 million in cash (corresponding to 414,531 shares) including cash pre-subscription from founders of DKK 2.2 million. In the event of minimum subscription only (i.e. zero public subscription) the cash proceeds would be around DKK 6.3 million net after cost.
  1. Guaranteed loan conversion:
Existing loan-holders have guaranteed to subscribe by way of conversion for DKK 9.0 million (corresponding to 448,928 shares). This conversion will be exercised as a separate capital increase to the extent that cash subscription does not leave room for conversion within the Issue.
Period of trading in subscription rights

First day: 25 May 2020

Last day: 09 June 2020

Oversubscription reserve:As described above, reservation has been made for a further subscription of 750,000 new shares corresponding to DKK 15.0 million (the oversubscription reserve) on same terms as the rights issue with allocation preference granted to existing shareholders but without need for subscription rights. The oversubscription reserve will be activated in case of cash subscription in excess of the rights issue, to avoid a repetition of the situation experienced at the Company’s first IPO where a large number of subscribers had to be rejected due to lack of shares in the IPO issue at that time. Combined, the tights issue and the oversubscription reserve will, fully subscribed, raise gross proceeds of DKK 44.8 million and net proceeds of DKK 41.5 million.