Celadon inks partnership with Denmark's Valeos

The AIM-traded firm said that under the framework agreement, Celadon would licence its genetics to Valeos for cultivation, allowing the two companies to enhance the supply of pharmaceutical-grade cannabis active pharmaceutical ingredient (API) products to Celadon’s current and prospective European customers.

It said Valeos operates a licensed cultivation facility in Denmark with the capacity to produce 1.5 tonnes of pharmaceutical-grade medical cannabis annually.

Through the collaboration, Celadon was aiming to leverage its expertise in facility design, cultivation techniques, and operating processes to help Valeos refit its cultivation rooms, targeting a 100% increase in yield, potentially raising production to three tonnes annually.

It said the increased output could be worth up to £30m per year, based on a price of £10 per gram.

The agreement would provide Celadon with multiple benefits, firstly allowing the company to supply product to its European customers sooner than anticipated, ahead of completing its own phase two facility, potentially generating up to £8m in annual revenue.

Additionally, Celadon would receive 50% of the increased contribution from Valeos’ upgraded facility, which could be worth up to £1.7m annually.

Celadon said it also retained the option to settle that contribution in cash or equity.

Further, Celadon said it would establish a subsidiary in Denmark, aiming to streamline its supply chain within the EU, especially in light of growing European demand and market liberalisation in Germany.

It said it would have the first right of refusal for at least three years to Valeos' harvests using its genetics, ensuring supply to European customers.

Production at Valeos’ refitted facility was expected to start in the first quarter of 2025, pending the necessary export and import licences from UK and Danish authorities.

The collaboration would run for five years, with options for extension.

“We are delighted to have formed a strategic collaboration with Valeos,” said chief executive officer James Short.

“We have been impressed by what its team has achieved and by its rigorous approach to pharmaceutical product standards.

“Having access to an EU-based supply brings significant supply chain advantages to Celadon, and the immediacy of the additional capacity, which amounts to up to an additional three tonnes of annual product.”

Short said the Agreement would increase the current capacity of Celadon by up to 20 times by using the services of Valeos as an outsourced manufacturing partner.

“By outsourcing growing, but utilising the IP of Celadon, the company believes it will be able to bring forward its path to profitability.”

At 1449 BST, shares in Celadon Pharmaceuticals were down 27.62% at 38p.

Reporting by Josh White for Sharecast.com.