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Why this ASX cannabis share jumped 7.5% higher today

Cannabis company Zelda Therapeutics Ltd (ASX: ZLD) has seen its share price push higher today after it announced a major development.

Its shares were up as much as 7.5% to 8.6 cents in morning trade before dropping back a touch.

What did Zelda announce?

This morning Zelda announced a proposed merger of equals with Ilera Therapeutics.

Ilera Therapeutics is a privately held medicinal cannabis and cannabinoid science company based in the United States. It was recently spun-out of Ilera Healthcare, which is a company Zelda had previously entered into a strategic partnership with.

The release advises that its operations are centred in the US states of Pennsylvania and Louisiana, while its clinical networks and distribution channels span across North America.

Subject to approval from Zelda shareholders, and all conditions of the sale being met, Zelda is proposing to acquire 100% of Ilera Therapeutics through an all-scrip transaction.

The total consideration comprises 838,841,934 fully paid ordinary shares, which equates to approximately 50% of total diluted issued capital in Zelda. This includes 113,601,290 fully paid ordinary shares, with the remainder subject to performance milestones being achieved. Based on today’s share price this deal is worth ~$72 million to Ilera Therapeutics.

What is the rationale for the merger?

Management explained that the merger between Zelda and Ilera Therapeutics will create a global medicinal cannabis company, which it plans to name Zelira Therapeutics.

It notes that the merger will bring together a portfolio of revenue generating medicines and products undergoing clinical development that are expected to enter the market from 2020. Some of these products are targeting large addressable markets such as pain, sleep, and anxiety.

Zelda’s chairman, Harry Karelis, believes the merger will be transformational for both companies.

He said: “This is a transformational opportunity for both companies. The merger will create one of the world’s leading medicinal cannabis companies with a rich pipeline of clinically validated products under development and unique access to the world’s largest and fastest growing cannabis markets.”

“As markets for medicinal cannabis become increasingly regulated, our strategy of undertaking robust clinical trials to validate and differentiate our products is recognised as being at the forefront in this sector. The merger will enable the combined company to accelerate plans to disrupt the medicinal cannabis and pharmaceutical markets globally,” he added.

Overall, I think this is a good move by Zelda. However, it is too soon for an investment in Zelda or rivals Althea Group Holdings Ltd (ASX: AGH) and Cann Group Ltd (ASX: CAN) for me. Until a leader in the industry emerges and start generating meaningful revenues, I plan to sit on the sidelines.

Instead of cannabis shares, I would be buying one of these hot growth stocks that have been tipped as market beaters.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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