Look out for the Auscann (ASX:AC8) and Cannpal (ASX:CP1) share prices post trading halt

Auscann Group Holdings and Cannpal Animal Therapeutics should emerge from their trading halt tomorrow. Here's why to watch…

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The Auscann Group Holdings Ltd (ASX: AC8) and Cannpal Animal Therapeutics Ltd (ASX: CP1) share prices will be on watch tomorrow. (Assuming, of course, that the ASX system has returned to functionality by then!)

Both companies entered a trading halt on Friday, prior to revealing that Auscann has entered into a scheme implementation deed (SID) with Cannpal.

Neither company escaped the ravages of the COVID-19 market rout in February and March. But Cannpal came roaring back, with shares up 8.3% year-to-date. Auscann shareholders have had a more difficult year, with Auscann's share price down 53.3% since 2 January. By comparison the All Ordinaries Index (ASX: XAO) is down 1.8% for the year.

What do Auscann and Cannpal do?

Auscann is a pharmaceutical company based in Western Australia. Its focus is on developing, producing and distributing a range of cannabinoid treatments for use in Australia and internationally.

CannPal Animal Therapeutics develops natural plant-based therapeutic products for pets. The company has a research focus on cannabinoids, the active pharmaceutical ingredients extracted from the cannabis plant, to provide veterinarians and pet owners a means to treat animals in a safe and ethical way.

What's the plan?

Auscann advised the ASX this morning that it had entered into a SID to acquire 100% of Cannpal for around $17.5 million.

That works out to 18.4 cents per Cannpal share, 53% more than the closing price of 12 cents per share on Thursday 12 October.

The company expects the transaction to create a larger and complementary product offering across both human and animal health, with 2 products already in the market and 2 more products expected to be launched within 12 months.

Other benefits should be increased research and development (R&D) capabilities and an expanded geographic footprint.

Commenting on the deal, CannPal chair Geoff Starr said:

There is a great logic to combining Cannpal Animal Therapeutics Ltd with AusCann Group Holdings Ltd with the new business having enhanced capability to exercise the potential for new and stronger commercial pathways.

The synergies around local and overseas market knowledge and research and development know-how will enable faster to market solutions. It represents a unique and compelling value proposition for both companies.

Auscann chair Max Johnston added:

The combined business is expected to have the financial resources and technical expertise to accelerate the growth, commercialisation and market penetration of its pipeline products in Australia and offshore.

The scheme still needs to clear the normal hurdles, such as receiving Cannpal shareholder and court approvals.

The Auscann and Cannpal share prices emerge from their trading halts tomorrow.

Motley Fool contributor Bernd Struben 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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