Epsilon Healthcare Limited announced the commencement of its exclusive partnership with The Valens Company, through the execution of an Interim Implementation Deed (the Implementation Deed). Immediate Commencement of Valens Partnership: Under the terms of the Implementation Deed, Valens and Epsilon will operate on the basis that the material terms of the agreement announced on 9 September 2021 are in effect, save for a trial period of three months, which commenced 1 March 2022, and a number of minor clauses of the agreements which are being formalized. The agreed terms include Valens accessing Epsilon's GMP manufacturing capability at the Southport Facility - the larger cannabis extraction facility in the Southern Hemisphere with TGA and EU GMP capability - in return for Valens funding all mutually budgeted operational and capital expenditures of the Southport Facility for the duration of the partnership on a reimbursement basis.

The terms of the Implementation Deed provide for THC Pharma to receive revenue and pay Valens a management fee on all medicinal cannabis products manufactured by THC Pharma for Valens, such that in effect THC Pharma retains a royalty of 2.5% to 4% of sales revenue for all Valens' customer products. In addition, THC Pharma will pay Valens a management fee on all medicinal products manufactured by THC Pharma for its own customers, broadly being cost plus 25%, or the price paid for products being sold by THC Pharma through the Valens stream of customers. Significantly higher margins are expected for any products sold through the Epsilon/THC Pharma customer streams than what is retained by Epsilon through the Valens' stream.

The Implementation Deed also includes a three-month trial period, commencing 1 March 2022, through which Valens and Epsilon have set a A$2 million sales target of medicinal cannabis products sold to Valens customers, as well as a number of other performance indicators for THC Pharma and Valens. If these conditions are not met within the trial period, the company's partnership with Valens may be terminated on 30 days' notice. Payment and Provision for Future Funding at Southport: Under the Implementation Deed, Valens will make an initial payment of ~$230,000 within five business days to provide for THC Pharma's operational expenditure for the month of March 2022, with further payments to be made in accordance with the budgeting mechanisms provided for in the partnership structure, which include provision for the variable working capital requirements for production orders processed at the facility.

With the immediate commencement of the Valens partnership, including a AUD 2 million sales target of medicinal cannabis products to Valens customers, Epsilon is confident of the commitment that Valens has to the partnership over the Southport Facility, and to promoting growth in the Australian region for medicinal cannabis products generally. On the basis of the sales target being met, combined with Epsilon generated revenues through the facility, the Company expects that the Southport Facility will be EBITDA positive to the Group on a go forward run rate basis, following that three-month trial period.