PART II. THE CELADON GROUP AND ITS BUSINESS ACTIVITIES

1.          SUMMARY

1.1        Overview

Celadon is a UK based pharmaceutical group that was established in 2018 and is focusing on growing indoor hydroponic, high quality THC cannabis for medicinal use for products within the chronic pain market. It also aims to conduct research into cannabinoids for use in chronic pain and other conditions, such as autism, within the highly regulated UK market.

On 23 July 2021, Vertigrow's subsidiary, CPL, received a Home Office Licence following MHRA approval to apply for it, allowing it to legally grow high-THC cannabis in the UK for the purpose of producing test batches of cannabis oil to support CPL's application for MHRA registration as a manufacturer of medicinal product APIs. This licence was renewed on 12 January 2022 in connection with CPL's change of analytical testing partner. As the change required an amendment to CPL's Home Office Licence dated 23 July 2021, CPL chose to renew the licence at the same time as making the amendment to accommodate the change of its analytical testing provider, instead of submitting an application to amend and in due course another application to renew. The Directors believe its Home Office Licence is one of the first such licenses granted in the UK. Following receipt of MHRA registration and the grant of a further licence from the Home Office permitting supply for manufacture into finished medicinal products, CPL will be able to supply medicinal cannabis (in the form of an API, which is a substance (extracted oil) used in a finished pharmaceutical product) with a high THC content in the UK, allowing it an opportunity to enter into what is expected to be a substantial, highly regulated and fast-growing UK market.

The Celadon Group has a 100,000 square foot facility located in the Midlands, UK, that comprises (i) a laboratory designed to meet UK-GMP standards; and (ii) capacity for a large growing facility that has received a Home Office Licence to legally start to produce test batches of high grade THC cannabis oil in accordance with GACP guidelines that will then enable CPL to invite the MHRA for an inspection. The Directors and Proposed Directors expect this inspection to result in the MHRA issuing a UK-GMP certificate to CPL confirming that it has met the relevant UK-GMP standards applicable to the production of API and for the MHRA to register CPL as an API manufacturer. Following this, and the grant of a further licence from the Home Office permitting supply for manufacture into finished medicinal products, CPL will be able to legally supply API to the UK market (i.e. to appropriately authorised manufacturers of finished medicinal products). Once licenced and at full capacity, the Directors and Proposed Directors believe the facility can be expected to produce an estimated nine tonnes of dry flower per year, which is expected to be enough product to supply up to circa 50,000 patients per annum.

Vertigrow has acquired a majority shareholding in Harley Street (CPC) Limited ("LVL"), a prospective private pain clinic business, that is in the advanced stages of the approval process to be the prospective sponsor of an MHRA authorised and REC approved clinical trial for medicinal cannabis for patients suffering chronic pain in the UK (the "Trial"),which the Directors and Proposed Directors believe would, once approved by the MHRA and the REC, be the only authorised trial investigating the use of medicinal cannabis for the treatment of chronic pain in the UK at the time it commences. The aim of the Trial is to document and demonstrate the safety and efficacy of cannabinoids, in the form of a third party cannabis-based medicinal product, for the treatment of chronic non-cancer pain related conditions. Following successful completion of the Trial, and if this shows safety and efficacy, the Celadon Group expects to be in a position to be able to present the data collected from the Trial to NICE in a form that may enable NICE to recommend the type of cannabis-based medicinal product studied in the Trial for prescription on the NHS for the uses studied in the Trial and, as a result, further facilitate the legal use of medicinal cannabis in the UK. LVL has received conditional approval for the Trial from MHRA, conditional on, among other things, obtaining approval by the REC. Ahead of the Trial being approved by the REC, it has suggested that LVL conduct a pilot feasibility study utilising the same protocols as the Trial at a point after patients have been onboarded at participating private pain clinics for treatment with medicinal cannabis (the Study). The purpose of the Study is to demonstrate the ability to engage and retain patients for the Trial. The Study will allow Vertigrow to carry out an in depth evaluation of the patient-pathway in preparation for the Trial, which will be investigating the safety and efficacy of the medicinal product itself.

In November 2021, REC approved the Study for a minimum of 100 patients, as REC wanted to observe the initial patient take-up before they would approve the commencement of the Trial. The first patients have now been onboarded for treatment under the protocols for the Study and the Trial, and LVL have advised that the initial patient feedback has been extremely positive (with patients reporting material reduction in pain, ability to sleep and improvements in their quality of life). These patients have also agreed to enrolment in the Study, with a view to the Study commencing in March 2022. Once at least 100 patients have been recruited to the Study, LVL will meet again with REC to seek formal approval to start the Trial for up to 5,000 patients. REC have agreed that the data collected in the Study can be included in the results of the Trial.

Vertigrow has an experienced management team, that includes experts in research and development, plant cultivation and pharmaceutical manufacturing, who the Directors and Proposed Directors believe will enable the business to optimise cultivation and the development of the cannabinoid derived medicines.

1.2        Key Investment Highlights

1.2.1     Highly regulated sector with high barriers to entry

The Directors and Proposed Directors believe that Celadon is positioned to be one of the first businesses to be regulated to grow and manufacture high THC medicinal cannabis API in the UK. Achieving the various requisite authorisations, registrations and licences is time consuming, having taken CPL over two years to reach the current status of the licence and registration applications. It is also an expensive and complex process. The Directors and Proposed Directors believe this represents a material barrier to entry for other businesses seeking to research, grow and manufacture medicinal cannabis API with a high THC content in the UK.

The hurdles to creating an MHRA authorised trial are similarly challenging. LVL, who have designed the Trial, are experienced researchers and trial practitioners. The Trial has taken over two years to design and work through the authorisation steps with regulators and has cost SEEK over £4 million to develop.

1.2.2     Large addressable market currently un-serviced in the UK

In recent years, an increasing number of people have been using cannabinoids to treat a variety of conditions including chronic pain, cancer pain, anxiety disorders and neurological disorders. In the UK, a limited number of people are buying their cannabis using the existing legal "specials" framework. The majority of people are buying their cannabis on the black market. The Directors and Proposed Directors believe the low number of legal users is primarily due to administrative complexities and cost related to the importation of medicinal cannabis from outside the UK.

Imperial College research suggests that chronic pain (defined as pain that persists for three months or more) affects c. 28 million people in the in the UK; of those, up to 8 million people suffer severe chronic pain. Chronic pain is currently treated using opioids (which are the most common treatments utilised), paracetamol, anti-neuropathic agents and non-steroidal anti-inflammatory drugs, all of which potentially have damaging side effects. The UK Government has estimated that of the c. 8 million people in the UK with chronic pain, c. 3 million would be eligible for a prescription of cannabinoids on the NHS.

YouGov estimates that up to 1.4 million people in the UK are currently using cannabis to treat pain by acquiring it on the black market at a cost the Directors and Proposed Directors estimate at an average of £300-£600 per month per person.

Consequently, the UK represents a substantial potential market for medicinal cannabis with an estimated annual value of up to £2.3 billion by 2024.

1.2.3     Celadon is well positioned in the UK market

The Directors and Proposed Directors believe CPL is positioning itself to capitalise on the UK market opportunity and has a clear strategy to facilitate patient usage and then service that demand with CPL's growing high quality, high-THC cannabis, and in due course, manufacture cannabinoid derived medicine API once authorised by the MHRA. On 23 July 2021, Vertigrow's subsidiary, CPL, received its initial Home Office Licence for the purpose of producing test batches of cannabis oil to support CPL's application for MHRA registration as a manufacturer of medicinal product APIs. This licence was renewed on 12 January 2022.

Receipt by CPL of MHRA registration and the Home Office issuing a further licence permitting supply of high-THC cannabis products for manufacture into finished medicinal products will mean that CPL will be able to grow its own product in its UK facility and sell API into the UK market to appropriately authorised manufacturers of finished medicinal products, and medicines containing that API can then be supplied to patients in the private market using the established "specials" framework (i.e. on an individual prescription named basis) but without the current administrative barriers and cost that are currently in place for overseas based growers of medicinal cannabis, which also requires the importation of foreign grown cannabis.

The Celadon Group also holds a majority interest in LVL, a prospective pain clinic business that will be able to treat private patients under the "specials" framework and that will act as a sponsor of what the Directors and Proposed Directors believe will be the only MHRA and REC authorised trial investigating the use of medicinal cannabis for the treatment of chronic pain in the UK at the time it commences. The Directors and Proposed Directors believe the Trial will (i) materially improve accessibility of medicinal cannabis for patients; and (ii) collect clinical trial data that aims to document and demonstrate the efficacy of the type of cannabis-based medicinal product studied in the Trial for use for various non-cancer related pain to doctors and medical practitioners and ultimately for presentation of such data to NICE and the NHS.

In November 2021, REC approved the Study for a minimum of 100 patients, as REC wanted to observe the initial patient take-up before they would approve the commencement of the Trial. The first patients have now been onboarded for treatment under the protocols for the Study and Trial, and LVL have advised that the initial patient feedback has been extremely positive (with patients reporting material reduction in pain, ability to sleep and improvements in their quality of life). These patients have also agreed to enrolment in the Study, with a view to the Study commencing in March 2022. Once at least 100 patients have been recruited to the Study, LVL will meet again with REC to seek formal approval to start the Trial for up to 5,000 patients. REC have agreed that the data collected in the Study can be included in the results of the Trial.

As demand increases for medicinal cannabis in the UK CPL is positioning itself to become a large scale grower and manufacturer of cannabinoid medicines API in accordance with GACP guidelines, and expects that its Midlands facility will in future produce enough product to supply for products for up to circa 50,000 patients per annum (based on a patient using an average 180 grams of cannabis per year).

1.2.4     Revenue generating

The Celadon Group has generated minimal revenue through its prospective LVL Private Pain clinic. In addition to receiving its Home Office Licence, and subject to receiving its future MHRA registration and a new Home Office licence permitting commercial supply, the Celadon Group will commence the cultivation of its own medicinal cannabis which will then be supplied in the form of an API to appropriately authorised manufacturers of finished medicinal products. At maximum capacity, the Directors and Proposed Directors believe that Celadon expects to be able to supply approximately nine tonnes of medicinal cannabis each year, which could service the needs of 50,000 patients, and in turn, has the potential to generate £90 million in annual revenues for Vertigrow, assuming a price of £10 per gram.

1.2.5     Experienced management

James Short is the CEO of Vertigrow. James has a successful track record in the construction industry and in the highly regulated energy sector. Vertigrow has also built a sector leading management team of experienced executives, scientists, agronomists and physicians.

2.          CELADON'S HISTORY AND BACKGROUND

The Celadon Group was established in 2018. A group structure chart is provided in the Admission Document.

Cannabis based-medicinal products promise to revolutionise the treatment of numerous conditions. Despite this potential the industry remains embryonic, its development having been hampered by a complex regulatory landscape and high market barriers. The Directors and Proposed Directors believe that without a developed industry focused on the pharmaceutical agenda, the cost of these treatments will continue to be prohibitive and the quality of product will not be adequate, sufficiently consistent nor available. Vertigrow is committed to changing this. Its objective is to realise the potential of cannabis-based treatments by building a technology, research and science led pharmaceutical group focused on producing high quality cannabinoids with the ultimate aim of delivering medicines that could eventually be made available, not only on the private market but also on the NHS and consequently available to everyone in the UK.

The Celadon Group was established in September 2018 and soon thereafter started its dialogue with the two key government regulatory agencies with competence relating to cannabis-based medicinal products, the Home Office and the MHRA, to navigate the various steps required to obtain authorisation to grow high-THC cannabis in the UK and supply this as an API. In order to do this, CPL requires:

(i)       an MHRA API registration to manufacture and distribute API for use in the manufacture of cannabis-based prescription medicines ("CBPMs"); and

(ii)      a Home Office Controlled Drug Licence to possess, produce and supply high THC content cannabis to be used in medicinal cannabis products in the UK.

A pre-requisite of MHRA registration as an API manufacturer is the requirement for Celadon to have constructed and be operating a UK-GMP compliant facility. The Home Office also requires in practice that the MHRA assess the potential of a company to operate in accordance with GACP guidelines prior to issuing a controlled drugs licence for activities involving cannabis that will be used in a medicinal product.

Throughout 2019, the Celadon Group undertook research on how to construct a UK-GMP compliant facility for CBPMs in accordance with GACP guidelines, visited international operations of other companies to aid in the understanding of that process and started recruiting experienced operators and scientists to its team.

In October 2019, Celadon secured through Vertigrow a 25-year lease on an existing 100,000 square foot facility in the Midlands that was deemed to be suitable for a secure indoor grow facility with an uninterruptible power supply and which did not require modifications to the core of the building. The Celadon Group proceeded with the fit out of phase 1 of the facility comprising a laboratory designed to meet UK-GMP requirements and a secure grow facility working with consultants and auditors (some of whom were former MHRA employees) to ensure compliance with the various regulations applicable to growing cannabis, including enhanced security measures. The facility is zoned industrial.

During 2019, the Celadon Group held discussions with senior representatives of the Home Office and MHRA which enabled it to develop a plan to seek to obtain the requisite licences/registrations to meet all Home Office and MHRA requirements.

In June and October 2020, the MHRA conducted an inspection of Celadon's Quality Management System ("QMS"). A number of items for follow up were raised by the MHRA inspectors, and all of the items that were able to be addressed prior to the receipt of a Home Office licence and commencement of growing cannabis have been addressed.

Through 2021, the Celadon Group continued to extend and broaden its operational team and key personnel.

On 11 January 2021, CPL received an email from the MHRA which stated that the MHRA were happy to confirm to the Home Office that they had no objection to CPL's application progressing for a controlled drugs licence to grow high THC cannabis plants. CPL subsequently made the relevant application to the Home Office and received a site visit from the Home Office on 15 July 2021. This was required as part of the application process for the issuance of a Controlled Drugs Licence to cultivate high THC content cannabis.

Following that visit, CPL was granted a Home Office Licence to start growing cannabis on 23 July 2021, for the purpose of producing test batches of cannabis oil to support CPL's application for MHRA registration as a manufacturer of medicinal product APIs. Receipt of the Home Office Licence enabled CPL to legally commence cultivation of test batches of cannabis crops. Subject to a further MHRA on-site inspection, (where the MHRA review whether CPL has operated in accordance with its agreed standard operating procedures and UK-GMP and reviews the quality of the test batches of cannabis oil) the grant by the MHRA of a UK-GMP certificate and API manufacturer registration, and issue of a new Home Office licence permitting commercial supply, Celadon will then be licenced to sell that cultivated cannabis to appropriately authorised manufacturers in the UK market as an API for manufacture into finished medicinal products.

Although there are no fixed timelines for the final on-site inspection and receipt of such approval from MHRA, the Directors' and Proposed Directors working assumption is that it may take place in Q2 2022, assuming that the test batches of cannabis oil are in line with MHRA guidelines. The approved UK-GMP certificate and API registration number will be publicly available for inspection on the MHRA's website. Once the MHRA registration has been received, CPL would then need to apply for a new Home Office licence permitting commercial supply after which it would be authorised to sell its products as APIs to appropriately authorised manufacturers in the UK market.

Alongside the build out of phase 1 of the Celadon Group's Midlands facility and progressing the various licence/registration applications, Celadon has been working with the medical community on possible structures and design of clinical trials for the use of cannabinoids in pain management. This resulted in the Celadon Group completing its acquisition of a majority stake in LVL, a new prospective private pain clinic business that is also the prospective sponsor of what the Directors and Proposed Directors believe will be, once approved, the only MHRA and REC authorised trial for the use of a medicinal cannabis product in the treatment of chronic pain in the UK at the time the Trial commences. The private pain research clinic business started operating in August 2021. LVL has received conditional approval for the Trial from MHRA, conditional on, among other things, approval by the REC. Ahead of the Trial being approved by the REC, it has suggested that, at a point after patients have been onboarded at participating private pain clinics for treatment with medicinal cannabis, LVL conduct a pilot feasibility study utilising the same patient-pathway as will be used in the Trial but which instead has the objective of studying aspects of this pathway rather than evaluating the safety or efficacy of the medicinal cannabis itself (the Study). The Study is expected to start in March 2022, following successful completion of which the Trial is expected to launch in the second half of 2022 once LVL has received final REC approval of it.

The Trial is designed as a paid for trial and the design is made possible on the basis that the participants will be paying for their treatment, which includes the prescribing of the Trial drug. The aim of the Trial differs from the usual aim of the typical three phases of clinical trials as LVL and the third party product supplier do not intend to seek regulatory authorisation for a specific medicinal product using the data arising from the Trial.

Vertigrow believes that the Trial and resulting data on a third-party medicinal cannabis product will help facilitate the greater use of medicinal cannabis generally in the UK. The objectives of the Trial are to document and demonstrate the efficacy of the medicinal cannabis product used in the Study and the Trial for the treatment of chronic non-cancer pain. In so doing, the Directors and Proposed Directors believe that the Trial has the potential to provide data that may enable NICE to recommend the type of cannabis-based medicinal product studied in the Trial for prescription for the conditions studied in the Trial on the NHS.

In November 2021, REC approved the Study for a minimum of 100 patients, as REC wanted to observe the initial patient take-up before they would approve the commencement of the Trial. The first patients have now been onboarded for treatment under the protocols for the Study and Trial, and LVL have advised that the initial patient feedback has been extremely positive (with patients reporting material reduction in pain, ability to sleep and improvements in their quality of life). These patients have also agreed to enrolment of the Study. Once at least 100 patients have been recruited to the Study, LVL will meet again with REC to seek formal approval to start the Trial for up to 5,000 patients. REC have agreed that the data collected in the Study can be included in the results of the Trial.

The Celadon Group has raised a total of £5.8 million of capital to date, which has been used to fund Celadon's operations. This includes, £1.7 million by way of equity, and £4.1 million by way of convertible debt as Celadon CLNs which will convert into 5,168,647 Ordinary Shares on Admission, and excludes any monies advanced by the Company to Vertigrow.

3.          REGULATORY OVERVIEW

3.1        Evolution of Cannabis and Cannabis Legalisation

Cannabis is a flowering herb native to central Asia. Humans have been using it for its medicinal properties for thousands of years. Cannabis supplements the body's natural endocannabinoid system and has been used to treat medical conditions including pain, sleep, anxiety, inflammation, epilepsy and other conditions.

However, despite the historic evidence of medical efficacy, for much of the 20^th century Cannabis has been designated a narcotic, with the United Nations Single Convention on Narcotic Drugs classifying it as a narcotic drug. As a result of its illegality, limited historical research was conducted and limited data sets were deemed valid by regulators to demonstrate its efficacy.

Since the 1970s, the regulatory framework started to be relaxed as the evidence of medical efficacy has increased. Then, in the early 1990s, scientists discovered the endocannabinoid system in the human body that controls a number of biological functions.

The discovery of the endocannabinoid system and CB1 and CB2 cannabinoid receptors led to an increased understanding of the complex ways in which THC and CBD affect the body both singly or together. Clinical research appears to show that whole plants or extracts are more efficacious than single molecules. It is theorised that this is because the different molecules interact in a complex manner. This theory is known as the entourage effect. In addition to THC and CBD, other cannabinoids (CBC, CBDA, CBG, CBN, THC-V, THCA), flavonoids, terpenes and other compounds are hypothesised to support the entourage effect by improving absorption and allowing maximum effect of the cannabinoids, but they have not consistently been measured in much of the research.

This discovery gave fresh impetus to the movement to make cannabis available for medical purposes. From the mid-1990s, several US states legalised the use of cannabis for certain medical conditions including chronic pain and terminal cancer.

The Netherlands was one of the first countries to implement a system of limited distribution, and in 2003 the Dutch government legalised medicinal cannabis. This process continued to gather momentum as evidence of the efficacy of cannabis treatments, including for children suffering from severe epilepsy and as an alternative to opioids in chronic pain, became more widely publicised. Some other recent examples of countries legalising medicinal cannabis include Australia in 2016 and Germany in 2017.

3.2        UK Regulation of Cannabis

In the UK the primary legislation regulating the use of cannabis is the Misuse of Drugs Act 1971 ("MDA 1971") which specifies that drugs in three categories (according to their relative harm), namely in Classes A, B and C as set out in Schedule 2 to the MDA 171, are controlled. Cannabis and many of its derivatives fall under Class B. The MDA 1971 sets out different criminal offences, such as importation, production and supply, possession and cultivation of cannabis.

The MDA 1971 implements into UK law the UK's obligation and commitment to control the use of narcotic and psychotropic drugs under United Nations conventions to which the UK is a signatory. Under the conventions, where local laws permit the cultivation of cannabis all signatories must ensure that such cultivation is under the control of a Government Agency. The three international United Nations Conventions are the Single Convention on Narcotic Drugs, the Convention on Psychotropic Substances 1971 and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988 ("Narcotics Conventions").

In compliance with the requirements of the Narcotics Conventions, and pursuant to section 7(1) MDA 1971, the 2001 Regulations, which apply to England, Scotland and Wales, regulate the availability of the controlled drugs that have a recognised and legitimate use by allocating them to one of five schedules to the 2001 Regulations. The schedule into which a drug is placed essentially dictates the extent to which it is lawful to import, export, produce, supply, administer and possess the drug (and in the case of the cannabis plant, to cultivate it) and sets out a licensing regime for these activities. The carrying on of any of these activities without an appropriate licence (or without the benefit of an appropriate exemption set out in the 2001 Regulations) is a criminal offence. The 2001 Regulations also impose requirements around prescription writing, record keeping, safe custody and destruction. Drugs listed in Schedule 1 of the 2001 Regulations can only be possessed or supplied under a Home Office licence and cannot generally be prescribed by a medical practitioner. Cannabis and all its derivatives were until 2018 placed in Schedule 1 to the 2001 Regulations.

In 2018, then UK Home Secretary Sajid Javid ordered a review regarding cannabis-based medicinal products and sought recommendations for changes from the Advisory Council on the Misuse of Drugs ("ACMD") and the UK's Chief Medical Adviser.

On 1 November 2018, the Misuse of Drugs (Amendments) (Cannabis and Licence Fees) England, Wales and Scotland) Regulations 2018 came into effect under which cannabis-based products for medicinal use in humans ("CBPM") were re-scheduled to Schedule 2 of the 2001 Regulations. This allowed physicians to prescribe medicinal cannabis to patients without the approval of an expert panel. Only doctors in a field relevant to the patient's condition who are listed on the General Medical Council's specialist register are permitted to prescribe medicinal cannabis to patients. Medicinal cannabis products that do not have a marketing authorisation can be prescribed on a case-by-case basis for patients who have an unmet special clinical need after all other treatment options have been exhausted.

Under the new regime, all cannabis-based medicinal products (excluding Sativex and Epidyolex, which are already licensed prescription ("Rx") products) are unlicensed medicines until they have a marketing authorisation. Prescriptions for medicinal cannabis, as with other unlicensed medicines, can only be issued on a "named patient" basis. The Department of Health and Social Care's expectation is "that cannabis-based products for medicinal use should only be prescribed for indications where there is clear published evidence of benefit or UK guidelines and in patients where there is a clinical need which cannot be met by a licenced medicine and where established treatment options have been exhausted."

NICE has to date only recommended Sativex and Epidyolex for use through the NHS for specific rare conditions only, with no further cannabis medicines recommended pending further clinical data. This means physicians who authorise other cannabis medicines may be professionally liable for adverse events experienced by patients. For this reason, the number of prescriptions issued to date remains very low.

Medicinal cannabis legalisation was also supported by the Royal Pharmaceutical Society, which stated that it believed it would provide safe relief for patients with serious health conditions and that it would work side-by-side with the NHS to support specialists in their prescription decisions.

Companies that wish to possess, supply, produce, manufacture, or import and export cannabis-based products for medicinal use in humans must obtain an annual Home Office Controlled Drug licence in order to lawfully undertake these activities and a MHRA API registration and appropriate manufacturing authorisation to manufacture cannabis-based medicines, which will be for prescription only.

NICE was tasked with developing detailed guidelines for clinicians to provide guidance regarding the prescribing of cannabis. These guidelines were published in November and December 2019 and updated in March 2021 (NG 144 Cannabis-based medicinal products) and suggest that cannabis-based medicinal products may be effective for people with intractable nausea and vomiting, chronic pain, spasticity, and severe treatment-resistant epilepsy. However, NICE did not believe that the available evidence was sufficient to recommend cannabis as a treatment in chronic pain.

Vertigrow believes that the current guidance from NICE demonstrates the need for MHRA approved research to be undertaken and scientifically credible data sets to be made available. Until that point, the Directors and Proposed Directors believe that NICE will be unable to recommend any cannabis for treatment of pain and other conditions. As medicinal cannabis is a new field for NICE, they are focused on ensuring that appropriate data is provided before they make further recommendations. As no appropriate trial has taken place, they do not currently have clear evidence of safety and efficacy against which to balance the costs of treatment. The industry needs to address this research deficit if medicinal cannabis is going to be recommended by NICE.

NICE guidelines exist to guide clinicians and healthcare organisations when making decisions regarding the nature of treatments provided to patients. The recommendations made in guidelines are not mandatory and clinicians retain autonomy to make decisions based both on the evidence available to them, their clinical experience and the preferences of patients. The former chairman of NICE, Professor Sir David Haslam, has stated that NICE produces "guidelines not tramlines". Mark Baker, the former director of the centre for guidelines of NICE further stated that "our recommendations never instruct a GP or healthcare professional to do anything. We are here to support their decisions, not dictate them". As such, the Directors' and Proposed Directors do not anticipate that NICE's current position will prevent prescribing cannabis for the treatment of chronic pain in the private patient market where appropriately registered treating physicians consider it appropriate.

In March 2020, the UK Government stated that they are working with various parties to encourage more research into uninterrupted access to cannabis-based medicinal products where clinically appropriate. It stated that it sought also to encourage the building of evidence, using trials in the UK to accelerate understanding of how medicinal cannabis can benefit patients and to support further commissioning decisions. The UK Government said this was necessary for wider prescribing by NHS clinicians in future.

3.3        UK Current Status

With the exception of GW Pharmaceuticals and CPL (subject to CPL receiving MHRA registration to sell API and a Home Office licence, renewed annually, to supply cannabis API for manufacture into finished medicinal products), the Directors and Proposed Directors believe that there are no businesses licensed to both grow and sell full spectrum cannabis medicinal products or API in the UK. A number of R&D grow licences have been awarded to certain companies operating within the market, however, the Directors and Proposed Directors believe that they are unable to sell their products and must use their grown product for their own research.

The current situation is that finished medicinal cannabis products (other than GW Pharmaceuticals' licensed products and the licensed synthetic cannabis products) for patient use are imported from other countries on an individual patient basis, which requires a long authorisation process that can cause some patients to turn to the illicit market for their cannabis. These illicit products may not meet the same quality standards required of companies that produce medicinal cannabis, may not be of a standardised composition and may contain dangerous contaminants. The licence authorisation process for a patient to import medicinal cannabis products from overseas can take over four weeks, and this needs to be repeated for each patient whenever they need a prescription. It is challenging for patients to wait that long given that cannabis is a treatment that generally requires a consistent daily dose.

Alongside the regulatory challenges, one of the primary bottlenecks to wider medicinal usage is clinicians' own caution or lack of confidence to prescribe medicinal cannabis. Doctors approached by patients interested in cannabis treatment options have been reported to have deterred patients, citing a lack of clinical evidence for the treatments. In other instances, the doctor's own lack of experience in understanding dosage is an obstacle. The Directors and Proposed Directors believe that it is clear that a substantial volume of work needs to be done to improve clinical trial data and also to provide continuing education and resources to doctors to further their own understanding and thereby increase their confidence to prescribe cannabis-based products for medicinal use.

3.4        Medicinal Products Regulatory Framework applicable to APIs

The legislative framework applicable to medicinal products in Great Britain is largely set out in the Human Medicines Regulations 2012 (as amended). The entire production and supply chain of medicinal products is subject to stringent regulation including the manufacture and supply of APIs to be used in the manufacture of finished medicinal products for administration.

In order to lawfully manufacture and/or distribute APIs in the UK, the relevant entity must hold a registration with the MHRA covering the relevant activities which amongst other matters requires that an API manufacturer must comply with UK-GMP as it applies to the manufacture of APIs. Prior to registering an applicant, MHRA may inspect the applicant's premises and systems/procedures to assess the applicant's compliance with UK-GMP. Where the MHRA is satisfied that the applicant is able to comply with UK-GMP for APIs the MHRA will then issue the applicant with a UK-GMP certificate. The MHRA also periodically undertakes site and system inspections of registered API manufacturers to assess ongoing compliance with UK-GMP.

An API manufacturer registration does not permit the registrant to manufacture finished medicinal products for use in humans. The API must instead be supplied to a holder of a relevant medicinal products manufacturing authorisation for it to manufacture finished medicinal products. Alternatively, the API manufacturer would need to additionally hold a manufacturing authorisation in order to produce the finished medicinal products itself.

Failure to hold appropriate registration/authorisation for either API manufacturing or finished product manufacturing activity is a criminal offence.

3.5        Medicinal Cannabis

Cannabis contains a number of active compounds, or cannabinoids, that act on endocannabinoid receptors in cells located in the brain, nervous system and elsewhere in the human body. The endocannabinoid system of the human body is involved in many pathways including the regulation of neurotransmitters. These, in turn, regulate other body processes that can impact on things like pain and mood. Some cannabinoids also affect other processes in the body such as inflammation, for example, by acting on COX and PPAR related pathways.

Cannabinoid compounds can play a role in the treatment of a number of medical conditions. The therapeutic potential of the cannabinoids has been studied in diseases and conditions such as MS, epilepsy, pain, anxiety, nausea, and cachexia. For example, it is well established that cannabinoid compounds can improve neurological deficits associated with neuronal damage attenuated with the MS disease process.

The two most prevalent cannabinoids are THC, which is responsible for the euphoric feeling generally resulting from cannabis consumption; and CBD, which has neurological and systemic effects without the intoxicating effect of THC. Both have medicinal benefits, and various formulations of THC and CBD have been investigated in a variety of applications. In addition to these main cannabinoids, there are many others that are being researched for their potential effectiveness in a range of medical conditions, including in combination with THC and CBD as antagonists and enhancers of efficacy.

Whilst derived from the same plant, CBD as a market is largely focused on the provision of consumer products such as wellness products, cosmetics and drink supplements. Whereas higher THC cannabinoids are heavily regulated and used for medicinal purposes for the treatment of specific conditions.

Over recent years, the production, sale and use of medicinal cannabis has become less tightly regulated in many countries, as its proposed benefits for a broad range of medical conditions has become better understood. This trend is expected to accelerate as awareness and understanding of the benefits of medicinal cannabis increases amongst both physicians and patients.

Current research suggests that there are a number of conditions and illnesses that can potentially be treated with medicinal cannabis such as chronic pain, MS, epilepsy, autism, PTSD, Parkinson's disease, chemotherapy-related nausea and several others.

Licensed cannabis-based medical products are authorised for the treatment of MS spasticity, cancer chemotherapy-related nausea/vomiting, Lennox-Gastaut syndrome, Dravet Syndrome and Tuberous Sclerosis Complex.

Unlicensed CBPMs may also be prescribed where there is an unmet medical need. Cannabinoids have also undergone clinical trials for the treatment of a variety of conditions including neuropathic and inflammatory pain, PTSD, Parkinson's Disease, Alzheimer's Disease, Inflammatory Bowel Disease, Generalised Anxiety Disorder ("GAD"), several cancers, Major Depressive Disorder ("MDD") and addiction.

As more research is conducted and published it is anticipated that general awareness and acceptance of medicinal cannabis will grow together with physician confidence.

The following articles review the results of over two dozen clinical trials that have examined the efficacy of cannabis preparations for the treatment of cancer-related, neuropathic, musculoskeletal, visceral and widespread pain. Some studies have found strong clinical evidence for the efficacy of cannabis and cannabinoids in treating pain, while others have not. The results to date suggest that the therapeutic profile of cannabis may depend upon the nature of the cannabis medicine, particularly the degree of processing, and that cannabis flower and total extracts thereof may show greater efficacy in pain management than semi/purified cannabis products.

(i)        EFIC position paper on appropriate use of cannabis‐based medicines and medical cannabis for chronic pain management. Eur. J. Pain. 2021,22,1547.

(ii)        Clinical uses of cannabis and cannabinoids in the United States. J. Neurol. Sci. 2020, 411, 116717.

(iii)       Medical use of cannabis and cannabinoids. European Monitoring Centre for Drugs and Drug Addiction. 2018.

(iv)       Cannabis in Pain Treatment: Clinical and Research Considerations. J. Pain. 2016, 17, 654.

3.6        Access to Medicinal Cannabis

In addition to provision in the context of an authorised clinical trial, there are two legal routes for supply of medicinal cannabis products:

•   As a licensed Rx pharmaceutical, pursuant to a marketing authorisation by the MHRA, available through a physician prescription; or

•   Through the Specials framework when requested by a doctor on the GMC's specialist register for the purposes of treating a named patient with special clinical needs.

The use of cannabis-based products as Rx pharmaceuticals is currently very limited, and accounts for a very small part of the broader medicinal cannabis market, estimated to be used by less than around 6,000 patients out of 1.4 million illegal users of cannabis for medical conditions in the UK.

In the UK, there are only two currently marketed licensed Rx pharmaceutical products derived from cannabinoids from cannabis plants:

•   Nabiximols, marketed as Sativex (GW Pharmaceuticals), a CBD oromucosal spray of a formulated extract of the cannabis sativa plant that contains two cannabinoids (THC and CBD) in a near 1:1 ratio, as well as specific minor cannabinoids and other non-cannabinoid components, and which has been launched in over 25 countries. It is indicated for MS spasticity.

•   Cannabidiol, marketed as Epidiolex (GW Pharmaceuticals), a CBD oral solution for the treatment of seizures associated with rare and severe forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome, approved by the US FDA in June 2018. It was launched (as Epidyolex) in the EU in Q4 2019, having received authorisation from the EMA in September 2019, and recommended for use by the NHS in November 2019.

Additionally, Nabilone, a licensed Rx pharmaceutical product using synthetic cannabinoids is available in the UK for use by patients with CINV who did not respond to traditional medications. Whilst Nabilone is a licensed Rx cannabinoid therapy, it is not derived from the cannabis plant itself.

There are three main groups of chemical compounds that fall within the broad category of 'synthetic cannabinoids':

Compounds from group 1, being structurally identical to naturally occurring THC, are generally not distinguished from plant derived cannabis-based products by health authorities or regulators. In contrast, compounds from groups 3, which are not structurally related to naturally occurring cannabinoids but which bind to cannabinoid receptors in the body (CB-1 and CB-2) are not available as licensed medicinal products due to clear evidence of significant harm having resulted from their use.

The ACMD has particular concerns with compounds falling within groups 2 (with the exception of Nabilone) and 3, and is of the view that further research into this complex group of diverse substances is important, given the increased potency and risk of harm associated with their use.

In addition to these safety concerns, there is increasing evidence that plant-based medicinal cannabis products may offer therapeutic advantageous over their synthetic counterparts due to a phenomenon known as the 'entourage effect'. The 'entourage effect' is attributed to synergistic interactions between the numerous phytochemicals present in plant derived cannabis and has been shown to result in enhanced biological activity when compared to the use of single molecules in a medical treatment. This effect cannot be achieved by currently available synthetic cannabinoids which only contain individual cannabinoids in isolation.

3.7        Regulation of Clinical Trials in the UK

A member of the Celadon Group, LVL, is the sponsor of a planned clinical trial into a medicinal product to be administered in humans which involves a cannabis-based medicinal product. Clinical trials are also tightly regulated and are subject to both regulatory authorisation and ethical approval.

The legal requirements applicable to clinical trials of medicinal products in humans are largely set out in the Medicines for Human Use (Clinical Trials) Regulations 2004. Before a clinical trial can be commenced the planned trial must be authorised by the MHRA (regulatory authorisation) and also a favourable opinion from an appropriate research ethics committee must be obtained (ethical approval). The clinical trials legislation sets out stringent requirements for the initiation, conduct and reporting of a clinical trial including that it must be conducted in accordance with Good Clinical Practice ("GCP") and that adverse events experienced by trial subjects must be recorded and reported as well as the trial outcomes. Many of the legal obligations fall on the "sponsor" of the clinical trial.

Non-compliance with the legislation regulating clinical trials is enforced by way of the criminal law.

4.          UK MARKET OVERVIEW

4.1        Large illicit market

Despite limited legalisation for medical purposes, the black market remains the largest market for cannabis in the UK. YouGov estimates that up to 1.4 million people in the UK are using cannabis to treat pain by acquiring cannabis products on the black market. The Directors and Proposed Directors estimate that patients are spending an average of c.£300-£600 per month to source cannabis product through the illicit market.

4.2        The "Specials" market

The current legal regime for patients accessing unlicensed medicinal cannabis requires patients to obtain a prescription from a doctor included on the specialist register of the General Medical Council. These are commonly doctors in private practice who will only prescribe medicinal cannabis when a patient has exhausted all other treatments. Once a patient receives their prescription for a medicinal cannabis product that product must currently be imported (as there are currently no UK based approved suppliers in the Specials market), it is processed by the Home Office and MHRA and a patient's prescription is authorised which enables the authorised wholesaler to import that product into the country. This then permits an initial one month's supply to be imported. In practice, this can take over four weeks to arrive. After the first month's supply has been exhausted, a patient needs to have a follow up appointment with their doctor and obtain a further prescription for the next month. Again, this needs to be approved by the Home Office and MHRA before the importation process can start and another wait of over four weeks for medicine. This process then needs to happen every month. The cost of cannabis obtained in this way will range from £250-£1,000 per month, with some paying over £2,000 per month.

In March 2020, the UK Government announced changes to the import restrictions that now allow licensed wholesalers to hold three months of prescriptions of medicinal cannabis on behalf of eligible patients. This is still, however, on a named patient basis.

There are a number of problems with the current system including the high cost that is prohibitive for many patients. Further, because cannabis is not an authorised medicine, the doctors prescribing cannabis products may not be insured when they prescribe it. It is also important to note that cannabis is an ongoing treatment and not a short-term cure and as such a patient needs a consistent supply for the benefits to work effectively. The gaps in a patient's treatment caused by the importation process means patients can have long periods when they cannot obtain their medicine, which again may lead to illicit market sourcing in some instances.

A UK grower will help solve many of these problems as, in particular, patients will no longer need to go through the importation process and doctors and clinics will have confidence that patients will be able to receive medicinal cannabis on a timely basis once prescribed without any importation delays. Celadon believes that once it has received the necessary authorisations and licences, it will serve as a significant and important supplier which could help facilitate the wider legal use of medicinal cannabis in the UK.

4.3        Limited availability of data

The Directors and Proposed Directors believe there is very little clinical data that regulators are able to use in assessing the safety and efficacy of medicinal cannabis. The Directors and Proposed Directors are aware of one other active medicinal cannabis study in the UK, Project Twenty21, which, so far as the Directors and Proposed Directors are aware, is not an MHRA approved trial.

Project Twenty21 allows eligible patients to access medicinal cannabis treatment at a capped price, and have their treatment tracked by Drug Science. Their website states that they currently have 2,080 patients as of 31 December 2021.

4.4        Chronic pain opportunity in the UK

Imperial College research suggests that chronic pain (defined as pain that persists for three months or more) affects c.28 million people in the in the UK. Of those, up to 8 million people suffer severe chronic pain. Conventional treatments include opioids (which are the most common treatments used), paracetamol, anti-neuropathic agents and non-steroidal anti-inflammatory drugs, all of which may be associated with significant risks.

According to the British Medical Association, the prescribing of opioids has increased markedly over recent years, although the evidence for their efficacy in the treatment of chronic pain conditions remains weak, and the increasing knowledge of their short and long-term side effects raises questions over their use. Opioids tend to have unpleasant side effects which can include significant levels of nausea, constipation, serious effects on breathing, and tolerance (and therefore dose increase). There has also been an increase in the use of antidepressants and antiepileptics that are most commonly used or recommended for the treatment of pain.

There is a large body of evidence that has concluded that opioids may reduce pain for some patients in the short and medium term (less than 12 weeks). There is however, a lack of consistent good-quality evidence to support a strong clinical recommendation for the long-term use of opioids for patients with chronic pain.

Recent NICE guidance on the treatment of chronic pain recommends against the use of opioids and anti-inflammatory drugs in most cases and against anti-neuropathic agents other than in neuropathic pain. Given that many specialist pain control approaches are also being discouraged, it leaves chronic pain patients with few options beyond psychological and behavioural pain management.

Medicinal cannabis and chronic pain

The UK market for chronic pain that cannabis medicines might help address is substantial and may help people reduce opioid dose and use which could have a significant improvement in the management of chronic pain and its safety.

A number of studies have been carried out into the use of medicinal cannabis and the following represents a selection of what has been reported on the topic. A high dose of cannabis derived THC (50 mg per day) markedly reduced opioid consumption when used during the day of a flare of Mediterranean Familial Fever, which supports the opioid sparing effect of medicinal cannabis. Cannabinoid and opioid receptors are expressed in several brain regions involved in the regulation of pain and have been shown to co-localise (be expressed next to each other on the cell membrane). Numerous animal studies have now shown that there is a synergistic effect from opioid and cannabinoid co-administration. The effect of medicinal cannabis on the use of opioids in the chronic pain population has been reviewed. A more recent study from Michigan published in 2019 showed that approximately 80 per cent. of 1,321 chronic pain patients reported substituting cannabis for traditional pain or muscle spasm medications (53 percent. for opioids, 22 per cent. for benzodiazepines), citing fewer side effects and better symptom management as their rationale for doing so. Data from Canada published in 2019 also suggests that patients report they are using less opioids and other analgesic drugs, alcohol, tobacco, and illicit substances (10.1186/s12954-019-0278-6). There is evidence that cannabis increases the efficacy of opioid therapy and can reduce the opioid dose burden.

The safety profile of cannabis has been well studied and the majority of adverse events are attributable to one of its constituents, THC. THC induces acute adverse effects including anxiety and chronic effects such as increased risk of psychosis and addiction/dependence. The acute effects are largely avoidable if either the dose is kept low (<30 mg per day) or the cannabis extract has enough CBD to counteract THC-induced anxiety. The risk of long-term psychosis and depression is substantially reduced if the cannabis is not used during adolescence.

The addiction potential of cannabis has also been studied and in susceptible individuals, chronic dosing of very high THC strains of cannabis can lead to addictive behaviour. To minimise risk, it is essential to:

(1)       ensure that the starting doses are kept low, particularly for high-THC products;

(2)       offer balanced THC / CBD cannabis products; and

(3)       monitor the quantity of medicinal cannabis consumed to ensure excessive consumption is limited.

These strategies are designed to limit the onset of addictive behaviour and psychosis in susceptible individuals.

Even though it very important to address the addiction potential of medicinal cannabis, it is important to emphasise that the risks associated with cannabis are considerably lower than other analgesics utilised in chronic pain conditions, namely opioids and other anti-neuropathic agents. Medicinal cannabis is now considered as a potential adjunct to opioid based analgesia, boosting opioid efficacy and there is evidence that the addition of medicinal cannabis lowers the dose and time required to reach analgesia for opioids, reducing dose burden and moving patients away from opioid use disorder ("OUD").

Within the field of medicinal cannabis, despite the high levels of THC in some modern strains, no increases have been observed for SAEs (serious adverse events) in patients taking medicinal cannabis with standard of care, versus standard of care alone. Additionally, with the heterogeneity of medicinal cannabis products available standardisation of medicinal cannabis is required to improve the risk-benefit profile for patients.

There is a long history of use of medicinal cannabis and evidence supports the concept that cannabis is generally well tolerated (especially when compared with current agents routinely used to treat chronic pain). Recently, THC levels have increased substantially for illicit cannabis which has raised concerns for the UK population in relation to addiction and the development of psychosis. Consuming a balanced THC and CBD medicinal cannabis product is known to substantially lower this risk, whilst having a full-spectrum cannabis product rich in minor cannabinoids and terpenes is thought to maximise the benefits to the patient.

There is now acceptance that cannabis has demonstrable medical utility, at varying levels of evidence quality, in conditions including chronic pain, MS, anxiety, depression, sleep disorders, irritable bowel disease and epilepsy.

4.5        Competition

The UK market for medicinal cannabis is limited due to its nascent stage. The Directors and Proposed Directors believe that the only company in mainland UK that is currently licenced to grow and sell in the medicinal cannabis segment is GW Pharmaceuticals.

GW Pharmaceuticals currently has two licensed medicines:

•   Epidyolex (CBD) which is approved in the UK, EU and USA for rare and severe forms of epilepsy (Dravet and Lennox-Gastaut syndromes) and has been approved for use in the EU for the treatment of Tuberous Sclerosis Complex; and

•   Nabiximols (Sativex, a mixture of THC and CBD) and is approved in the UK, EU and Canada for the treatment of MS spasticity, and is undergoing trials for the treatment of PTSD and SCI spasticity.

Sativex is a balanced THC/CBD oral spray and Epidyolex is a CBD oral product. The Directors and Proposed Directors believe that as a result of the methods used during the manufacturing process, these products may not retain the full spectrum of beneficial phytochemicals present in other plant derived cannabis products.

GW Pharmaceuticals was admitted to trading on AIM in 2001, before moving its listing to the NASDAQ market in the US in 2016. GW Pharmaceuticals' cannabis plants used to research and develop their different products are grown and harvested in the UK. On 5 May 2021, Jazz Pharmaceuticals, a US domiciled pharmaceutical company, completed the acquisition of GW Pharmaceuticals for US$7.2 billion.

The majority of market participants in the UK are in the CBD sector, which is very different to the medicinal cannabis sector. The CBD market is characterised by wellness/cosmetic claims and benefits that have not been fully researched or medically proven. Consequently, CBD-only products are not regulated as medicines and are generally currently regulated as foodstuffs. Products are also commonly poor quality and often mislabelled, and unlike THC, CBD has a relatively low affinity for the endocannabinoid system, interacting weakly with CB1 and CB2 cannabinoid receptors.

An often-cited concern is that currently available products are being sold in an unregulated way often with false or exaggerated claims around their efficacy. Not surprisingly there are numerous companies producing a product which when tested did not match its labelling. CBD's classification as a novel food has led to more stringent regulation of the CBD market, which is anticipated to result in some shake up of the sector due to the higher regulatory requirements.

4.6        Value Chain for Medicinal Cannabis

The value chain for medicinal cannabis is illustrated in the Admission Document. Vertically integrated companies typically undertake the full range of services to distribute finished medicinal products directly to patients or through wholesale and pharmacy channels.

R&D / Clinical research

This involves scientific, pre-clinical development in areas such as genetics and cannabis strains, followed by clinical trials undertaken with external partners into the efficacy of new medicinal cannabis products for specified conditions. Medicines typically go through a three-phase trial process:

(1)       Phase I (small trials often on healthy volunteers to test safety and side effects at different doses);

(2)       Phase II (trials on patients with the disease being treated to assess drug administration, efficacy and side-effects); and

(3)       Phase III (larger, double-blind and placebo or standard-of-care controlled trials on a target patient population to further test efficacy and safety).

Growing

This involves large-scale cultivation of cannabis plants, typically in bio-secure indoor facilities (grow rooms), with precise control of cultivation conditions (such as nutrients, lighting, humidity, temperature and air flow). Indoor facilities are considered superior to greenhouse environments as they provide the security and control of production variables which are required for the medicinal market.

Processing / Production

This involves curing, testing, chopping and packaging of dry cannabis products. Medicinal cannabis growing and processing is typically undertaken in accordance with GACP guidelines - a set of guidelines covering areas of cultivation, collection, harvest, processing, personnel, equipment, documentation and others for the sake of satisfying the minimum required quality assurance in plant cultivation. Production also includes cannabinoid extraction, and refining and polishing operations for the manufacture of various types of formulated products. Together with UK-GMP for API and UK-GMP for finished medicinal products, GACP issue guidelines for the process from seed to sale of all plants for use in APIs subsequently used in medicines, including cannabis.

Manufacturing

This involves manufacturing of medicinal cannabis products using processed cannabis extracts and the testing and bottling of formulated products, as well as dose determination, testing, bottling and packaging of cannabis flower medicinal products. For finished medicinal cannabis products, processing and manufacturing typically needs to occur in facilities certified to UK-GMP, which is certified by the relevant national authority. In the UK, UK-GMP certification is co-ordinated by the MHRA, with compliance required to obtain a relevant manufacturing and/or import authorisation.

Physicians

Depending on local laws, physicians are typically the only party that can authorise the use of medicinal cannabis products by patients. This is generally done through the provision of a prescription from a physician and/or an unsolicited order by a physician for an unauthorised medicinal product for an individual patient.

5.          THE CELADON GROUP

5.1        Business Model

The Directors and Proposed Directors believe that the Celadon Group is positioning itself to be one of the first businesses to receive the requisite licences and registrations in the UK to grow, manufacture and sell high quality medicinal cannabis as an API in the UK. Achieving the various authorisations, registrations and licences is time consuming having taken CPL over two years to reach the current status of the licence applications, including receiving a Home Office Licence. It is also an expensive and complex process, requiring significant amounts of upfront expenditure before an application for MHRA registration be made and Home Office approval sought. The Directors and Proposed Directors believe that this represents a material barrier to entry for other businesses seeking to research, grow and manufacture high quality medicinal cannabis in the UK.

Celadon aims to facilitate access to high quality THC medicinal cannabis by undertaking trials, documenting and sharing the resulting data and educating physicians, and forming partnerships with other parties seeking to manufacture and utilise cannabinoid-derived medicines. Following receipt of the relevant UK-GMP certification from, and registration with, the MHRA, the Celadon Group intends to cultivate and manufacture cannabis derived API from its own facilities and supply its API to the UK manufacturing market.

The parts of the value chain for medicinal cannabis (as set out above in paragraph 4.6 of this Part II) that the Celadon Group intends to operate in is set out below.

5.2        Data

The UK Government has requested data of cannabis' efficacy from the wider market and for that data to be presented to NICE in the correct manner. The Celadon Group will work to collate usable and robust data from the Trial and other future trials it plans to conduct and will present this data to NICE. Celadon will also educate physicians, regulators and patients with parallel education and marketing initiatives.

5.2.1     Education

The Celadon Group is working with a number of senior doctors with a view to facilitating the provision of the requisite level of information for the medical community to prescribe cannabis-derived medicines with confidence. The Celadon Group has developed a training centre at its facility in the Midlands with a view to increasing knowledge for physicians. Many of these physicians will work in the private sector, often at pain clinics, and together are believed to have thousands of patients who suffer from pain related conditions and who might benefit from cannabis medicines. Celadon is also in early stage discussions with third parties about developing education packages for physicians.

5.2.2     Trials

In addition to the Trial, the Celadon Group will undertake and invest in trials (both through LVL and other parties) to further evidence the efficacy of cannabinoid derived medicines for certain medical conditions.

5.2.3     Sports Research

The Celadon Group is working with the Sports Science Agency to research the potential for cannabinoids to treat sports persons, particularly those at the end of their careers with chronic pain conditions.

5.2.4     LVL

Vertigrow is the majority owner of LVL, a prospective private pain clinic business which is the prospective sponsor of what the Directors and Proposed Directors believe will, once approved, the only MHRA and REC authorised medicinal cannabis clinical trial for patients with chronic pain in the UK at the time it commences. This Trial has been designed and developed to determine the safety and the effectiveness of a medicinal cannabis treatment for moderate to severe chronic non-cancer pain in a real-world setting based on certain agreed measures, compared with appropriate data from matched control patients receiving standard patient care (such as prescribing of other medicines).

Vertigrow acquired a 57.5 per cent. shareholding in LVL from SEEK on 14 July 2021 for initial consideration in the amount of £500,000. Deferred consideration of £1.5m is payable in the event that (i) each of MHRA and REC authorise the Trial; and (ii) 5,000 paying patients of Vertigrow's clinic are accepted onto the Trial and receive their first prescriptions under the Trial within 18 months of 14 July 2021 (i.e. by 14 January 2023). Such deferred consideration is to be satisfied by the issue of shares in an entity in the same group as Vertigrow whose securities are publicly listed on a recognised stock exchange at the relevant time ("Listco"), with the price for such shares being the average of the middle market quotations for shares in Listco for the five consecutive dealing days immediately preceding the date of issue of such shares. As REC authorisation for the Trial was not obtained by LVL within six months of 14 July 2021 (i.e. by 14 January 2022), Vertigrow became entitled on that date to acquire for £1 further shares from SEEK so as to increase its aggregate shareholding in LVL to 70 per cent. On 14 July 2021, pursuant to a loan agreement between Vertigrow and LVL of the same date, Vertigrow provided a loan to LVL in the amount of £500,000 for working capital purposes. The loan is repayable on 14 July 2024.

LVL was established by PepTcell Limited, who operate under the trademark SEEK^TM (www.seekacure.com). SEEK are a leading group of experienced researchers and scientists who have a clear understanding of the UK and international regulatory processes and interacting with regulators including FDA and NICE. Furthermore, they have a track record of developing certain medicines, including medicine for HIV, some of which have been approved for use by the NHS.

The LVL Private Pain Clinic

LVL is a specialist pain clinic researching the best ways to use medicinal cannabis alongside patients current treatments to help people manage their chronic pain. LVL focuses on helping people suffering from neuropathic, immune system and injury-induced chronic pain to access medicinal cannabis via partner clinics. LVL is currently referring patients to physical clinics which are owned and operated by third parties. In due course, LVL plans to open its own physical clinic on Harley Street in London and is currently undergoing the necessary approval process with the CQC in order to operate that clinic. In the meantime, patients will consult with the doctor to whom they have been referred using telehealth (an online clinic service) and through the third party physical clinic. LVL ensures that all doctors who accept referred patients are aware and supportive of LVL's long term intentions. 

Patients of LVL are offered a streamlined service that, the Directors and Proposed Directors believe, will vastly improve the medicinal cannabis offering to UK patients. This service is the same service which will be offered to patients invited to take part in the Study and the Trial. Patients will be charged £300 per month for their treatment, which will be the same as patients who participate in the Study and the Trial.

Given the LVL clinic's full-service chronic pain offering via its third party partner clinics, the consistency, quality and availability of the third party medicinal cannabis product and the RYAH vaporiser product, the Directors and Proposed Directors anticipate that, once fully operational, the service will be in high demand from patients who have to date been frustrated in using legal medicinal cannabis in the UK.

The Trial

The Trial is designed as a paid for trial and the design is made possible on the basis that the participants will be paying for their treatment, which includes the prescribing of the Trial drug. The aim of the Trial differs from the usual aim of the typical three-phase clinical trials as LVL and the third party medicinal cannabis product supplier do not intend to seek regulatory authorisation for a specific medicinal product using the data arising from the Trial.

The object of the Trial is to determine the safety and the effectiveness of a medicinal cannabis treatment for moderate to severe chronic non-cancer pain in a real world setting on pain numerical rating scores (NRS) scores, quality of life measures, sleep scores, personal wellbeing, global impression of change and changes in the dosing of concomitant analgesic treatments, compared with appropriate matched controls receiving opioids and/or other neuropathic pain relief. To determine the tolerability of a medicinal cannabis treatment in patients by assessing psychological morbidity such as anxiety and effects on gut function, and dizziness measurements.

LVL believe that globally, three types of medicinal cannabis products are commonly used to treat chronic non-cancer pain. These products contain either a high, medium or low content of THC balanced by reciprocal ratios of CBD. LVL believe that the evidence base indicates that whole flower products with balanced THC and CBD content and levels of other phytochemicals unaffected by extraction, give the maximum levels of efficacy. However, more evidence is needed on the use of these forms of medicinal cannabis to assess efficacy and tolerability. In addition, data will be collected on the concomitant dosing of medications such as opioids and antineuropathic adjuvant analgesics, as part of a patient's standard of care, thereby enabling the impact of medicinal cannabis on the use of standard of care treatment to be assessed.

To date, SEEK has invested over £4 million designing the Trial. On 22 May 2020, it obtained conditional authorisation from the MHRA for the Trial subject to any amendments required by the REC. Through 2020 and 2021, LVL worked with REC to finalise approval for the MHRA conditionally authorised Trial and the Directors and Proposed Directors believe that during the second half of 2022 the Trial will become unconditionally authorised by both MHRA and REC. In the meantime, LVL will undertake the Study using exactly the same service (including product, protocols and medical supervision) that will be offered under the Trial but which does not have any endpoints studying the safety or efficacy of a medicinal product.

As the Study does not study the safety and efficacy of a medicinal product it does not require regulatory approval to the same extent as the Trial does.

In November 2021, REC approved the Study for a minimum of 100 patients, as REC wanted to observe the initial patient take-up before they would approve the commencement of the Trial. The first patients have now been onboarded for treatment under the protocols for the Study and the Trial, and LVL have advised that the initial patient feedback has been extremely positive (with patients reporting material reduction in pain, ability to sleep and improvements in their quality of life). These patients have also agreed to enrolment in the Study, with a view to the Study commencing in March 2022. Once at least 100 patients have been recruited to the Study, LVL will meet again with REC to seek formal approval to start the Trial for up to 5,000 patients. REC have agreed that the data collected in the Study can be included in the results of the Trial. As REC's request for the Study post-dates MHRA's conditional approval of the Trial LVL has contacted the MHRA to update it regarding the Study and to clarify the basis on which the third party vaporisers used in the Study are to be supplied to onboarded patients by LVL.

The Directors and Proposed Directors believe that the Trial, once approved by REC, will at the time it commences, be the only chronic pain cannabis trial authorised by the MHRA and REC in the UK which itself has taken SEEK over two years to design and develop. The primary objective of the Trial is to collect reliable, clinical data that can be used as evidence of the safety and efficacy of the type of cannabis-based medicinal product studied in the Trial and enable LVL to present such data to NICE.

The Trial is designed to be a paid-for-trial where patients will pay £300 per month to participate and to receive medicinal cannabis as part of their treatment. The Trial is initially targeting to recruit 500 patients. It is expected that there will be an interim read out after 12 months on the Trial which would allow LVL to formally assess the efficacy and safety data. The Trial will end when the last of such patients has received their treatment with cannabis-based medicinal product which lasts for three years. With the approval of REC, the number of patients in the Trial can be increased from 500.

The LVL team is being established, with the current operational team at LVL leading the recruitment process alongside input and advice provided by Vertigrow where required. The Board of LVL is controlled by Vertigrow by virtue of its majority of directors.

Once the Trial is approved by the REC, the LVL Private Pain Clinic will also allow LVL to advertise to prospective patients regarding participating in the medicinal cannabis Trial; something which is not permissible from a regulatory standpoint for trials without REC approval. In the meantime, Specials doctors working with or for the LVL Private Pain Clinic are able to prescribe medicinal cannabis to patients under the Specials regime.

SEEK's and Celadon's research has suggested that the best general formulation for the treatment of pain is the whole ground flower and not extracts. Therefore, the Trial will use an 8% THC / 8% CBD strain as a whole flower for the Trial. SEEK's research has also suggested that THC is not a critical component for pain management but when combined with CBD in a balanced way, can offer patients the optimum risk benefit profile for pain management as a result of terpenes interacting with cannabinoids through the entourage effect.

The Directors and Proposed Directors believe that there are no UK licensed growers who can legally grow and supply the cannabis that has been authorised for the Study and Trial. As such, LVL has entered into a services agreement with Grow Pharma Ltd ("Grow Pharma") as summarised in paragraph 15.1.12 of Part VII of the Admission Document. Grow Pharma is a joint venture company between Grow Group plc and Vertical Pharma Resources Limited ("Vertical"). Under the services agreement, Grow Pharma is to procure that Vertical will import the high THC cannabis approved by MHRA for the Study and the Trial from approved European suppliers. Vertical is a licensed importer of unlicensed medicines including cannabis based medicines. It is also the holder of a pharmacy registration from the General Pharmaceutical Council which permits extemporaneous preparation of medicines. Grow Pharma will procure the grinding of the cannabis flower and filling of the product into a sealed and bar-coded cartridge provided by RYAH for use in an inhaling device made by RYAH that LVL has exclusive use of in the UK for a five year period, on a rolling basis. LVL will pay Grow Pharma for the filled cannabis cartridges, and LVL will pay RYAH for the inhaling device. Patients will pay a service fee to LVL, as the sponsor of the Trial and the Study, which will cover the cost of the cartridges, the inhaling device and related services. The agreement with Grow Pharma provides that it may be terminated for breach or 18 months after the start of the agreement by either party giving six months' notice to the other at any time after expiry of the exclusivity arrangements set out in the agreement, which relate respectively to LVL not accepting a forecasted volume of product at its UK storage facility within the relevant quarter or LVL not providing Grow Pharma with sufficient prescriptions to meet the minimum volume in any contract year, being 60 per cent. of the annual estimate of the product required in each contract year.

Once CPL is licensed and its Midlands facility is fully operational and in production at scale, the Company will be entitled to supply cannabis to an appropriately authorized manufacturer for use in manufacturing products for use in subsequent clinical studies and/or for supply for dispensing to patients of the LVL Private Pain Clinic once it is registered with the CQC. These supply arrangements have the potential to generate material revenue for the Celadon Group.

Once approval for the Trial is received from the REC, the Trial would then recruit and onboard its first patients shortly thereafter, which the Directors and Proposed Directors believe to be in or around Q2 2022, including the recruitment of those existing patients in the Study.

LVL Leadership Team

The leadership team for LVL is comprised of a strong team of SEEK executives and scientists with long standing pharmaceutical and healthcare industry experience, encompassing research discovery and development, finance and business development, sales and marketing, that all combine to contribute towards SEEK's success. The LVL leadership team is detailed below.

Gregory Stoloff

Founded SEEK (formerly known as PepTcell) in 2004 after a career in investment banking spanning 20 years at Deutsche Bank and UBS. Gregory is a qualified Chartered Accountant and has spent many years researching scientific medical issues, specifically related to the immune system. He has also been involved in several publications, recounting research in the peptide space and is listed as an inventor in numerous patents for cancer, HIV, mosquito-borne diseases and influenza.

John Brew

A pharmacologist with experience in animal models, toxicology, regulatory and project management. Head of Biology across the SEEK group, bringing expertise and knowledge to drive the Celadon Group's pharmaceutical assets from conception through to completion. Experience in leading all facets of product development, including formulation development, clinical program development, regulatory dossier submission and publication. Two of these products (Unicough and Flarin) have reached the marketplace. Prior to joining SEEK in 2009, John spent 12 years in biotech and pharmaceutical industries.

Declan Monaghan

CFO at SEEK, encompassing PepTcell Limited, ConserV Bioscience Limited, Health Clinics Limited and Biocopea Limited. Holds a London Business School Sloan MSc degree in Leadership and Strategy. Fellow of the Chartered Association of Certified Accountants (FCCA).

Dr Shaw Sorooshian

Proposed to be the Principal Investigator on the Trial subject to MHRA approval. Dr Sorooshian is listed on the General Medical Council's specialist register and has experience across all phases of clinical drug development in several therapy areas, including rare diseases, gene therapy, neuroscience, anaesthesia, immuno-inflammation, chronic renal disease, antifungals/dermatology, and haematology.

Delivery mechanism and data capture

The medicinal cannabis to be studied in the Trial will be administered through the use of a RYAH inhalation device by all patients, which will also be studied for this intended purpose as part of the Trial. A fundamental part of the Trial is measurement of dosing and the time patients are taking their medicine; the delivery system is therefore a critical part of the Trial. The RYAH inhalation product has been chosen for the Trial due to its technology and capabilities. The RYAH device is an advanced vaporiser. The basic premise of a cannabis vaporiser is that a cannabinoid source is heated to a temperature sufficient to vaporise cannabinoids into an air stream, therein generating an aerosol that is inhaled by the patient for therapeutic effect.

The vaporiser delivers a consistent and accurate inhalation amount for any user and therefore the amount of THC and CBD contained within that inhalation can be precisely measured. The vaporiser utilises proprietary cartridges provided by Grow Pharma that have a unique QR code that synchronise with the RYAH application (which is a mobile app), which will allow for data capture from all patients. The RYAH cartridges have been approved by Health Canada and the RYAH device is certified to IEC60601 standards under radio equipment legislation. RYAH Group, Inc. is listed on the Canadian Securities Exchange.

LVL has the exclusive rights to distribute the filled cartridges and RYAH devices in the UK for a rolling five years, provided minimum orders are placed.

Submitting the data to NICE

Once the Trial is completed, should the Trial data show the safety and efficacy of the cannabis treatment for pain relief, LVL intends to present the data from the Trial to NICE as evidence of the safety and efficacy of the type of cannabis-based medicinal product studied in the Trial for pain relief.

Given the limited amount of clinical trial data available on medicinal cannabis, the Directors and Proposed Directors believe that even if the data was not endorsed by NICE it would still be valuable data for doctors listed on the General Medical Council's specialist register in their prescription of medicinal cannabis and would inform LVL on the design of subsequent trials for other indications. Celadon plan to undertake further similar trials in LVL in the future and the results from the Trial will educate the design of such future trials.

5.2.5     Kingdom Therapeutics Limited

Celadon owns a 17 per cent. shareholding in Kingdom Therapeutics Limited ("Kingdom"), a company established by Elizabeth Shanahan, a Non-Executive Director of the Company.

Kingdom is an early stage, pharmaceutical company focused on applying a rigorous approach to the promising field of the endocannabinoid system for those with neurological disorders.

Kingdom believes that the endocannabinoid system has significant potential in those patients with a number of neurological conditions. A number of pre-clinical and real-world studies have indicated that cannabinoids may have beneficial effects on a number of neurological parameters but to date research has been limited and impeded by an inability to protect intellectual property developed. Kingdom's approach is based on a pharmaceutical approach, combined with developing a robust, IP secure formulation. They believe their research will lead to novel, effective therapeutics which will benefit this area of significant unmet demand.

Kingdom is a company founded by a team which consists of two expert scientists in the field of endocannabinoids, experts in the clinical and regulatory sphere, an expert in healthcare provision and an autism parent advocate. The company appointed Professor Trevor Jones, one of the UK's most experienced pharmaceutical R&D experts and recently appointed Chair of the European Medicinal Cannabis Association, as an adviser to the Kingdom board.

Kingdom approached the Celadon Group to secure high quality, consistent cannabinoid products. Once registered by the MHRA and following the issue to CPL of a Home Office licence permitting commercial supply, CPL will be able to supply API to Kingdom for its pre-clinical trial work. Kingdom is currently advancing the preparatory work associated with the design of its clinical programme and hopes to have early indicators in 2022, subject to having all requisite licences and approvals in place. The trial is expected to be a traditional clinical trial in its design but the UK legislative framework for medicinal cannabis may offer early market access through the Specials framework for Kingdom's products whilst they continue their clinical programme, aiming for market authorisation in the UK, Europe & US. In addition, Kingdom's links with the autism clinical and advocacy community gives it access and the ability to engage.

As well as being a shareholder in Kingdom, the Celadon Group is expected to be the exclusive supplier of cannabinoid API to Kingdom. The approach Kingdom is taking means they require consistent product throughout and, if approved as a licenced medicine, the same cannabinoids need to be used for the commercialised product. Therefore, if Kingdom's trial is successful, the Celadon Group will have the potential to generate significant revenues from the exclusive supplier arrangement.

5.3        Grow

The Celadon Group's Midlands based premises are a highly secure, resilient, cannabis cultivation and processing facility designed to meet UK-GMP standards. The facility currently includes a laboratory designed to meet UK-GMP standards that incorporates an advanced growing space ("Phase 1"). The Celadon Group plans to complete the fit out of the second grow space during H2 2022 which would enable CPL to have its own cultivated API product available for sale by the end of 2022 ("Phase 2") subject registration with MHRA and the Home Office granting a new further licence permitting commercial supply. Phase 2 is estimated to cost approximately £5 million. The Celadon Group's third expansion phase would include the fit out of additional space within the 100,000 square foot facility, and subject to the availability of funds, this would be expected to be completed during 2024.

At full capacity, the Directors and Proposed Directors believe that this facility will produce an estimated nine tonnes of dry flower, which is enough API to produce finished product to supply up to circa 50,000 patients per annum.

The cultivation facility is designed as an indoor, hydroponic system to ensure cannabis plants are cultivated under highly specific climate, light and irrigation control at all times.

Celadon has established strict quality control systems and processes that it will implement throughout the cultivation cycle and will follow GACP guidelines, including daily observations of all plants with all growing parameters documented. Detailed documentation and post-harvest review of the plant profiles should enable a cycle of continuous improvement.

The Celadon Group initially plans to grow its own formulation to create its own flower. Celadon plans to source the initial cuttings for their flower from licensed suppliers in Europe.

Celadon is currently designing a programme of "pheno hunting", which will allow the Celadon Group to develop further stable seed genetics in its own IP and flower. Celadon's cultivation team and scientific team will work together to test specific combinations of cannabinoids, terpenes and flavonoids that have been demonstrated as effective for treating particular conditions. They will also look to experiment to determine which plants have the best overall plant health and yield, and the quickest flowering times with disease resistance.

The phenotype hunting process is used to identify plants that will then be used for the Celadon Group's mother plant stock which will then be used to develop cuttings that can supply the Celadon Group with identical copies of the selected plants.

The Celadon Group intends to conduct extensive testing on different cultivars to identify plant genetics and growing cycles to try to optimise yield and cannabinoid profiles. The Celadon Group intends to have a range of cannabis cultivars which are used to produce its range of medicinal cannabis products.

Cultivation Process

Once a specific genetic line of cannabis plant has been established, it will be preserved from degradation by keeping stock plants called "mother plants" from which future cuttings will be taken for cultivation.

The typical cannabis plant has a growing time of approximately three-to-five months. The desired formulation and final product determine the optimum harvesting time and process and subsequent processing steps.

The process required to obtain dry cannabis flower involves drying, trimming and curing the plant. To produce an oil-based cannabis product, a further refinement step is required. The most effective refinement processes use solvents to dissolve and extract the resinous trichomes from the cannabis flower. Celadon believes that the most popular solvent extraction methods use ethanol or super-critical carbon dioxide with both methods extracting more than 90 per cent. of the cannabinoids present in the plant.

The Celadon Group intends to use ethanol extraction methods and intends to have a CO2 extraction unit available to be used in the future.

The precision required in cultivating high THC and CBD medicinal flowers means the requisite quality of production is achieved through the use of indoor hydroponic systems. This approach typically uses significantly more energy than traditional horticulture as plants require high intensity lighting due to the lack of natural light, as well as substantial HVAC systems (including dehumidifiers). This results in considerable demands for significant amounts of electricity, which is often sourced from fossil fuels.

The Directors and Proposed Directors will be taking steps to minimise the environmental impact of the growing process by putting plans in place that will help lessen the environmental impact of CPL's indoor growing. Some of these initiatives will include using super efficient LED grow lights, collecting and reusing water, sealing grow and processing areas to minimise the risk of releasing volatile organic compounds ("VOCs"), filtration systems to remove harmful VOCs, and careful management of waste product. Furthermore, by establishing its own growing facility, Vertigrow is helping to reduce its carbon footprint as less import and transportation time will be required shipping third party product in for use in the production process.

James Short has extensive experience in renewable energy, having spent circa 15 years of his career in the sector, and is focused on further reducing the environmental impact of growing medicinal cannabis.

5.4        Product

CPL intends to produce medicinal flower with a high THC and CBD content as an API for the market. An API is a substance used in a finished pharmaceutical product, intended to furnish pharmacological activity or to otherwise have direct effect in the diagnosis, cure, mitigation, treatment or prevention of disease, or to have direct effect in restoring, correcting or modifying physiological functions in human beings.

Under CPL's proposed production strategy, it will initially focus on producing API oil during Phase 1. At the point Phase 2 is operational, Vertigrow will also look to expand production to include dry flower.

5.5        Distribution

Celadon intends to utilise third party MHRA registered API distributors for its API products. At this stage there are no agreements in place with such distributors, however, there are a number of CPL pre-approved distribution partners which it will look to work with.

5.6        QMS and Procedures

The medicinal cannabis industry is highly regulated. Extensive QMS are required to be implemented and complied with on an ongoing basis by MHRA as well as detailed security requirements for Home Office purposes.

CPL's operating systems are built using specialist cannabis focused software and have been integrated by the CPL team in line with CPL's requirements. They are also designed to ensure as much data as possible is captured throughout the growing process to provide a full "seed to sale" overview. CPL's operating system is a fully customised supply-chain management platform, tracking production, compliance, COGS, yields, and audit reporting data in real time. CPL's customisation includes incorporating a QMS system that addresses CPL's MHRA compliance, auditing and data sovereignty.

CPL maintains its own in-house Quality Assurance team, which has 20+ years' experience. This team will be responsible for ensuring quality standards for UK-GMP are met and also for monitoring the Celadon Group's compliance with its approved Standard Operating Procedures ("SOPs"). They will conduct internal audits which is part of QMS and will work with the MHRA in relation to their audits as well.

Celadon has developed its QMS in line with the EUDRALEX Volume 4, which lays down the principles and guidelines of UK-GMP in respect of medicinal products for human use and investigational medicinal products for human use.

Any changes to the QMS, manufacturing process or equipment / facilities are managed through a stringent change control process which is a key tool to ensure compliance and controls. Equally, a robust Deviation and Corrective and Preventive Action ("CAPA") system is in place to assure that adverse quality events are thoroughly investigated and appropriate corrective measures are implemented to prevent reoccurrence.

6.          REVENUE MODEL

6.1       The Celadon Group is in the early stages of revenue generation, and largely incurring operating and capital expenditure as it continues to develop its Midlands based facility in anticipation of MHRA registration and grant of a new Home Office licence permitting commercial supply in replacement of its existing Home Office Licence permitting cultivation for the purpose of demonstrating compliance with MHRA regulations to the MHRA. No revenues were reported for the period from incorporation to 30 June 2021, and revenues for the Celadon Group are firstly being generated from the LVL Pain research clinic.

6.2       Celadon currently has two main revenue sources that it is receiving and expects to receive:

6.2.1       LVL - once authorised, the LVL Pain Private Clinic will be charging £300 per patient per month for that patient to be prescribed medicinal cannabis by doctors who are on the General Medical Council's specialist register. Under the terms of the Study and the Trial, LVL will receive £300 per patient per month for that patient to be prescribed medicinal cannabis by a Specialist doctor. In addition, LVL will receive an upfront fee of £300 per patient to cover the cost of the RYAH vaporiser, initial tests and consultation irrespective of whether the patient agrees to participate in the Trial. If LVL are able to recruit 5,000 patients, this has the potential to generate approximately £18 million of revenue within LVL on an annualised basis and gross margins of ~28% and ~22% on an EBITDA basis. LVL's private pain clinic operations have now commenced prescribing cannabis through referrals to third party CQC approved clinics and, as a result, Vertigrow is now generating minimal levels of revenue.

6.2.2       Growing and supplying medicinal cannabis API - upon receipt of the requisite MHRA registration and the grant of a Home Office licence permitting commercial production and supply, the Celadon Group intends to commence the cultivation of its own medicinal cannabis via the production of an extracted oil for use as an API. Vertigrow's revenue model for growing medicinal cannabis is that a typical patient will be prescribed 15 grams of cannabis flower in the form of finished medicinal product per month and will pay £10 per gram, which would equate to £1,800 per patient per annum. The Directors and Proposed Directors believe that the Midlands facility could service API for finished medicinal products for circa 50,000 patients per annum once Phase 2 and 3 are completed and fully operational, which has the potential to generate revenues of circa £90 million per annum, and gross margins of ~65% and ~55% on an EBITDA basis. Phase 3 build out remains subject to further funding, which the Directors anticipate will either be raised through internally generated funds, or external capital providers.

7.          CELADON MANAGEMENT & KEY PERSONNEL

Vertigrow currently has 15 full time employees who have been recruited based on experience in the sector and building well governed and structured organisations.

As the business delivers on its milestones, it will increase its recruitment and plans to hire additional people during 2021 in line with the phased growth plans with additional support coming from consultants where required.

Other than the Directors and the Proposed Directors, the following are key personnel for the Celadon Group:

Arthur Wakeley (Managing Director, UK)

Arthur is an experienced executive who was formerly a leader in McKinsey's Consumer Tech & Media and Consumer / Retail practices, working with a number of global corporate and private equity clients. He has wide ranging experience across strategy, growth, digital innovation, marketing and sales, and commercial partnerships. Prior to joining McKinsey in March 2018, Arthur developed a strong financial and transaction background from his time working within investment banking at Lazard's M&A Advisory team.

Iqbal Gill (Chief Scientific Officer)

Iqbal is a botanist and chemist with 24 years of experience in the natural products, pharmaceutical, biotechnology, fine chemical, materials and food industries. He has acted as an R&D Consultant and has published papers in numerous areas related to the industry.

James Berry (Senior Operations Manager)

James is an expert grower who has international experience in growing in both indoor and outdoor facilities. The knowledge gained over a number of years has allowed him to develop key techniques for cultivation which have enhanced crop development.

Philippe Larose (Senior Quality Assurance Manager)

Phillippe is an experienced quality and regulatory professional with a demonstrated history of working in the API/Pharmaceutical industry in leadership roles and multi-cultural environment, predominantly in CDMOs with strong exposure to clients and regulatory inspections.

Andreas Lypas (Agronomist)

Andreas has a master's degree in Agriculture Crop Production and the Rural Environment. Experience in a variety of harvesting techniques, researching crop growth, influencing agricultural development, knowledge of phytopathology, background in farming and crop cultivation techniques.

Rao Valivety (Senior R&D and Laboratory Manager)

Rao is a PhD chemist with over 30 years R&D experience in food, pharmaceuticals, biotech and material science. Organic and bio-organic synthesis, process and product development, analytical method development and validation.

Paul Allen (Senior IT and Technology Manager)

Paul is an experienced technology and business analyst. He has developed successful business technology strategies and has expertise in the cannabis industry.

8.          CURRENT TRADING AND PROSPECTS

The financial information for the period since incorporation of the Celadon Group and CPL to 30 June 2021 is set out in Part IV of the Admission Document. Since 30 June 2021:

(a)       Acquisition of 57.5 per cent. of the issued share capital of Harley Street (CPC) Limited

On 14 July 2021, Vertigrow acquired a 57.5 per cent. shareholding in LVL from SEEK. Further details of this acquisition are set out in paragraph 15.1.10 of Part VII of the Admission Document. Since the acquisition the LVL Private Pain Clinic business has commenced operations.

(b)      Home Office Licence received by CPL

On 23 July 2021, Vertigrow, through its subsidiary, CPL, received its Home Office Licence to be able to legally grow medicinal cannabis in the UK for the purpose of producing test batches of cannabis oil to support CPL's application for MHRA registration as a manufacturer of medicinal product APIs. This licence was renewed on 12 January 2022.

DEFINITIONS

The following definitions apply throughout this announcement unless the context otherwise requires: