Auscann Group Holdings Ltd (ASX: AC8) released its results for the first half FY18 on Wednesday. It achieved a number of key milestones during the half, and ended the period with $12.3 million of cash on its balance sheet.
In December, Tasmanian Alkaloids Pty Ltd, Auscann's strategic partner, secured all the required licences from the Office of Drug Control to cultivate, harvest, manufacture and distribute final dose forms of cannabinoid medicines. Tasmanian Alkaloids is the largest opium poppy processing company in Tasmania, but now also expects to commence cannabis cultivation at its Tasmanian facility within the next six months.
Auscann has received a number of licenses of its own, and claims to be the only ASX-listed company to currently hold all the required licenses that cover the full medical cannabis supply chain.
Being in possession of all these licences allows Auscann to pursue its business model of full integration across the medicinal cannabis supply chain – starting from plant genetics and continuing through crop cultivation and the manufacture and distribution of cannabinoid-based medicines in Australia.
While the company waits to develop its own pharmaceuticals it plans to import and distribute those of its largest shareholder, Canopy Growth Corporation. Canopy is the biggest producer of medical cannabis in North America, and its CEO, Bruce Linton is a non-executive director of Auscann.
Auscann has also entered into another strategic partnership with Chilean not-for-profit alternative therapy organisation Fundaciόn Daya. Their joint venture, DayaCann, has secured its second cultivation license and has just planted its second marijuana crop at its 30 hectare facility located south of Santiago.
Finally, Auscann has also only recently signed a distribution agreement with Australian Pharmaceutical Industries (ASX:API), which could see API stocking Auscann's cannabinoid medicines in its 5,700 pharmacies located throughout Australia.
The first half of FY18 also brought good news for the cannabis industry as a whole, with the Federal Government announcing that it would allow Australian companies to export cannabis-based medicines.
This was great news for Auscann as, along with Cann Group Ltd (ASX: CAN), it is one of the only two ASX-listed cannabis companies actively developing its domestic Australian operations. Most other companies in the cannabis space, like MMJ Phytotech Ltd (ASX: MMJ) and Creso Pharma Ltd (ASX: CPH), are concentrating on their overseas operations, targeting the Canadian market in particular.
This means that Auscann and Cann Group might end up being the only two key exporters of Australian-grown medicinal cannabis products in the short-term.
Foolish takeaway
Auscann's share price slid 1.7% lower to $1.47 on the day its results were released, which is a disappointing result – especially for shareholders like me. But I can understand the lukewarm response.
Despite reporting on a series of positive developments and strategic partnerships – which could set the company up for a breakout second half in an increasingly favourable regulatory landscape – there was nothing in the annual report that the market didn't already know. This basically means that any positive developments Auscann disclosed in its operational review were already baked into its share price.
Auscann is yet to start generating any revenues from its core operations (all its revenues come from interest), so it is unable to deliver the positive earnings surprise that often causes sharp jumps in a company's share price on the day its results are released.
Without any meaningful revenues or new information, Auscann has failed to inject any life into its share price – but it still remains a company to watch closely if you're interested in the medical cannabis sector.
