The medical marijuana sector has been smoking the ASX over the past year after the federal government introduced legislation first to let medical marijuana be prescribed for medical purposes and more recently to allow its cultivation and exportation abroad assuming suitable licences are granted and regulatory hurdles cleared.
In fairness the cultivation and export of cannabis on a commercial scale could be big business in theory.
If you consider estimates that just 1 gram of cannabis could retail for $7.50 (I hear the street price is around triple) then 10 tonnes of the stuff could mean a $75 million pay day. Still oversupply could be the fly in the ointment as cannabis is just a commodity and I've heard it's pretty easy to grow in your own backyard.
Still none of these companies have generated much in the way of revenues yet, so is this just another giant addressable market story for gullible punters trying to get-rich-quick, or could the companies actually deliver investors sustainable capital gains. Let's have a look at some of the leading contenders on the local market.
Auscann Group Holdings Ltd (ASX: ACH) shares are up 200% over just the past year, although the company has no revenues and posted an operating cash loss of $1.2 million for the quarter ending December 31 2017. Despite the financials it has a market value of more than $225 million. According to the company it is "targeting medications for neuropathic and chronic pain in Australia and Chile, whilst exploring global export opportunities". It would need to generate sales around $45 million per year to trade on 5x its enterprise value to sales.
Cann Group Ltd (ASX: CAN) reported no revenues for the quarter ending December 31 2017 and an operating cash loss of $929,000. Over the quarter the company completed a $60 million capital raising at $2.50 per share, with the proceeds partly to be used to fund giant cultivation facilities including a 16,000 sq metre greenfield development in Victoria. The company has a market value around $308 million at $2.91 a share today and would need around $60 million in sales per year to trade on 5x sales.
Creso Pharma Ltd (ASX: CPH) reported sales of just $14,000 and an operating cash outflow of $2.78 million for the quarter ending December 31 2017. The company also provided a "loan" of CAD$5.5 million to Canadian medical marijuana hopeful Minerva Medicinal Inc. over the quarter and finished the quarter with $12.3 million cash in hand. In late February the company reported $311,900 in first sales from its cannabis products and is focused on medical marijauna products in the human and animal health space.
The company recently hit the headlines for issuing more than 3 million new shares to corporate partners in exchange for services provided, so dilution remains an issue alongside the cash outflows.
Establishing Creso's market value is complicated due to the options over shares, although according to the company report there were 83.14 million ordinary shares on issues as at the end of 2017. Today the stock changes hands for 88 cents which gives it a market cap of $75 million on that basis.
The Hydroponics Company (ASX: THC) posted cash receipts of $821,000 and an operating cash loss of $925,000 for the quarter ending December 31 2017. As at quarter end it had $11.03 million cash on hand and THC is also investing in cultivation facilities to serve demand from Australian and international patients. Just today, THC shares are up 6% to 68.5 cents, although it's a relative minnow with a market value around $54 million.
