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Why the Auscann Group share price is down 72% since January

The Auscann Group Ltd (ASX: AC8) share price is down 72% since hitting a high of $1.85 in early January 2018 on the back of its announcement that the federal government would permit the export from Australia of manufactured cannaboid medicines.

Auscann’s chairman and founder is a former federal MP alongside another board member who worked in government, with its CEO also having experience working in government and and the law. Notably, much of previous share price strength has been based on airy announcements about legislative changes supporting Auscann’s potential to capitalise on demand for medical marijuana.

Unfortunately for hapless retail investors (and some, but not all of the business media) buying into the stories this has been a year of big losses as the company has not delivered a dollar in revenue, yet reached a market cap above $270 million consistently for the first quarter of 2018.

This odd state of affairs shows how less-sophisticated retail investors will buy into claims with zero regard to the cash flows of a business.

The stock changes hands for 51 cents today with 176.38 million shares on issue according to an an Appendix 3b filing lodged with the ASX on 9 August 2018.

This give it a market value of $88 million, with the only saving grace being the $33 million cash on hand to fund its future growth plans.

Even a novice investor would know that launching medical products requires huge investments in clinical trials and supply chains and that’s before you even establish if there’s actually sufficient demand for your product to turn a profit.

Auscann claims as at 30 October 2018 that it is “aiming to release its first capsule-based pharmaceuticals for clinical trials and patients in the first half of 2019”.

Its CEO, Elaine Darby, who owns 11.6 million shares has announced her intention to quit the company from Jan 1 2019 when an interim CEO takes over, while the company’s chairman and former MP, Mal Washer, will remain and still owns 12.7 million shares.

The Auscann share price is down 6% to 48 cents this morning and with no revenue it’s impossible to value.

I’ve written multiple times over the past year about the pitfalls around this business and serious investors know to look at financials before stories.

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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