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How did ASX cannabis shares fare in November?

Cannabis shares have continued their bumpy ride in November. Marijuana shares globally are trading well down from previous highs, which has impacted our ASX marijuana shares. 

The intoxication that greeted the sector earlier this year has started to wear off on competition concerns. Investors have grown cautious regarding potentially weaker than expected demand and scope for an oversupply of cannabis and disappointing quarterly updates from North American cannabis companies have weighed on their compatriots down under.

Canadian cannabis supplier Aurora Cannabis Inc reported this month that net cannabis revenue had declined to $70.4 million from $94.6 million the previous quarter. Aurora also announced it was ceasing construction of its second facility in Denmark and deferring construction of a facility in Canada effective immediately, “in an effort to expand responsibly in line with global demand.” The projects may be reactivated as global demand for cannabis or Aurora’s market share increases. 

Here’s a closer look at how some of our local ASX cannabis shares have fared this month.

Althea Group Holdings Ltd (ASX: AGH)

Althea shares recovered some of the heavy losses sustained during October. Shares in the medical cannabis company reached a high of 48 cents for the month on 13 November following lows of 38 cents in October, and are currently trading at 40 cents. 

Althea shares were crushed in October on news that major shareholder Aphria had sold nearly 37 million shares in the company, equivalent to 15.7% of the company’s issued capital. Aphria sold its shares at 40 cents, a steep discount to the 52 cents at which Althea shares were trading.  

On 13 November Althea announced it had entered an agreement to supply two cannabis medicines for a clinical trial into the use of cannabinoids in advanced cancer. Althea is one of several suppliers for the trial, which is being undertaken by the Australian Centre for Cannabinoid Clinical and Research Excellence (through the University of Newcastle). 

Althea announced it had signed a memorandum of understanding with nimbus health GmbH on 12 November. The memorandum covers the sale and distribution of Althea medicinal cannabis products throughout Germany. Nimbus is a wholesale pharmaceutical license holder which estimates it has access to 25% of all German cannabis patients through its pharmacy network. Althea reports 60,000 patients were treated with medicinal cannabis in Germany last year, with this number expected to grow to 1 million by 2024. 

Althea also passed its 3,000 patient milestone in November, and is on track to reach 4,000 patients by the end of the year. Althea medicinal cannabis has now been prescribed by 375 health care professionals in Australia. According to research cited by Althea, Australia has an addressable market of up to 500,000 patients, but only around 5,000 active patients are currently having their needs met. 

Cann Group Ltd (ASX: CAN)

Shares in Cann Group are down nearly 60% over the month, currently trading at 45 cents having started the month at $1.05. Cann Group shares dropped sharply on Monday, finishing the day down 40%, following news the pot producer planned to split construction of its Mildura facility into 3 stages.

The facility, Cann Group’s third, was expected to be be commissioned in the third quarter of 2020 and have a production capacity of 70,000 kilograms of dried flower per annum. The increased capacity was expected to contribute to revenues of $220 million to $280 million based on dried cannabis flower. An offtake agreement with Aurora was in place, which was supposed to offset the risk of the expanded production footprint. 

Last week Cann Group announced that it planned to stage construction of the facility in order to ensure production capacity more closely matches anticipated growth in demand for medicinal cannabis. The first stage is expected to provide for a production capacity of 25,000 kilograms of dried flower with target commissioning in late 2020. 

The timetable for stages 2 and 3 will be determined based on ongoing product demand. Revenue forecasts have not been updated, however could be expected to shift downwards with the drop in production capacity. 

Earlier in the month Cann Group announced its entry into a national distribution agreement with Symbion Pty Ltd. Under the agreement, Symbion will distribute medical cannabis products imported by Cann Group for supply to approved Special Access Scheme patients. 

Symbion will carry Cann Group’s full range of imported products, which will be supplied by Aurora Cannabis. Symbion supplies healthcare services and products to more than 4,000 pharmacies and 1300 hospitals across Australia. 

Separately, Cann Group is working with compounding pharmacies to produce products specifically formulated to meet individual patient needs. 

Auscann Group Holdings Ltd (ASX: AC8)

Auscann shares started the month at 28 cents and are currently trading at 21 cents, 25% down. Shares in the medicinal cannabis provider fell nearly 20% last week alone as disappointing quarterly updates from North American cannabis companies weighed on investor sentiment. Demand for cannabis in North America is not as strong as many had anticipated, with Aurora reporting a 24% drop in revenues for the first quarter. 

Auscann announced a Board renewal in late October as the company “progresses toward the next stage of its growth and development”. The chairman, a major shareholder, retired, having been on the board since the company listed in 2017. Merchant Funds Management, Auscann’s largest shareholder, has since nominated its own non-executive director. 

Auscann shares lifted earlier this week on news that Aspen Pharmacare Australia had been appointed to provide packaging services for Auscann’s medicinal cannabis pharmaceutical products. Auscann shares jumped 4.5% to 23 cents on Monday, but fell back to 22 cents on Tuesday before falling further to a low of 20 cents on Wednesday.

The agreement with Aspen Pharmacare Australia has an initial 3-year term that can be extended. The agreement is the result of detailed analysis that indicated considerable cost benefits to outsourcing packaging to Aspen. The agreement covers packaging for Auscann’s proprietary solid hard shell capsules, which are expected to be released for clinical trials towards the end of the year. 

Foolish takeaway

November has been a month of highs and lows for Australian cannabis shares. Although global sentiment is weighing on the sector, individual good news stories have provided some uplifts. Still, the marijuana sector remains far from its previous highs. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. 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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