Cannabis shares have had a bad run in the second half of 2019. Prices have retreated from the highs seen earlier in the year, led lower by North American cannabis stocks. Could 2020 see a reversal in fortunes?
We take a look at 2 ASX cannabis shares to see if the signs are pointing in the right direction.
Althea Group Holdings Ltd (ASX: AGH)
Althea imports and distributes medicinal cannabis products and holds cultivation, manufacturing, and export licenses. Althea shares reached highs of $1.23 in July and have been falling ever since, currently trading at 35 cents.
The company made its first sales to pharmacies to supply to eligible patients in Australia in May 2018 and this week, Althea announced 3688 patients had now been treated with its medicinal cannabis products in Australia. An average of 35 patients were added each business day in the first half of December, up 46% from November.
There are currently 408 healthcare professionals prescribing Althea products in Australia and sales of the company's new product CBD100 have been strong, with 206 bottles sold in the first 18 business days. CEO Josh Fegan said "we are already receiving positive feedback from doctors, patients, and pharmacists about the product's efficacy and price point."
Althea has developed an education and patient support service via web-based platform Althea Concierge. The service, which is compatible with regulations governing access to cannabis in Australia and the UK, simplifies access to medicinal cannabis and patient management. According to research cited by Althea, the addressable market in Australia may be up to 500,000 patients but only around 5000 are having their needs met.
Regulatory tailwinds and growing public acceptance means the use of medicinal cannabis is on the rise in Australia. According to a report by a cannabis consulting firm cited by Althea, Australia could be the leading medical marijuana marketplace in Oceania by 2028 with an industry worth up to $11 billion.
Althea listed on the ASX in September 2018 at an issue price of 20 cents. It was backed by Aphria, a Canadian pot company. Aphria were a major shareholder and had an agreement to supply products to Althea. The supply agreement remains in place but Aphria sold its shareholding (equivalent to 15.7% of the company's issued capital) in October for 40 cents a share, a discount to the 52 cents the shares had been trading at.
A UK subsidiary, Althea MMJ UK Ltd, was established in early 2019. The UK has a population of 66 million, implying potential to treat up to 2.9 million people with medicinal cannabis (according to Althea's estimates). Althea Concierge was launched in the UK in May. In July the first UK clinic (in London) was established, followed by the Bristol clinic. The first patient to be prescribed Althea's medicinal cannabis in the UK received their product on 31 July.
In October, Althea completed its acquisition of Peak Processing Solutions, a Canadian extraction and manufacturing company. The acquisition is designed to leverage Canada's legalisation 2.0, which allows the sale of cannabis-infused edibles, drinks, nutraceuticals, and cosmetic products. Althea believes Peak is well positioned to become a leading contract manufacturer for consumer brands looking to supply recreational cannabis and create cannabis infused products. The Peak acquisition was funded by an oversubscribed $30 million capital raising
In November, Aphria announced it had entered a memorandum of understanding with nimbus health GmbH to supply Althea products for sale and distribution in Germany. Nimbus is a wholesale pharmaceutical license holder which estimates it has access to 25% of German cannabis patients through its pharmacy network. According to Althea the German market consists of approximately 60,000 patients currently and is expected to grow to 1 million by 2024.
Althea's immediate focus is on rapidly building its prescriber base which will ultimately increase the number of patients supplied with Althea products. The goal is to reach 10,000 patients in Australia next year, while adding new products to the range and continuing expansion in the UK and Germany.
Auscann Group Holdings (ASX: AC8)
Auscann is a pharmaceutical cannabis company focused on the product development aspect of the medicinal cannabis value chain. Auscann shares peaked at 77 cents in January before sliding throughout the year and are currently trading at 24 cents.
It has been a year of transition in 2019 for Auscann, as the company progressed from medical cannabis start-up to pharmaceutical company developing cannabinoid based medicines. Auscann is primarily focused on the treatment of chronic pain, which is suffered by 3 million people in Australia alone.
This week Auscann announced it had released its cannabinoid-based hard shell capsules for clinical evaluation. Auscann's capsules are designed to address stability, consistency, and dosing problems that exist with current oil-based cannabinoid medicines. Dose-controlled capsules are easy to administer and allow for consistent monitoring of health outcomes.
Following positive test results, Auscann will be in a position to progress on an accelerated path to commercialisation. The company aims to have the capsules available for doctors to prescribe in the first half of calendar the year 2020.
Lack of standardisation, medical acceptability, and regulatory constraints challenge market access to medicinal cannabis products. Auscann is focused on providing reliable and standardised pharmaceutical products and generating clinical evidence to support market access.
In order to produce its capsules, Auscann has partnered with providers across the value chain. Access to plant genetics is provided by Canopy Growth. Raw materials come from two suppliers of cannabinoid API concentrate. Auscann is also party to a joint venture to produce organic raw material in Chile. Manufacturing, packaging, and distribution partnerships are in place, with Auscann set to take care of the customer-facing parts.
Building solid relationships with healthcare professionals and providing reliable clinical information on the use of cannabinoid medicines is central to Auscann's business model. As part of its Medical Outreach program, Auscann has released a series of online courses for health professionals. The courses support medical practitioners with the necessary information to make confident decisions about the use of cannabinoid medicines.
Auscann is in the final stages of constructing a product development facility in Perth. This will enable Auscann to build a product pipeline to accompany and improve their capsules. Construction is anticipated to be completed this quarter.
As at 30 September, Auscann had $33 million in cash so was well funded to continue to execute its strategy. Auscann's immediate priority is to undertake a clinical study to drive medical acceptance of hard shell capsules, which it hopes to do in 2020. From there it aims to use real world data and feedback to initiate development of new proprietary dose configurations.
Foolish takeaway
Althea's Australian patient numbers are accelerating and it has made strong progress on its UK expansion in 2019. Auscann has proven it can manufacture its capsules on a commercial scale. Shareholders may be in for an upside surprise in 2020 if Althea can continue its local and geographic expansion apace, while positive results in clinical studies would provide Auscann with a boost.
