This year was a difficult one for ASX cannabis shares as well as cannabis stocks globally with share prices worldwide retreating from previous highs. In Australia the medical marijuana industry remains in its infancy. Nonetheless, the initial market euphoria associated with legalisation has well and truly worn off.
We take a look at how two ASX medical marijuana shares, Botanix Pharmaceuticals Ltd (ASX: BOT) and Cann Group Ltd (ASX: CAN), performed in 2019.
What can cannabis be used for?
Cannabis contains THC and CBD compounds which interact with the body's endocannabinoid system. This interaction impacts the release of neurotransmitters from the brain which relay messages about pain, sleep, stress, and other functions. THC is known for its relaxing and pain-relieving effects and can assist in the treatment of nausea, anxiety, low appetite, insomnia, and act as a muscle relaxant. CBD can be used in pain and nausea management, as well as in the treatment of seizures, migraines, mental disorders, and inflammation. Cannabis also has antioxidant and anti-inflammatory properties that have shown promise in skincare and cosmetic products used to treat acne, dry-skin, eczema, and anti-aging concerns.
Botanix Pharmaceuticals
Botanix focuses on the development of topical treatments for serious skin diseases utilising the anti-inflammatory, immune modulating and antimicrobial properties of synthetic cannabidiol. The company is in the process of conducting clinical trials for formulations to treat acne, atopic dermatitis, rosacea, bacterial infections, and psoriasis. The Botanix share price is currently trading at 8.3 cents
Phase 2 acne study
The Botanix share price halved in October when it released the results of its Phase 2 acne studies, falling from 24 cents to 11 cents in days. The results found the primary endpoint reduction in inflammatory lesions was not statistically significant. Results were skewed by patients in US sites which showed an unusually high vehicle response. Nonetheless, Australian clinic sites showed statistically significant improvements, with efficacy in line with leading topical acne prescription products. Results from the Phase 2 study have given Botanix confidence to proceed with preparation for Phase 3 clinical studies.
Dermatitis study
The company is on track to report top line results from its Phase 2 atopic dermatitis study in the first quarter of 2020 following a 12-week double-blind vehicle-controlled study into the safety and efficacy of its BTX 1204 solution. The atopic dermatitis market is estimated to be worth US$25 billion by 2027. Botanix's Phase 1b study showed promising results supporting safety and efficacy – BTX 1204 was twice as effective as a placebo with treatment success similar to many competitive topical products.
Future results
Ethics approval to conduct a Phase 1b study using Botanix product BTX 1702 in the treatment of papulopustular rosacea was received in the fourth quarter of 2019. In the same quarter, Botanix began a study into the use of cannabidiol as an antibiotic effective against staph and golden staph. In 2020 we can expect to see results reported which could provide a boost to the Botanix share price. The company had cash of $36.3 million at the end of September which should allow it to fund its activities for the time being.
Cann Group
Cann Group's vision is to become a leading developer and supplier of cannabis, cannabis resin, and medicinal cannabis products. The company holds all required licenses for cultivation, production, manufacture, import, and export. Cann Group shares have fallen from $2 at the start of 2019 to 52 cents currently.
Cultivation
Cann Group currently has two cultivation facilities in action, from which 51 successful harvests have been completed. Production from Cann Group's Southern facility is servicing domestic supply initiatives and the testing of export pathways. Production from the Northern facility is supporting several research programs. The company is in the process of developing marketing and supply opportunities in overseas markets and expanding the range of locally produced and imported products available for Australian patients.
Distribution
Cann Group announced its entry into a national distribution agreement with Symbion Pty Ltd in November. Under the agreement, Symbion will distribute medical cannabis products imported and produced by Cann Group for supply to approved Special Access Scheme patients. Symbion supplies healthcare services and products to more than 4,000 pharmacies and 1300 hospitals across Australia.
Grow Facility
Cann Group shares fell 40% in late November 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 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 Cannabis Inc was supposed to offset the risk of the expanded production footprint.
Cann Group announced it planned to stage construction of the facility in order to ensure production capacity more closely matched 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.
Manufacture
Cann Group has partnered with IDT Australia Limited (ASX: IDT) for manufacturing support for cannabis-based product formulations. This provides Cann Group with an integrated pathway through the full supply chain. In December Cann Group announced the first product to be produced from its Australian operations had been packed and would undergo stability testing. Dried flower had been packed into 10 gram bottles with testing data due to be available at the end of January. This will allow for commercial launch to Australian patients in early 2020. Patients can access the product under the Special Access Scheme. The product will be distributed to pharmacies and hospitals by Symbion under the distribution agreement.
Foolish takeaway
It was a rough 2019 for both Botanix and Cann Group. Botanix experienced a set-back in clinical study results, while Cann Group saw delays to the construction of its third grow facility. Next year Botanix will see the results of additional clinical studies, while Cann Group will see its product distributed to customers for the first time. Could this spur a turnaround for these two ASX cannabis shares? We will be watching in 2020 to find out.
