It has been a mixed start to the year for cannabis shares. While Cann Group Ltd (ASX: CAN) is trading well up from the start of the year, shares in Althea Group Holdings Ltd (ASX: AGH) and Auscann Group Holdings Ltd (ASX: AC8) are slightly down.
We take a closer look at how the ASX medical marijuana companies are travelling so far in 2020.
Cann Group shares are up more than 60% since the start of January, having lifted to $1.02 from 63 cents. In January, Cann Group announced a revised business strategy to support its transition to near-term profitability with positive cash flows.
Cann Group will continue to develop and commercialise products to meet Australian domestic demand, with locally grown and manufactured medicinal cannabis value added products expected to be supplied by late Q1 2020. The group launched a range of imported products late last year, and Cann Group’s distribution agreement with Symbion Health allows Cann Group products to be distributed to through pharmacies and chemists across Australia.
Cann Group intends to continue to develop export pathways in addition to the existing Aurora offtake agreement. Products will be manufactured to GMP standards to meet requirements in European and other overseas markets. In the meantime, Cann Group has reduced headcount by 25% with $7 million in annualised costs either eliminated or deferred.
Last year, Cann Group announced the construction of its new Mildura grow facility would be completed in stages. This came in response to an imbalance of demand and supply of medicinal cannabis products, particularly in Canada, which resulted in higher than anticipated inventories. The first stage of the Mildura facility will be split into 2 stages with each stage expected to provide a capacity of 12,500kg of dried flower per annum.
Stage 1A is expected to be completed by the end of Q4 CY2020 with the first harvest targeted for Q1 FY2021, subject to detailed design and construction review, necessary approvals, and funding. The timing of stage 1B will be linked to volume demand growth that provides confidence in capacity utilisation. The facility allows for subsequent capacity expansion as higher volumes of product demand are confirmed. The facility has a total future potential annual capacity of 70,000kg of dried flower. Cann Group has thus far spent from $50 million on the facility including the purchase of the land.
Cann Group estimates $65 million to $75 million in funding will be required to complete stage 1A of the facility. The company is in discussions with an Australian bank regarding a loan facility to assist in completion. The funding package required for stage 1A is expected to be finalised before Q1 CY2020 and it is anticipated the package will involve both debt and equity, although the mix has yet to be determined. Stage 1A is expected to be profitable in the near term and generate positive cash flows. The stage 1B expansion will be funded from working capital and debt.
Shares in Althea Group are currently trading at 37 cents, slightly down from 39 cents at the start of the year. Althea reported strong growth in patient numbers in January with 572 new patients added, which is the company’s second best month on record. As at 31 January, 4,590 Australian patients had been prescribed Althea medicinal cannabis by 459 medical professionals.
Althea’s growth has been supported by an increase in Therapeutic Goods Administration (TGA) Special Access Scheme Category B (SAS B) approvals. In January, 3,151 SAS B approvals were recorded, the 4th highest rate of approvals. Althea CEO Josh Fegan said,”we are unrelenting in our efforts to grow the number of patients utilising Althea products and there is no question that our patient growth in January was better than expected.”
In December, Althea introduced a policy to hold 12 months’ worth of stock on hand to ensure there are no disruptions to patient supply. As a result, the company invested $3.2 million in inventory in the December quarter. Peak Processing Solutions invested $600,000 in cannabis active ingredients required for early production, which is slated for March/April. Peak Processing Solutions, which was acquired by Althea last year, is a Canada based manufacturer of cannabis products.
Althea has put its planned Skye cultivation facility on hold due to the increasing number of cannabis cultivators internationally. A review is being conducted to determine whether vertical integration through ownership of the entire supply chain will provide the best strategy for delivering a cost-effective supply of Althea medicinal cannabis products to patients globally.
Althea reported a strong balance sheet with cash of $22.36 million at the end of January, leaving it well placed to meet its financial obligations.
In December Auscann finalised the development, manufacture and testing of its proprietary hard-shell cannabinoid-based capsules. Testing was completed to ensure product quality, dose reliability, and consistent performance through the shelf life of the product. Auscann is now working to develop a commercially focused short clinical evaluation. This will provide information to inform dose selection, bioavailability, and safety. Auscann intends to have the capsules available for prescription during the first half of 2020.
Auscann completed the construction of its Perth-based product development site in December. The group spent $4.5 million on the construction of the facility with additional capital to be spent on R&D equipment. The facility is set to be completed within its $6 million budget and will provide Auscann with a state-of-the-art facility in which to develop cannabinoid-based medicines.
Auscann had a cash balance of approximately $26 million at the end of 2019. During the December quarter, Auscann spent $3.426 million on the product development facility, $979,000 on R&D, and $2.871 million on operational costs. Cash outflows in the March quarter are expected to be $4.678 million. Auscann shares are currently trading at 27 cents, down from highs of 36 cents in January, and 30 cents at the start of the year.
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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.