The Motley Fool

How did ASX cannabis shares perform this reporting season?

Reporting season wrapped up last week with the S&P/ASX 200 Index (INDEXASX: XJO) falling more than 10% from recent highs.

As fears around the spread of coronavirus escalated, the contagion of fear infected markets, prompting a major correction. Cannabis shares were not immune from the widespread malaise, seeing market capitalisation slashed.

As February reporting season wraps up, let’s take a look at how these ASX cannabis shares performed. 

Althea Group Holdings Ltd (ASX: AGH) 

Last week, Althea reported revenues of $1.85 million for the half-year, a 963.8% increase. Cost of goods sold was $787,000, up from $71,000 in the prior corresponding period (pcp). Major expenses included $2.28 million for employee benefits, $1.82 million in marketing expenses, and $2.43 million spent on professional services.

Althea reported a loss for the half-year of $8.35 million. Althea reported cash and cash equivalents of $22.36 million at 31 December 2019 and no debt.

Australia 

Althea achieved its target of 4,000 Australian patients for the half, with 4018 patients prescribed Althea medicinal cannabis products in Australia as at 31 December 2019. Despite the summer holidays, January delivered Althea’s second-best month on record with 572 new patients added. Based on data published by the Department of Health, Althea patients represent 24% of all Australian medical cannabis consumers.

At the end of January, 459 healthcare professionals had prescribed Althea products.  Patient and health care professional growth means Althea expects to achieve profitability from its Australian operations in the next 6 months. 

UK

Althea launched in the UK in June 2019 and reports that the market has experienced steady growth. A total of 88 prescriptions had been received at 29 January 2020. While patient and prescription growth has been positive in the context of the introductory UK market, political uncertainty has impeded progress. 

Nonetheless, now that Brexit has been confirmed, Althea expects a period of stability will allow for greater focus on domestic affairs including the supply of medical cannabis to patients. 

Germany

In November, Althea signed a Memorandum of Understanding with Nimbus Health GmbH for the sale and distribution of Althea medicinal cannabis products throughout Germany. In Germany, public health insurers normally cover the entire fee for medicinal cannabis medications, so there is no cost to patients. 

Some 60,000 patients were treated in Germany with medicinal cannabis in 2018, with this number expected to rise to 1 million by 2024. Althea and Nimbus have made an application to German authorities for approval to import the full range of Althea cannabis oil products. Approval and shipment is expected to occur in the first half of calendar 2020. 

Outlook

Althea is performing ahead of expectations, having brought five branded medicinal cannabis products to market since 2017. Already rapid patient growth is expected to be bolstered by the recent release of Althea’s latest product CBD100, one of the most highly concentrated CBD products available in the market. With Australian operations nearing profitability, Althea will be in a position to further fund its international expansion. 

Auscann Group Holdings Ltd (ASX: AC8)

AusCann reported revenues from ordinary activities of $245,953, down 45%. Expenses also decreased, falling to $3.68 million from $4.9 million in the pcp. A loss for the half-year of $3.42 million was recorded, down from the previous period’s loss of $4.44 million.

The cash balance at the end of the half-year was approximately $26 million, leaving AusCann well funded to reach key milestones. Capital will be focused on the core research and development (R&D) program including clinical evaluation, product manufacturing, and commercialisation. 

Successful manufacture 

A major milestone was achieved in December with the successful development, manufacture, and testing of AusCann’s proprietary cannabinoid-based hard shell capsules. Testing results validated AusCann as a commercial producer of reliable, stable, and standardised pharmaceutical products. 

R&D facility 

AusCann completed the construction stage of its product development facility in Perth during the half. Construction was completed on time and on budget with $4.5 million spent to date. Additional expenditure is scheduled for R&D equipment (within the original $6 million budget). The building will provide AusCann with a state of the art R&D facility. 

Outlook

AusCann is nearing commercialisation of its hard-shell capsules, with both standard and low-dose formulations to be available. The R&D facility provides AusCann with a platform to further develop its own cannabinoid-based medicines. As feedback on the use of AusCann’s capsules becomes available, this will be incorporated into the development of new medical cannabis formulations. 

Cann Group Ltd (ASX: CAN)

Cann Group reported sales revenue of $0.57 million for the half year. The group incurred an operating loss of $8.37 million for the period, up on the $4.89 million loss incurred in the half year to 31 December 2018. Net assets at 31 December 2019 were $69.23 million, down from $77.30 million at 30 June 2019. 

Progress on Mildura facility 

Cann Group progressed plans to construct its greenhouse facility in Mildura, adopting a staged approach to construction. Stage 1A will increase production capacity to 12,500 kilos annually. Construction of two additional stages will depend on demand growth. 

Product launch

Cann Group’s first locally sourced and manufactured formulations are due to be launched this quarter. Medicinal cannabis flower packed into 10 gram bottles will be made available under the Special Access Scheme and via B2B sales, with potential for export. 

Medicinal cannabis resin

At the end of 2019, Cann Group and manufacturing partner IDT Australia Limited (ASX: IDT) commenced extraction activities for the first batches of medicinal cannabis resin. IDT is to produce medicinal cannabis oil products with a targeted commercial release in late March. 

Revised business strategy

In January, Cann Group updated its business strategy in response to the current demand/supply imbalance in global medicinal cannabis markets. The updated strategy focuses on initially meeting Australian domestic demand while export markets continue to be developed. 

Outlook

Cann Group has been a victim of the supply-demand imbalance in global cannabis markets which resulted in the scaling back of the Mildura facility. Nonetheless, the group stands to benefit as the Australian market for medicinal cannabis expands. In the meantime, Cann Group is focused on reducing operating expenses while it transitions to near-term profitability and positive cash flows.  

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

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.

Related Articles...

Kate O'Brien