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How did ASX cannabis shares perform in the latest quarter?

ASX cannabis shares have faced a difficult few months. Struck by a capital crunch earlier this year, cannabis shares were then hammered in the March downturn. Last year wasn’t much better, with the vaping crisis and slow roll out of Canada’s legalisation 2.0 dragging on industry. 

Hype surrounding the sector has faded as investors take a sober look at share prospects. As investors have switched from bulls to bears, share prices have eased well back from last year’s highs. 

Now the industry is facing a renewed threat from coronavirus and its economic consequences. Unemployment in Australia is predicted to hit 10%, the highest level since 1994. The economic fallout is likely to equate to the biggest contraction in the economy since the Great Depression. 

But there is hope for ASX cannabis shares. Prohibition Partners has predicted the Oceania region cannabis market will be worth $1.55 billion by 2024. Australia is predicted to comprise 79% of the $1.55 billion. As of December 2019, some 18,549 Australian patients had been approved access to medicinal cannabis, with the majority receiving approval in 2019. While the industry has hit some rough patches there are potential gains to be made in future. 

Let’s take a look at how the ASX cannabis shares performed in the March quarter. 

Auscann Group Holdings Ltd (ASX: AC8)

During the March quarter, Auscann released its hard shell capsules for prescription in Australia. The capsules are available to patients through the Therapeutic Goods Administrations’s special access scheme and authorised prescriber scheme. 

Auscann finished the quarter in a strong capital position with $24.7 million in cash and no debt. Gross cash outflows of $2.7 million were recorded for the March quarter. Due to the receipt of an R&D tax incentive refund of $1.2 million and $92,000 interest received, net cash outflows for the quarter were $1.4 million. 

Since the end of the quarter, Auscann has commenced its first clinical evaluation. The phase 1 study will evaluate the pharmacokinetics of 2 formulations of an orally administered THC/CBD combination. Volunteers have been recruited, with one group to receive a 2.5mg dose and the second a 10mg dose. Dosing of the first subjects has been completed. 

The study will provide information to inform dose selection and assist medical professionals in prescribing Auscann’s hard shell capsules. Auscann CEO Ido Kanyon said, “we are very excited to be progressing this important study to provide evidence-based information to medical professionals about our unique hard shell capsule.”

Cann Group Ltd (ASX: CAN)

Cann Group revised its strategy in January in response to demand-supply disruptions in the global medicinal cannabis market. The revised strategy focuses on initially meeting Australian demand as export markets continue to be developed. The group has also reduced operating expenses including a reduction in headcount of 25% and elimination or deferment of $7 million in annualised costs. 

As part of the strategy reset, Cann Group plans to proceed with the first stage of its Mildura facility which will have an annual capacity of 25,000kg of dried flower. The company is continuing to progress funding options for the facility, but the board has advised that market volatility relating to COVID-19 impacts may delay a decision on funding until the end of the financial year. 

During the March quarter, Cann Group initiated extraction activities for the first batches of medicinal cannabis resin. This paves the way for formulation and packaging activities to produce a wide range of medicinal cannabis finished dose form products. 

On 1 April, Cann Group announced the first of its product formulations, dried cannabis flower and cannabis oil from Australian grown cannabis, was ready for distribution. Product has subsequently been supplied to healthcare company Entoura for distribution to Australian patients. 

Cann Group believes it has sufficient working capital to support operations through the remainder of the financial year. It issued $8 million in convertible notes in February to provide working capital. The immediate priority remains securing funding for the Mildura facility. In the meantime, however, Cann Group is seeking to progress potential supply agreements with third parties in Australia and overseas. 

Althea Group Holding Ltd (ASX: AGH) 

Althea posted its best quarter on record in 1Q20, despite seasonality, bushfire, and COVID-19. Sales in the March quarter were 39% higher than the December quarter, and on revenue alone March was the best month on record, up 30% from February. 

Unaudited revenue for the March quarter was $1,524,359, up from $1,095,057 in the previous quarter. Althea finished the quarter with 5,803 patients, with 596 patients added in March. The number of healthcare professionals prescribing Althea products increased to 509 as at 31 March 2020. 

Cash outflow during the March quarter was $7.3 million, below the $8.8 million originally forecast. Of this number, $2.5 million was operational and $4.8 million capital expenditure. Althea ended the quarter with cash of $15.07 million and says it is fully funded to meet its current and future financial obligations. 

CEO Josh Fegan said:

Against all odds the March quarter was a great success for Althea. Revenue certainly exceeded our expectations, whilst strong patient and prescriber growth continued. Gross profit margins have improved due to restructuring of commercial arrangements, with cash collection also now faster.

Althea’s newest product, Althea CBD100, performed strongly during the quarter, representing approximately 25% of sales. Since the end of the quarter Althea has executed a 3-year supply and distribution agreement with Germany’s Nimbus Health GmbH. Nimbus is a pharmaceutical wholesaler with a 25% market share of medicinal cannabis sales in Germany. 

Nimbus will sell and distribute Althea’s full suite of medicinal cannabis products under the Althea brand name in Germany. Althea will receive payment for products supplied to Nimbus, as well as 50% of the net profit on sales. The first shipment of Althea’s medicinal cannabis products are expected to arrive in Germany in the second half of CY20. 

Germany’s medical cannabis market is one of the largest in Europe. The country has a population of 82.3 million and a favourable regulatory environment. Rapid patient growth is expected as health insurers typically cover the entire cost of medicinal cannabis, with current approval rates from health insurance providers upwards of 70%. 

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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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