Phillip Capital has rated ASX cannabis share Althea Group Holdings Ltd (ASX: AGH) a buy with a target price of 57 cents. Shares in the medical marijuana distributor are currently trading at 39 cents. The broker is positive on the company, saying Althea's execution to date has been excellent.
Who is Althea?
Althea was founded in Melbourne in 2017 and holds licenses to import, cultivate, produce, and supply medicinal cannabis to eligible Australian patients. At the end of March, Althea had supplied medicinal cannabis to 5,800 patients via 509 healthcare professionals.
International interests
Althea has business interests in Germany and Canada. The company recently signed a 3-year supply agreement with Nimbus Health GmbH, a pharmaceutical wholesaler with 25% medicinal cannabis market share 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, as well as 50% of the net profit on sales. In Germany, 120,000 patients have been prescribed medicinal cannabis to date. This number is expected to grow to 1 million by 2024.
Althea acquired Canadian company Peak Processing Solutions last year. The company plans to produce edible, extract, and topical cannabis products. A building re-fit of its plant has been completed and regulatory approval is anticipated shortly.
What does the broker say?
In Australia, each of Althea's prescribing doctors has an average of 11.4 medicinal cannabis patients, up from 4 a year ago. Althea's Australia sales have gone from zero in FY17 to $0.8 million in FY18 to a forecast $5 million in FY20. Phillip Capital is forecasting sales of $12.1 million in FY21 and $19 million in FY22.
Phillip Capital likes the large market opportunity in Germany and is optimistic on the Canadian opportunity. Althea will target the 2,500+ doctors in Germany who are actively prescribing medicinal cannabis, providing education through its Concierge platform. Based on Althea's Australian performance, Phillip Capital estimates Althea will achieve 7.5% market share in Germany in year 3.
The broker says the German expansion looks to be an excellent move. The market is only 3 years old, has supportive government access rules, and strong reimbursement from health funds in place. In Canada, it is anticipated several initial customers will be announced imminently. Phillip Capital is predicting Peak Processing Solutions will exceed its year 1 target of C$7 million sales by 50%.
Outlook
Althea's international businesses are effectively in start-up mode, and Peak Processing is a contract processing business which is completely new for Althea. This means a wide range of outcomes is possible for the business. Nonetheless, the medicinal cannabis sector is expected to remain resilient through the coronavirus pandemic.
