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ASX cannabis shares adjust to coronavirus environment

Cannabis shares were considered a fad for a while. Now, they’ve proved they’re here to stay. As the Australian medicinal cannabis industry grows, ASX cannabis companies are refining their strategies. While some are focused on cultivation and production, others are involved in the manufacturing and distribution components of the value chain. 

ASX cannabis share prices have seen mixed comebacks from the March downturn. Some have struggled in the current environment, while others have adapted in the face of coronavirus challenges. We take a look at how ASX cannabis shares are facing the coronavirus challenge. 

Althea Group Holdings Ltd (ASX: AGH)

The Althea share price has regained 125% from its March low. The medicinal cannabis distributor responded to the coronavirus pandemic by launching online sales of medicinal cannabis. Patients can have products delivered direct to their door via Althea’s app, which has been registered as a medical device. 

Althea finished FY20 with a record month and quarter. Unaudited revenue for the quarter was $1.59 million, a new record and 5% up on the March quarter, notwithstanding COVID-19 disruptions. June sales rebounded strongly for a record revenue month following a COVID-19 affected April and May. Unaudited revenue for FY20 totalled $4.97 million, a 547% increase on FY19. 

At the end of June, Althea had 7,295 Australian patients and was achieving strong month-on-month growth in the UK. The number of healthcare professionals prescribing Althea products grew to 590 at the end of June, an increase of 16% on the prior quarter. Althea reported a healthy balance sheet with $10.4 million cash on hand at 30 June 2020.

Cann Group Ltd (ASX: CAN)

The Cann Group share price fell 18.4% yesterday. Cann Group announced a capital raising last week to fund working capital. Shares were issued under a $14.3 million institutional placement at 40 cents a share, which represented a 51.2% discount to the previous closing price. 

The company needed funds for working capital while it pursues near-term growth opportunities, including the expansion of its Mildura facility, which remains a key component of its growth strategy. COVID-19 has slowed progress of potential funding options and practical timing of construction involving offshore specialists. Cann Group’s existing facilities provide 1,200 kilos in capacity. 

The company has a manufacturing agreement with IDT Australia Ltd (ASX: IDT) to manufacture resins, oils, and finished products. Products are distributed to hospitals and pharmacies in Australia under a distribution agreement with Symbion. Cann Group also has existing supply agreements in place with Iuvo Therapeutics, Astral Health, Entoura, Zalm Therapeutics, and Aurora. These agreements cover Australia, New Zealand, South Africa, North and South America, Europe, and parts of Asia. The company says it has secured or is negotiating multiple supply agreements which are expected to generate ~$15 million revenue in FY21. 

Cann Group reports that Australian industry momentum continues to be positive. The company is well positioned to address growing demand due to its manufacturing of bio-pharmaceutical grade products. New international markets are also opening up, with initiatives including patient reimbursement in Germany and pilot programs on France and Poland. 

Auscann Group Holdings Ltd (ASX: AC8)

The Auscann share price is currently on par with its March low of 14 cents. Auscann is involved in the manufacture of medicinal cannabis products. With a focus on providing reliable and standardised cannabinoid-based pharmaceutical products, Auscann has developed a capsule formulation designed to enable accurate dosing. 

Auscann’s capsules are currently undergoing a phase 1 study to examine the pharmacokinetics of doses in volunteers. Dosing of the first subjects was completed in April. The study is designed to provide information that will inform dose selection and assist medical professionals in prescribing the hard shell capsules. The study is expected to be completed this calendar year. 

Auscann’s hard shell capsules were made commercially available for prescription in the March quarter. Patients can access the products through the TGA special access scheme and authorised prescriber scheme. The capsules are also available in a low-dose formulation, confirming Auscann’s ability to customise dosing in a standardised and scalable way. This is critical for personalised treatment. 

The company finished the March quarter with $24.7 million in cash and no debt. This was down from $26.1 million at 31 December 2019, however the strong capital position supports the continued progress of Auscann’s growth strategy. This strategy is centred on product development, clinical evaluation and market access. In its quarterly results announcement, Auscann CEO Ido Kanyon said, “product standardisation backed by clinical evidence and medical education will drive growth, medical acceptance, and consequent demand for our capsules.”

Ecofibre Ltd (ASX: EOF)

The Ecofibre share price has recovered strongly from its March low of $1.25 and is currently trading at $2.49. Nonetheless, it remains significantly down from its highs for the year of over $3.

Ecofibre manufactures hemp and CBD products which are sold in the US and Australia. The Ananda Hemp and Ananda Professional brands produce nutraceutical products for human and pet consumption as well as topical creams and salves. Ananda Food produces Australian grown hemp food products including hemp oil and protein powders. The Hemp Black business develops hemp-based textiles and composites.

Ecofibre recently announced that FY20 net profits are expected to be around $12.5 million, double that of FY19. Full year revenue is expected to be in  excess of $50 million. Ecofibre adjusted focus as a result of coronavirus, with the Hemp Black business tapping into demand for PPE. The brand launched a face mask and sold around 135,000 of these in May and June. This added $2.4 million to revenue in FY20. Manufacturing capacity will double this quarter from its current rate of 65,000 per month to 130,000 masks, and distribution to Australia has begun. 

The Ananda Food business also continues to experience steady growth. Its newly formulated protein powder will be used by The Alternative Meat Co in a new range of products. The range will be available in Coles from August. Woolworths will also begin stocking Ananda’s hemp seed oil under its Macro brand. The oil will be available from August alongside existing hemp seed and protein powder products.  

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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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