Here’s why the Little Green Pharma (ASX:LGP) share price is down 5%

Following the TGA’s clarification of distribution requirements, the Australian medicinal cannabis producer faces a change of rules.

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women working with medicinal marijuana, indicating a share price movement in ASX cannabis shares

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Shares in Little Green Pharma Ltd (ASX: LGP) are falling amid news the company’s distribution responsibilities have changed. At the time of writing, the Little Green Pharma share price is 64.5 cents – 5.84% less than its previous closing price.

Today, the medicinal cannabis producer announced it has revised its distribution agreements following Therapeutic Goods Administration (TGA) clarification.

The company also updated the market on an ongoing purchase order of its products by German wholesaler DEMECAN.

Let’s take a closer look at the latest news from Little Green Pharma.

Revised distribution agreements

According to Little Green Pharma, its revised agreements will see its distribution partners acting as distributors rather than wholesalers.

Under the agreements, distributors will still dispense Little Green Pharma’s products but the company will hold ownership until they’re sold to pharmacies.

The revisions follow the TGA’s issuance of notices to all medicinal cannabis wholesalers.

The notices clarified rules for the wholesaling of unregistered pharmaceutical products. Medicinal cannabis products are considered unregistered pharmaceuticals.

Little Green Pharma will soon receive revenue for sales to pharmacies, rather than to wholesalers.

However, the company said the changes will impact its revenue for the fourth quarter of 2021.

This will be due to distributors drawing from current stocks before new supply rates take effect.

The company’s revenue will increase when it sells products directly to pharmacies. However, its distribution costs will increase at the same time.

As a result, Little Green Pharma believes, beyond 2021, its profits will not be affected by the change.

However, the change will see the timing of the company’s cash receipts slightly impacted.

DEMECAN’s latest order

Recently, DEMECAN placed a $2.5 million purchase order for Little Green Pharma’s products.

Today, Little Green Pharma stated it’s still waiting on regulatory approvals required to import most of the order to Germany.

According to Little Green Pharma, roughly 7,000 units of its 9,000 unit order are awaiting routine approvals.

The company says there are no reasons DEMECAN won’t meet the approvals.

However, if it doesn’t, Little Green Pharma will package the halted products to be sold in Australia.

Little Green Pharma share price snapshot

Despite today’s fall, the Little Green Pharma share price has been performing well on the ASX lately.

Currently, it’s 14% higher than it was at the start of 2021. It’s also gained 69% since this time last year.

The company has a market capitalisation of around $90 million, with approximately 187 million shares outstanding.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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