Company Overview: Cann Group Limited (ASX: CAN) was incorporated in Australia in 2015. The headquarter of the company is situated in Melbourne, Australia and it is being currently headed by Mr. Peter Crock – the Chief Executive Officer (CEO). It is engaged in the cultivation of cannabis for human medicinal and research purposes. The Company has facilities to cultivate medicinal cannabis. It also focuses on manufacturing medicinal cannabis products. CAN is into developing and supplying cannabis, cannabis resin and medicinal cannabis products into the Australian market; as well as into overseas markets. The Company has a cannabis research license and cannabis cultivation license. The cannabis cultivation license allows the Company to produce Australian grown material that can be prescribed for patient use. CAN thus also focuses on plant genetics; breeding; cultivation; extraction; analysis and production techniques to facilitate the supply of medicinal cannabis for a range of diseases and medical conditions. The company’s vision is to be a leading developer and supplier of cannabis, cannabis resin and medicinal cannabis products.
 

CAN Details

Cann Group Limited (ASX: CAN), which aims to supply innovative medicinal cannabis products across the globe, is working on a fully integrated business model for growth through segments that entail research and development, cultivation and production, manufacturing, packaging and distribution and clinical evaluation. The group has completed 24 harvests till September 2018, and has executed new supply agreement with Victorian Government. The group is progressing well in terms of expansion at Project Tullamarine and heads of agreement has been signed with Australia Pacific Airports Pty Ltd. This project, which is expected to produce 40-50,000 kg per annum at full capacity, has been flagged for CAN’s profitability sustenance as first design phase has been completed and recruitment has been slated to begin in Q2 2019. Cann has now supplied first Australian patients with Aurora cannabis oil during the quarter ending September 2018, and this has been a key milestone for the group. Done through the Therapeutic Good Administration’s (TGA) Special Access Scheme, CAN estimates the move to hold great future potential. The group now aims to witness December quarter with enormous activities associated with the Company’s tissue culture and accelerated breeding programs that will enhance identification and development of optimum strains of cannabis for product development.

Potential to Grow Further in Cannabis Sector: In FY 2018, Cann Group generated $0.56 million of revenues. Its other income clocked at $0.94 million representing a substantial rise on the YoY basis. However, the company ended FY 2018 with losses amounting to $4.7 million and these are before transaction costs, income tax expense as well as finance costs. The primary reason for the losses is elevated administration and corporate costs in FY 2018 which stood at $7.2 million. On the YoY basis in FY 2018, the company also recorded a rise in the research and development costs. As at 30 September 2018, the company had cash and cash equivalent of $75.989 Mn. On the analysis front, the current ratio and quick ratio of the company stood at 89.32x and 87.55x, respectively as at 30 June 2018, representing high liquidity of the firm. RoE also improved from -31.7% to -9.4% in FY18 over the prior year. This improved performance shows that the group is refining its performance with its objectives and potential for further growth being intact.


Cann Group’s Financials (Source: Company Presentation)

Well-Positioned to Grow on the Back of Regulatory Approvals: Cann Group Limited is expected to witness strong momentum moving forward as the company has managed to meet or exceed the regulatory standards which are established, which reflects that it might not encounter regulatory challenges as such. The company holds a license to export and/or import medical cannabis as well as cannabis genetics products. This license was given to the company in October 2017 by Australian Government Department of Health. With this license, it can send the needed products for analytical testing. Moreover, the company could also import the required products and that too from the legal international resources. Cann Group is categorised as “one of the few companies” within the Australian boundaries which are carrying out operations with the help of the permits. The company also has close relations with the government authorities.

Moving forward, the company plans to carry out the activities within the broad regulatory framework. It has been making deployments in people as well as resources and it would be carrying out the operations by leveraging the science-based growth strategy.


Sustainable Growth Platform (Source: Company Reports)

Robust Expansion Activities to Underpin Future Growth Strategies: The management of Cann Group Limited is having a favourable outlook on the company’s future growth prospects and believes that it is progressing at a rapid pace as far as expansion plans are concerned. The company’s growth prospects are expected to be underpinned by the increased demand for the innovative as well as safe medical cannabis treatments. This demand is expected to be witnessed in the Australian as well as offshore markets.

As per the management, it is well-positioned to reap the benefits of burgeoning medical cannabis market. Moreover, in FY 2018, in the Southern facility the company got through with the expansion activities. During the same period, commissioning of the larger and new Northern facility was also done. The company plans to largely maintain its focus in the Australian boundaries. Moreover, the company currently has sufficient capital position in order to carry out the expansion activities and this could support the long-term growth objectives of the company as a whole.


Expectations for Global Medicinal Cannabis market (Source: Company Presentation)

By 2025, the market players are expecting that global medicinal cannabis market would touch the US$100 billion mark reflecting the positive view of the market experts in the cannabis space. Increased legalisation is the primary reason that market trackers are expecting strong growth from. In about 26 countries spanning Australia, Europe as well as North and South America, medicinal cannabis has been legalised.

Share Purchase Plan, Institutional Placement Aided Capital Position: In FY 2018, Cann Group Limited has managed to execute the capital raising activities which has led to the robust capital position. In November 2017, the company had made announcement (which later on got executed) regarding the share purchase plan as well as institutional placement which involved capital raising of $78 million. The company is expected to deploy the raised funds towards its Stage 3 facility. Through the placement, Aurora Cannabis has managed to raise its holding in the company to 22.9% from 19.9%.

Stage 3 Expansion to Help Cann Group Moving Forward: In FY 2018, CAN has made an announcement about the expansion of the Stage 3.This would also consist of state-of-the-art green field development and would also include the research and development or R&D laboratories, glasshouse cultivation space as well as GMP manufacturing facilities (full). As per the Annual Report 2018 presentation, the company is expecting to hire around 170 staff which would help to have more production in years to come.

Cann Group Limited Plans to Leverage Capabilities of Partners: As per the management of Cann Group Limited, its key partnerships would help the company in witnessing robust growth momentum as these could support the development of the business. It has been entering into several partnerships so that it can make effective use of the expertise, technology as well as the critical skills. In June 2017, the company has entered into an agreement with Aurora Cannabis, which is the leading producer in the Canadian region. The group lately bagged a research collaboration agreement with CSIRO.


Cann Group Limited’s Partnerships (Source: Company Presentation)

In June 2018, Cann Group Limited also signed a memorandum of undertaking or MOU in order to execute the expansion capabilities with respect to the research and development or R&D activities. This MOU has been signed with La Trobe University. Moreover, in order to carry out further medicinal cannabis research, the company has also signed a MOU with the Agriculture Victoria in month of August 2018. In addition, Federal Education and Training Minister Simon Birmingham’s highlighted that government funding will be provided for setting up the Australia’s first research hub for medicinal agriculture at La Trobe University’s Bundoora campus in Melbourne and Cann being an industry partner in the project will benefit from this. About $27 million in terms of cost has been indicated for this project and industry partners are contributing about $6 million to the project. Given that CAN finished the September quarter with cash at bank of $75.98 million, the above investment is expected to be dealt decently and is expected to yield positive outcome in years to come.

Cann Group Limited as well as IDT Australia Limited (ASX: IDT) are through with the manufacturing agreement. As a result of this agreement, IDT Australia would be advancing the support to Cann Group Limited related to the manufacturing of the medicinal cannabis-based products. In our view, the synergistic acquisition will support the operational capability in terms of license agreements, manufacturing of cannabis products, and selling of products across domestic and international market.

Key Focus Areas for Cann Group Limited: As per the management, Cann Group Limited has been focusing on the research and development, cultivation as well as product development base. Moving forward, the company anticipates to span its activities across product distribution, clinical evaluation as well as other commercial areas. The management of the company is optimistic about its relationship with the Aurora Cannabis Inc. (Canada). The company expects that it would leverage the expertise of the industry as well as know-how of Aurora Cannabis which could well-support the growth prospects of Cann Group Limited. Moreover, the company has also increased the size of its team.

Stock Analysis and Recommendation: Relative Strength Index or RSI, a technical tool, has been applied on the daily chart of Cann Group Limited by considering the default values. As per the observation, the 14-day RSI has already crossed the oversold region and is currently rebounding. We expect that the stock price might go up which would lead to the bullish momentum. Moreover, positive outlook for the cannabis industry, strong position with regards to the regulatory standards, strong cash position as well as export sales are the primary tailwinds that would help the company moving forward. The next quarter is also expected to witness robust development activities which will pave the path for future revenue streams. From valuation standpoint, the financials are expected to improve going forward and current trading levels offer a good investment opportunity post a 33% fall noted in last six months. With key growth drivers, the stock may witness a single to low double digit growth in near to medium term. As a result, we give a “Speculative Buy” rating on the stock at the current price of A$2.420, up 1.255% on October 30, 2018.

 

CAN Daily Chart (Source: Thomson Reuters)

 
Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.