Company Overview: Cann Group Limited is an Australia-based company, which 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. It focuses on developing and supplying cannabis, cannabis resin and medicinal cannabis products into the Australian market. It also focuses on supplying to 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. It has research and development, and cultivation facilities in Australia. It 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.


CAN Details

Deployments, Partnerships to Support Cann Group Moving Forward: The management of Cann Group Limited (ASX: CAN) reflected positive views for the upcoming period as the company has adopted strategies which would support the broader business moving forward. The company is being inclined towards making deployments for the skill development, making collaborations and partnerships as well as by facilities expansion. Lately, the company has worked significantly towards getting the permits as well as licenses which would research and development. The company had also incurred talks with the Federal Government’s Office of Drug Control in order to make sure that procedures, as well as facilities, comply with the requirements. In FY 2018, Cann Group had generated the revenues amounting to $560,000 and its other income amounted to $943,391. As demonstrated by the company’s FY 2018 annual report, Cann Group had wrapped up the expansion works with regards to the Southern facility. The company had also commissioned a larger and new Northern facility. The company had shown significant improvement from the margin’s viewpoint in FY 2018 on the YoY basis. In FY 2018, the company’s EBITDA (or earnings before interest, tax, depreciation or amortization) margin stood at -249.0% which implies the significant improvement as compared to FY 2017. Moreover, there has been an improvement in the company’s return on equity or ROE in FY 2018 on the YoY basis. In FY 2018, its return on equity was -9.4% while in the previous year it was -31.7%.
 

Consolidated Statement of Profit or Loss Statement (Source: Company Reports)

Robust Footing from Regulatory Standpoint: Cann Group happens to possess strong footing when seen from the perspective of the regulatory approvals. The company is regarded as the “First Australian Recipient” with regards to the licenses related to the research as well as medicinal cannabis cultivation. Moreover, only couple of companies in the Australian region are carrying out the operations by possessing the necessary permits and Cann Group happens to be one of them. As depicted by the annual report FY 2018 presentation, the company had got the permits with respect to 2 cultivation as well as R&D facilities which are based in the Victoria. The company is also engaged in the talks with the authorities of the government which are involved.

Several Achievements Done in September 2018 Quarter: In the September 2018 quarter, Cann Group had supplied Aurora cannabis oil to first Australian patients via the Special Access Scheme of Therapeutic Good Administration (or TGA). Also, in the month of August 2018, the company and IDT Australia Limited had entered a manufacturing agreement. Asa result of this agreement, IDT Australia would be extending the help related to the manufacturing with regards to the medicinal cannabis-based product formulations.

Moreover, the company had signed MOU (or Memorandum of Understanding) which is focused on undertaking the medicinal cannabis research. This MOU had been executed with the Agriculture Victoria. At the end of the September 2018 quarter, the company possessed cash at bank amounting to $75.8 million. Moreover, as showcased in the company’s annual report FY 2018 presentation, the company’s expansion plans have been ramping up at the decent pace. There are expectations that the demand with regards to innovative and safe medicinal cannabis treatments would witness a rise moving forward. Moreover, the presentation also states that the company happens to be in the robust position to tap the opportunities which might arise in the medicinal cannabis market.

Twenty-Four Harvests Wrapped Up: In the month of October 2018, Cann Group had come forward and gave the market update presentation. The presentation revealed that the company had wrapped up twenty-four harvests. The company maintained its focus largely towards entering into the partnerships in order to strengthen the capabilities. The company entered New Research collaboration agreement with Commonwealth Scientific and Industrial Research Organisation (or CSIRO). The agreement had been entered so that the company’s research and development collaboration get enhanced. Considering the terms of the agreement, if any intellectual property which comes out as a result, the Cann Group would be owner of that intellectual property. Further, the top management of the Cann Group had reflected positive views with regards to this agreement. They stated that, as a result of the agreement, the company would be able to analyse and assess substantial opportunities throughout the medicinal cannabis technologies. The market update presentation had also stated that the company had also witnessed an extension of the agreement. This extension had been done with the La Trobe University.
 

Key Important Partnerships (Source: Company Reports)

Project Tullamarine to support Cann Group: As depicted by the market update presentation of Cann Group, Project Tullamarine would help the company from the profitability perspective. The presentation also suggests that the first design phase has been wrapped up. The company had provided the proper timeline with respect to the outlook of Project Tullamarine as shown in the below diagram. Further, the company had stated that there are expectations to commissioning of Stage 1 in Q4 2019, which will support topline growth in the long run. However, in Q3 2020, the company believes that the project would be operating at the full capacity. 
 

Timeline for the Project Tullamarine (Source: Company Reports)

Strong Market Opportunity Lies Ahead: As reflected by the market update presentation of the Cann Group, there happens to be a significant scope in the long-term when it comes to medicinal cannabis market on a global basis. The presentation depicted that, by 2025, there are anticipations that the medicinal cannabis market on a global basis might touch the US$100 billion mark.


Global Market Growth Trend (Source: Company Reports)

The primary factor which would support the growth on a global basis would be the increased legalization. The presentation stated that the legalization of the medicinal cannabis had been done in the twenty-six countries spanning throughout Europe, North and South America as well as Australia. The management of the company is confident that the partnerships which it had entered in FY 2018 would support the company moving forward in the development of the business. The management is also positive on the relationship with the Aurora Cannabis Inc (Canada). The company would be leveraging the industry-wide expertise of the Aurora Cannabis.

As demonstrated by the FY 2018 annual report, the company would be inclined towards product distribution, clinical evaluation as well as several other commercial-related aspects. The company had also stated that Canada happens to be strongly positioned when seen from the perspective of the medical cannabis industry. They had also stated that working with Aurora would extend the opportunity for the Cann Group in terms of the expertise as well as knowledge expansion. 

Cann Group would largely be focusing towards the business of the Australian region. The company has also been working towards the initiatives which are focused on the exports to the markets where the medicinal cannabis is legalized. The company is also possessing the robust financial position thanks to the capital raising program which it had undergone in FY 2018. Thus, the company is having decent capital backing to support the expansion plans.

Cann Group Limited would also be getting more involved with the medical community. Overall, the management of the Cann Group expects that, in 2019, it would be working towards the activities which would support the company in building strong business momentum. It would be working to further improve the teams’ capabilities as well as it would also work to reap the benefits of the partnerships which the company had entered. In 2019, the company is expected to witness strong growth momentum with respect to the business objectives.

Stock Recommendation and Outlook: From the technical analysis standpoint, two technical indicators have been applied on the daily chart of Cann Group Limited and, for the purposes, the default values have been taken into consideration. As per the observation, the MACD line has crossed the signal line and is moving upwards which signifies the bullish momentum. Moreover, we have also applied an exponential moving average or EMA on the company’s daily chart. After careful observation, it was noticed that the company’s stock price has just crossed the EMA and is trending in the upward direction.

On the other hand, there are numerous factors which might support the company moving forward. The company is expected to benefit from the partnerships which they have undergone as well as by the robust financial position. Moreover, the company’s strong backing from the regulatory perspective coupled with the numerous opportunities which might arise in the global medicinal cannabis would also act as the tailwinds at the broader level. Let us see how Cann Group has performed in the previous few months. In the span of previous 3 months, the company had delivered the return of -27.70%. However, over the time span of previous 6 months and 1 month, the stock of Cann Group had given the returns of -34.10% and 1.52%, respectively. The market capitalisation of the Cann Group is about $280.81 million. Based on foregoing, we are optimistic about the company performance on the back of improving financials, securing contracts, government support to the cannabis sector and expected decent performance in the upcoming years. We give a “Speculative Buy” recommendation on the stock at the current market price of $2.070 (up 2.985% on January 08, 2019).


CAN Daily Chart (Source: Thomson Reuters)

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