THC Global Group

Medicinal Cannabis Production to Commence Soon: THC Global Group (ASX: THC) is Australia’s leading medicinal cannabis company that currently operates the largest bio-floral extraction facility in the Southern Hemisphere. In a Shareholder letter released on 19 November 2019, the company confirmed that it is now fully Licensed and Permitted for the processing of medicinal cannabis at the Southport Manufacturing Facility. On 25 November 2019, the company will start manufacturing Australian medicinal cannabis medicines at the Southport Facility, which will enable it to become a significant exporter in the global market and support over 250,000 potential patients in Australia.  In the coming months, the company will commence cultivation at the Eden Farms facility, which will support the company’s medicinal cannabis medicines production at the Southport Facility as well as its medicines research and development programs.

Expanding CBD Market in New Zealand: In New Zealand, the company is already receiving strong results with imported products. This is indicative of strong sales once THC’s product is exported into New Zealand next year. The company has already launched a product in New Zealand with its partner, Endoca. This is providing an opportunity to develop strong supply chain pathways, understand the local regulations, and engage with doctors, pharmacies, patients, distributors, wholesalers and other participants in the medicinal cannabis supply chain of New Zealand. This will, in turn, benefit the company’s launch of its own ‘Canndeo’ branded medicinal cannabis products from the Southport Facility next year. CBD products reported increased sales in the region. The company also informed that additional stock has been reordered following the sale of the entire recent shipment in New Zealand. Furthermore, a simplified prescription process in New Zealand is allowing for broader patient availability.

Strong Revenue Growth in H1 2019: For the half-year ended 30 June 2019, the company reported revenues from continuing operations of $2.14 million, up 67% on the previous corresponding period (pcp), mainly driven by the increase in the external sales of hydroponics equipment, materials and nutrients as well as medicinal cannabis.


P&L Statement (Source: Company Reports)

Outlook and Recommendation: The stock of the company is currently trading below the average of its 52-week trading range of $0.305 - $0.630. The commencement of commercial scale production of Australian medicinal cannabis will allow THC to lower the cost of production and will solve the problem of lack of consistency, both in terms of supply and in the product. As a result, the company expects a strong increase in its patient numbers over the coming 12 months. THC expects to start realising material revenues from its Australian medicinal cannabis activities from early 2020. The company continues to have a strong liquidity position, with current ratio standing at 8.71x, significantly higher than the industry median of 1.38x. Considering the anticipated growth from commercial production of Australian medicinal cannabis, expanding CBD Market in New Zealand, a strong balance sheet position along with current trading levels, we give a “Speculative Buy” rating on the stock at the current market price of $0.410.

Cann Group Limited

To Launch Imported Medical Cannabis Products: Cann Group Limited (ASX: CAN) is focused on research and development; cultivation & production; manufacturing; packaging & distribution of medical cannabis products in Australia. On 7 November 2019, the company notified that it is launching a range of imported medicinal cannabis products for supply to approved Special Access Scheme (SAS) patients. The Group has entered into a distribution agreement with Symbion Pty Ltd, under which, Symbion will supply CAN’s full range of imported products to approved SAS patients. Also, the company has received its first shipment of a high THC oil formulation, which has been imported from strategic partner Aurora Cannabis in Canada.

FY19 Financial Highlights: For the year ended 30 June 2019, the company earned a revenue of $2.35 million, higher than the revenue of $0.56 million in FY2018. However, the company reported a total comprehensive loss of $10.93 million in FY19 with basic and diluted loss per share of $0.078.
 

FY19 Results (Source: Company Reports)

Outlook: The company’s product manufacturing validation program with IDT Australia Ltd is well placed, and CAN expects to launch its first locally sourced and manufactured formulations in Q1 2020. The company is well underway with its major expansion program near Mildura, which is expected to be commissioned towards the end of CY2020. In August 2019, the company expanded its full production capacity at the Mildura facility to 70,000 kg of dry flower per annum, which can generate annual revenues of around $220 million to $280 million based on the current wholesale price of cannabis dry flower.

Stock Recommendation: In the past three and six months, CAN stock has declined by 51.66% and 61.11%, respectively. The stock on 19 November 2019 made its new 52-week low of $0.805 and managed to close at $0.825 with a new 52-week trading range of $0.805 - $2.650, providing investors an opportunity for accumulation. Considering the recent distribution agreement with Symbion Pty Ltd, anticipated revenues from Mildura facility, and current trading levels, we give a “Speculative Buy” rating on the stock at the current market price of $0.825, down by 5.714% on 18 November 2019 on account of the speculative news related to soft demand in North America. 

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