AusCann Group Holdings Limited

 
A Prominent Name Across Cannabinoid-based Medicine: AusCann Group Holdings Limited (ASX: AC8) is a pharmaceutical company, which specializes in the development, processing, and marketing of cannabinoids-based medicines within Australia and international markets. On 14 October 2019, the company released an announcement, notifying that Canopy Growth Corporation had sold its 13.2% stake (42,087,639 shares), out of which 11.43% was acquired by Merchant Funds Management Pty Ltd, a Western Australian based financial services firm.
 
FY19 Performance Highlights for the year ended 30 June 2019: In FY19, the company reported total income of $1.53 million, as compared to $0.29 million in FY18. Net loss for the period amounted to $7.65 million as compared to $7.68 million in FY18. During the year, the company raised an amount of $33.4 million through a share placement. Cash and cash equivalents for the year amounted to $35.3 million and net assets stood at $41.67 million. During the year, the company achieved a significant research milestone by successfully completing the product development of its final dose of cannabinoid capsule in FY19. The company received an approval from the Australian Federal Government to export cannabinoid medicines from Australia.
 

FY19 Income Statement (Source: Company Reports)

Outlook: Chronic pain treatment market is estimated to be more than US$100 billion by 2024. The Management is planning to release new proprietary cannabinoid solid hard-shell capsules for clinical trials towards the end of CY 2019 which will help the company to grab a relevant place in the field of chronic pain treatment.

Stock Recommendation: The stock of AC8 is trading at $0.310 with a market capitalization of ~$103.04 million. The stock is trading close to the lower end of its 52-week trading range of $0.295 to $1.000. The stock has generated returns of -12.16% and -21.69% during the last one month and three months, respectively. The company’s near-term strategic priorities revolve around product development, disciplined capital management, increase of raw material supply and clinical trials pertaining to new proprietary cannabinoid solid hard-shell capsules for treatments of chronic pain. The company is eyeing the development of a new product development facility in Western Australia by the end of CY19. Furthermore, the company is also planning to invest a capital amounting to $6 million to enhance the site’s capabilities. Considering the recent price movement and business prospects in place, we recommend a ‘Hold’ rating on the stock at the current market price of $0.310, down 4.615% as on 14 October 2019.
 

Cann Group Limited

Strategic Collaborations to Aid Future Growth: Cann Group Limited (ASX: CAN) operates in breeding, cultivating, manufacturing and marketing of medicinal cannabis in Australia. The business has prominent research facilities, located in Melbourne and aims to provide access to medicinal cannabis to Australian patients. Recently, the Company announced that it had issued 67,538 fully paid ordinary shares via placement to Commonwealth Scientific and Industrial Research Organization (CSIRO).

FY19 Operational Highlights for the year ended 30 June 2019: Cann Group Limited declared its full-year results for FY19, wherein revenue came in at $2.35 million as compared to $0.56 million in FY18. The business delivered a loss of $10.93 million, as compared to the loss of $4.73 during FY18. During the year, the company supplied medicinal cannabis from its Southern facility to the Victorian Government Department of Health & Human Services (DHHS). The period was also marked by a manufacturing collaboration with IDT Australia to manufacture medicinal cannabis formulations. Furthermore, the company signed a five-year offtake agreement with Aurora Cannabis.

 

FY19 Income Statement Snapshot (Source: Company Reports)

Outlook: Going forward, the company will focus on testing of export pathways with Aurora & commencement of exports under the offtake agreement and progress construction & development of the Mildura facility.

Stock Recommendation: The stock of the company is trading at $1.415 along with a market capitalization of ~$195.07 million. The stock is trading at the lower end of its 52-week trading range of $1.370 to $2.850. The stock has delivered negative returns 23.61% and 32.27% in the last one month and three months, respectively. Pursuant to the partnership agreement with IDT Australia, the company has brought in excellent capabilities in the manufacture of cGMP quality pharmaceuticals. On the commercialization front, the company’s success can weigh upon the contract with Victorian Department of Health & Human Services for supply of medicinal cannabis resin and the offtake agreement signed with Aurora Cannabis. During the year, CAN has increased its capacity in Mildura facility by 40% to 70,000kg of dry flower per annum and expects to generate revenue within the range of $220 million - $280 million. Considering the above-mentioned facts, we recommend a ‘Buy’ rating on the stock at the current market price of $1.415, up 2.909% as on 14 October 2019.

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