Cann Group Limited

Production at Mildura Facility to be Completed in Stages:Cann Group Limited (ASX: CAN) is engaged in the cultivation of cannabis for medicinal and research purposes and the manufacturing of medicinal cannabis products. The Annual General Meeting of the company is to be held on 29 November 2019. The company plans to complete the construction of its new medicinal cannabis production facilities near Mildura in stages, which was earlier scheduled to be a single-stage development. The decision to proceed on a stage basis will allow the company to be more certain around capacity utilisation and will reduce the initial capital investment requirements of the company. As per the earlier plan for single stage development, production was targeted at 70,000 kgs. However, the revised plan expects stage 1 to provide an annual production of approximately 25,000 kgs of dry flower, with target commissioning in late 2020.

Five-Year Offtake Agreement with Aurora Cannabis: The company announced that it has entered into a distribution agreement with Symbion Pty Ltd to carry CAN’s full range of imported products for supply to approved Special Access Scheme (SAS) patients, in line with each state’s legislative requirements. Cann Group Limited received its first shipment of a high THC oil formulation from Aurora Cannabis and has obtained multiple permits for the import and supply of cannabis-based medicines to avoid the risk of product shortages. For the year ended 30 June 2019, revenue of the company went up to $2.3 million, from $0.56 million in FY18. Operating loss for the year amounted to $10.93 million.

 
Financial Performance (Source: Company Reports)

What to Expect: The company is evaluating and testing available export pathways for medicinal cannabis products, which will allow it to meet domestic demand and validate its supply chain and export procedures. It continues to establish its third-party GMP product manufacturing capability with IDT Australia Limited, enabling the production of value-added formulations, which can be supplied to Australian patients and to Aurora. CANN Group Limited is also maintaining a focus on its commercial strategy, including planned delivery of the product to Australian patients and involvement in clinical studies.
Stock Recommendation: As per the ASX, the stock of CAN gave a negative return of 39.51% in the past one month and is trading close to its 52-weeks low of $0.430. Over a period of five years, the company has depicted an improvement in EBITDA Margin (Earnings before Interest, Taxes, Depreciation and Amortisation) and net margin. Debt/Equity ratio of the company is Zero, demonstrating financial stability. Considering the current trading levels, prevailing negative sentiments while the aforesaid facts may seem to hold value in long run, we recommend a “Hold” rating on the stock at the current market price of $0.445, down by 39.456% on November 25, 2019 (price drop owing to the volatile scenarios emerging for this cannabis player).
 

AusCann Group Holdings Limited

Pharmaceutical Packaging Agreement with Aspen Pharmacare: AusCann Group Holdings Limited (ASX: AC8) is engaged in the cultivation, manufacturing and supply of medical cannabis products. As on 25 November 2019, market capitalisation of the company stood at $69.75 million. The Annual General Meeting of AC8 is to be held on 29 November 2019. The company has recently announced that it has appointed Aspen Pharmacare Australia Pty Ltd to provide packaging for its medicinal cannabis pharmaceutical products, for an initial period of 3 years.

Significant Rise in Total Income: For the quarter ended September 2019, the company focused on progressing the development of its hard-shell capsules and continued to optimise its supply chain. During the year ended 30 June 2019, total income of the company went up to $1,532,376 from $288,878 in FY18. Total expenses of the company also went up to $9.2 million from $7.9 million. During the year, net assets of the consolidated entity increased to $41.6 million from $14.1 million as at 30 June 2018 as a result of continued operational expenditure. 
 

Financial Performance (Source: Company Reports)

What to Expect:The focus of AusCann Group Holdings Limited remains on the provision of high quality, economical and clinically validated cannabis medicines, with an emphasis on progressing the development and commercialisation of its hard-shell capsules in the near-term. The company expects to complete the construction of the product development site in Perth by the end of 2019.

Stock Recommendation:As per the ASX, the stock of AC8 gave a negative return of 18.52% in the past one month. The stock is currently trading close to its 52-week low of $0.220. During the time span of FY15 - FY19, the company witnessed a CAGR (Compounded Annual Growth Rate) growth of over 200% in revenue and saw an improvement in net margin over the same period. Thus, considering the trading levels, decent revenue CAGR over FY15-FY19, improving net margin, etc., we recommend a “Speculative Buy” rating on the stock at the current market price of $0.225, up by 2.273% on November 25, 2019, owing to the recent agreement with Aspen Pharmacare.

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