Cann Group Limited (ASX: CAN)

Cann Group Limited with a market cap of $ 348.99m, under its long term strategy to establish itself as a market leader in medicinal cannabis and of medicinal cannabis products, is aiming to build a world-class business that focuses on breeding, cultivating and manufacturing medicinal cannabis for sale and use within Australia.

Growing Cannabis sector space and prospects from licenses:Cann Group is well placed to tap the growth expected from the sector and has recently secured a license to import and export cannabis genetics and medicinal cannabis products. CAN has recently imported and received quarantine clearance on samples that will support genetics and tissue culture research programs carried at Northern Facility. CAN group expects to secure an export permit from the Federal Regulator-the office of Drug Control in the near future, which will help towards the access to overseas market, well in line with its long term strategy to be a market leader in this domain. Meanwhile, Cann has secured a contract with the Victorian Department of Health and Human Services (DHHS), through its Office of Medicinal Cannabis (OMC), for the supply of cannabis plant extract (resin).

Future performance well supported by the Project Tullamarine:This project will be fully operational by the third quarter of 2020, and will have the capacity to produce around 40 to 50,000 kilograms of dry flower equivalent product, which will place Cann Group in a strong place to offer its service to the growing Australian Markets.

On financial front, CAN posted significant growth in revenue to $1.5m for FY18 from $8000, but net loss increased to $4.73m in FY18 from the net loss of $ 2.59m in FY17 backed by significant growth in the operating expenses to $6.22m from $2.6m in FY17. Total long term debt remained same. Cash outflow from the operating activities increased to $3.75m in FY18 from $2.3m in FY17.

Technically, the scrip has remained in downtrend from the month of July and has continued the trend for the current month of November. On a 3-month chart with daily candle interval, price levels are trading below the 50 day EMA (Exponential Moving Average). CAN Group is banking on Project Tullamarine that will raise the capacity along with expectation of improving financial performance going forward. Further, appropriate licenses will portray better prospects. We thus, give a “Speculative Buy” recommendation at the current levels of $2.45.
 

Elixinol Global Limited (ASX: EXL)

Elixinol Global Limited with a market cap of $249m, is a manufacturer and global distributor of industrial hemp based dietary supplement and skincare products, and has its presence globally across the cannabis industry including hemp-derived CBD dietary supplements, food and wellness products, as well as the cultivation and manufacture of medicinal cannabis products. EXL has completed the investment process in Elixinol Japan; and has increased the ownership to 50.5% with an investment of approximately $2.2m in Elixinol Japan.

Growth trajectory driven by strong performance across all segments:EXL revenues have grown by 110% to $14.9m in 1HFY18 from $7.1m in 1HFY17, with dietary supplements revenues posting the growth of 84% and hemp foods revenue rising by 16% in 1HFY18. Underlying EBITDA recorded significant improvement to $0.8m, largely driven by its Elixinol USA business. No debt transactions were recorded during the period 1H18. EXL group revenue posted 159% growth to $10.41m in 3QFY18 as compared to the prior corresponding period and recorded growth of 27% when compared with 2QFY18. Debt was recorded at $0.25m in 3QFY18. Gross cash outflows for the 4Q FY2018 are estimated at $19.9m (excluding cash inflows) which include $13.8m for ongoing operating costs and inventory purchases including funding for expansion of sales and marketing activities and capital expenditure of $5.9m related to new Colorado stage 2 production facility. Cash at bank showed significant reduction to $10.7m in 3QFY18 from $18.4m in 1QFY18.


Strategic Outlook (Source: Company Reports)

Technically, the scrip remained in a downtrend for the month of October. Subsequently, a reversal was seen on the price charts and the upside rally continued in November.
The recent investment to increase the ownership in Elixinol Japan, trading on the OTCQX exchange to bring awareness of EXL to the US market and broadening of the investor base will help the stock. We give a “Speculative Buy” on EXL at current levels of $1.975.
 
 

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