Cann Group Limited

CAN Details

Capacity Expansion to Aid Revenue Growth: Cann Group Limited (ASX: CAN) is engaged in cultivating, breeding, and processing of medicinal cannabis across Australia. The company has established research and cultivation facilities in Melbourne. The company aims to penetrate the cannabis market across Australia by providing access to medicinal cannabis for Australian patients.

Recently, the company updated about the capacity expansion of its Mildura facility by 40% to 70,000kg of dry flower per annum. With this, the company has increased its ability to generate an annual sale of around $220 million to $280 million. The ongoing work in progress is expected to be completed in Q4 CY20.

FY19 Financial Highlights for the year ended 30 June 2019: Cann Group Limited announced its full year results for FY19 wherein, the company reported revenue at $2.34 million as compared to $0.56 million in FY18. The period saw a loss of $10.926 million, higher as compared to the loss of $4.725 million in previous year.

During the year, the company secured important additional regulatory approvals, acquired the site for major production expansion near Mildura and entered into a valuable offtake agreement with strategic shareholder, Aurora Cannabis Inc. CAN entered into a manufacturing agreement with Melbourne-based IDT Australia, ensuring that it has a fully integrated pathway from cultivation through product development and manufacturing to patient supply.
 

FY19 Financial Highlights (Source: Company Reports)

Outlook: The Management guided for the continuation of construction and development in Mildura facility, followed by testing of export pathways with Aurora & commencement of exports under the offtake agreement. The company estimated its production capacity to increase to 70,000kg of dry flower per annum which will eventually derive a revenue of $220 million to $280 million based on the current wholesale price of cannabis dry flower.

Stock Recommendation: The stock of CAN is trading at $1.560 along with a market capitalization of $229.01 million. The stock is trading at the lower end of its 52-week trading range of $1.525 to $2.910. The stock has delivered a negative return of 13.64% and 24.88% in the last three-months and six-months, respectively. The stock has declined 3.58% in the last one month. The company has increased its capacity in Mildura facility by 40% and expects to drive revenue in the range of $220 million - $280 million, followed by some production of value-added downstream formulations and products. The above business strategy is likely to generate decent margins and revenues for the company. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the current market price of $1.560, down 3.406% as on 26 September 2019.

 
CAN Daily Technical Chart (Source: Thomson Reuters)
 

AusCann Group Holdings Ltd

AC8 Details
Growing Cannabis segment to drive Business Growth: AusCann Group Holdings Ltd (ASX: AC8) aims to develop a stable, reliable dose form cannabinoid pharmaceutical product and preparing for its clinical trials.

FY19 Financial Highlights for the year ended 30 June 2019: AC8 recently announced its full year financial results for FY19 wherein, the company posted total Income of $1.53 million as compared to $0.29 million in FY18. The company posted a loss of $7.65 million as compared to $7.68 million in previous year. The company reported a cash of $35.3 million and net assets of $41.67 million as on 30 June 2019. During the year, the company received approval from the Australian Federal Government to export cannabinoid medicines from Australia, followed by an approval of regulatory framework in place to allow the company for the cultivation and manufacturing of cannabis products in Australia. The research and development team successfully completed a product development of a cannabinoid capsule during the year. The company has successfully executed a $33.4 million placement during the year.


Market scenario of Cannabis products (Source: Company Reports)

Outlook: Chronic pain treatment market is estimated more than US$100 billion by 2024. Nowadays, medical cannabis is being used across the world for treating a wide variety of health conditions. The Management is looking to release the capsules for clinical trials towards the end of calendar year 2019.

Stock recommendations: The stock of AC8 is trading at $0.355 with a market capitalisation of $110.97 million. The stock is trading close to the lower band of its 52-week trading range of $0.295 to $1.025. The stock has generated returns of 2.94% and 1.45% during the last three-months and six-month, respectively. During last one-month, the stock-price declined by 4.11%. The company made several positive progresses during the year and is focusing to become a leading pharmaceutical company with specialization in cannabinoid-based medicines. AC8 is focused on to develop its first product line used for the treatment of chronic pain. Looking at the current price movement and business perspectives, we recommend a ‘Hold’ rating on the stock at the current market price of $0.355, up 1.429% as on 26 September 2019.

 
AC8 Daily Technical Chart (Source: Thomson Reuters)
 

Elixinol Global Limited

EXL Details

Strategic Distribution to Increase Global Presence: Elixinol Global Limited (ASX: EXL) operates in the cannabis-based medicines and focuses on selling hemp-based CBD dietary supplements, hemp food and wellness products. Additionally, the company holds a manufacturing license for medicinal cannabis products. On 26 September 2019, the company notified about entering into a distribution agreement with Harmonia Life Oy for multiple channels in Finland. The above collaboration stated the distribution and selling of Elixinol branded products through various retail stores for the next five years.

Earlier, the company announced its strategic distribution with 25th Group for retail channels in Belgium and Luxembourg. Under the terms of the exclusive distribution agreement, the Distributor will sell Elixinol branded products via various retail channels for a period of five years.

H1FY19 Financial Highlights for the period ending 30 June 2019: During H1FY19, the company reported revenue at $18.3 million, an increase of 19% from $15.4 million in H1 FY18 while the losses increased to -$9.8 million as compared to the profit of $0.1 million in H1FY18. Revenue growth stood at 34% excluding private label business during H1FY19. EBITDA came in at -$11 million as compared to $0.8 million in H1FY18. Gross margin decreased from ~56% in H1FY18 to ~47% in H1FY19. The company witnessed increased contribution from Elixinol branded products to 52% of USA revenues in H1 FY19 from 36% during H1FY18. The branded products of Elixinol are being sold across 1,000 natural, specialty & national retailers in the US market. The company is actively looking to reduce its focus from ongoing lower margin private label business. The business witnessed a generation of first revenues from Europe & UK geographies in late H1FY19.


H1FY19 Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock of EXL is trading at $2.070 with a market capitalization of $269.58 million. The stock is trading at the lower end of its 52-week trading range of $1.575 to $5.930. The stock has generated a negative return of 47.02% and 54.95% during the last three-months and six-months, respectively. The business is focused on producing high quality, consistent CBD extraction and bioavailable ingredients like micro-encapsulation, which is likely to give significant global expansion opportunities through its existing distribution channels. Considering the aforesaid facts along with the financial highlights for 1H19, we suggest investor to keep an eye on the progress with regards to the company’s intention to reduce the lower margin products in coming times. Hence, we have a wait and watch stance on the stock at the current market price of $2.070, up 5.882% on account of recent strategic collaboration with Harmonia Life Oy as on 26 September 2019.

 
 EXL Daily Technical Chart (Source: Thomson Reuters)

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