Elixinol Global Limited

Q1FY19 Revenue Increased By 21% On pcp: Elixinol Global Limited (ASX: EXL) recently announced the appointment of Stratos Karousos as Chief Executive Officer, effective immediately, as Paul Benhaim steps into the role of Chief Innovation Officer. The Group will expand its Global Executive Office in Sydney, Australia, to provide stronger unified planning and support across the Elixinol Global Group and to enable the various regional offices to focus on operational strategy and execution. In the previous update, EXL announced that its Dutch based wholly-owned subsidiary, Elixinol BV has signed an exclusive distribution agreement with MedVec International GmbH for pharmacy and para pharmacy channels in Germany. This development is expected to help Elixinol to significantly expand its presence in Germany, the largest pharmacy market in Europe, as well as Austria and Switzerland.

Q1FY19 Key Highlights: Q1 FY2019 group revenue was reported at $8.2 Mn, representing 21% growth in the prior corresponding period and a 31% decline quarter on quarter as compared to Q4 FY2018 of $11.8 Mn. The QoQ revenue decline was driven by Elixinol’s strategic decision to reduce focus on low margin private label business in the US to enable increased capacity for the expected future growth of higher-margin branded products and provide the ability to capture further market share.


Quarterly Revenue Growth Data (Source: Company Reports)

What to expect: EXL’s global investment into top-line growth is on track. There is a decent opportunity to grow sales in the United States and Europe through large retailers.The ongoing conversations are anticipated to help the company to establish partnerships via signing distribution agreements over the coming quarters. As the Cannabis industry is maturing, Japan continues to provide significant export opportunities.

Stock Recommendation: The company’s share is presently trading above the average of 52 weeks high and low levels of $3.64. EXL is focusing on its core brand in order to deliver better value to its customers and shareholders. Given the decent company outlook, it is expected that the company might boost its earnings in the coming years. Hence, considering the aforesaid facts and current trading level, we suggest investors to keep a close watch on the stock at the current market price of $4.00 per share, down 2.439% on 16 July 2019, and wait for better entry levels.

Cann Group Limited

Decent Net Cash Balance of $62.89 Mn as at March 31, 2019: Cann Group Limited (ASX: CAN) has an engagement in the cultivation of medicinal and research purposes. The company recently announced the issuance of 550,000 new fully paid ordinary shares at an issue price of $0.37, of equal ranks in all respects to the existing class of fully paid ordinary shares already quoted.

Among the major expansion program, the company purchased Mildura site for $10.75 million for construction of facility comprising of world scale greenhouse & associated support areas with an expected production capacity of up to 50,000kg of dry flower per annum. Construction cost for the projects is estimated at around $130 million, funded with the mix of debt (progressing) and existing balance sheet equity. The company has a manufacturing partnership with IDT Australia as it provides manufacturing support to CAN in relation to cannabis-based product formulations. Moreover, it has entered into a supply agreement with Victorian DHHS for the supply of cannabis plant extract. As per the release, dated 26^th April 2019, the estimated global legal market is expected to be ~US$232 billion by 2027, with huge opportunity for the company to grow, precisely access to cannabis in Australia being legalised in 2017 and state hurdles being removed.

March ’19 Quarter Cash Flow Highlights:The net cash outflow from operating activities for the quarter was reported at $2.78 Mn. The net cash outflow from the investing activities for the quarter was reported at $6.98 Mn. The net cash and cash equivalents at the end of the quarter were reported at $62.89 Mn.


March ’19 Quarter Operating Cash Flow Statement (Source: Company Reports)

What to expect: Going forward, the company expects to progress in the development of a range of new dosage forms, suitable for patients in Australia and overseas markets. CAN is ready to step up its engagement with the medical community as it supports a streamlining of the requirements for patient access. Additionally, it will help the medical professionals to ensure that they have resources, which are required to make decisions on the suitability of medicinal cannabis treatment for their patients.

Stock Recommendation: The current ratio for H1FY19 stood at 49.95x, better than the industry median of 1.94x, which implies the company is in a better position to address its short-term obligations than its peer group. Its cash cycle for H1FY19 stood at 116.7 days, which is lower than the industry median of 188.9 days, which implies that the company is better managing its asset-liability to run its operations than its peer group. Currently, the stock is trading slightly below the average of 52 week high and low prices of around $2.34, proffering a decent opportunity for accumulation. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $2.100 per share (down 0.474% on July 16, 2019).
 

Althea Group

AGH’s March ’19 quarter unaudited sales grew by 151% Q-o-Q: Althea Group (ASX: AGH) is engaged in the cultivation and supply of pharmaceutical grade medicinal cannabis domestically and internationally. The Company recently announced that it has furthered its relationship with independent scientific committee Drug Science with the goal of increasing the number of patients that can be prescribed medical cannabis in the UK.

The Drug Science Medical Cannabis Working Group, which includes the United Patients Alliance, is launching the UK’s first national pilot “Project TWENTY21” for medical cannabis. The pilot aims to enrol 20,000 patients before the end of 2021 and will use a real word data patient registry to assessthe efficacy, safety and patient-reported outcomes in patients prescribed medical cannabis. Althea group has been selected to supply its range of products for the pilot.  
 
March ’19 Quarter Key Highlights: AGH’s unaudited sales grew by 151% quarter-on-quarter to $182,801 for the three months ended 31 March 2019. This result was delivered despite the seasonal effect witnessed in January 2019, a time of year when many primary care doctors take leave.


Patients Growth Data (Source: Company Reports)

What to Expect: The company is currently exploring opportunities in South Korea (~ population of 51 million) where medicinal cannabis is being legalised and France (~ population 67 million), which is expected to have legalisation in 1H 2020 and is a logical next step in Althea’s European strategy. The company is also monitoring the status of other emerging markets, including the United States where federal legislation of medicinal cannabis would likely be highly regulated.
Stock Recommendation:Althea group’s share generated mind-boggling YTD return of 333.96%. It is presently trading close to its 52 weeks high level of $1.260. Its current ratio for H1FY19 stood at 79.00x, better than the industry median of 1.94x, which implies the company is in a better position to address its short-term obligations than its peer group. With the mentioned developments along with the whopping gain of 283.33% in the past six months lead us to have watch stance on the stock at the current market price of $1.200 (down 2.041% on 16 July 2019) and suggesting that the investors should wait for a better entry level.

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