Stocks’ Details

Cann Group Limited

Q3FY20 Update: Cann Group Limited (ASX: CAN) is engaged in the cultivation of cannabis for medicinal and research purposes and the manufacturing of medicinal cannabis products. As on 13 November 2020, the market capitalization of the company stood at ~$86.37 million. During the quarter ended 30 September 2020, the company strengthened its balance sheet through a capital raising of $40.2 million to support its business development and growth strategy. Despite the COVID-19 crisis, the company was able to continue their projects focused on increasing the yield and profile of desired cannabinoids. During the quarter, the company received $93k from its customers and used $5.9 million of cash for its operating activities.

Quarterly Cash Flow Activities (Source: Company Reports)

Aurora Cannabis Sells Ownership Position in Cann Group: The company announced that Aurora Cannabis Inc. has exited its ownership position by selling its stake of 11.84% via off-market trades to several undisclosed buyers. However, the company is not likely to witness any impact on its business plans.

Stock Recommendation: The company will closely work with new offtake customers to finalize its specific product and volume requirements. As per ASX, the stock of CAN is trading close to its 52-weeks’ low levels of $0.290, proffering a decent opportunity for accumulation. The stock of CAN gave a negative return of 34.69% in the past three months and a negative return of 15.78% in the last one month. On a technical front, the stock of CAN has a support level of ~$0.295 and a resistance level of $0.678. On a TTM basis, the stock of CAN is trading at a price to book value multiple of 1.4x, lower than the industry median (Healthcare) of 3.9x, and thus seems undervalued. Considering the current trading levels, new offtake customers, and profile of desired cannabinoids, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.315, down by 1.563% on 13 November 2020.

THC Global Group Limited

Q3 2020 Quarterly Update: THC Global Group Limited (ASX: THC) is a diversified vertically integrated cannabis company. As on 13 November 2020, the market capitalization of the company stood at ~$38.36 million. During the quarter ended 30 September 2020, the company witnessed decent results from its Canadian hydroponics and cultivation solutions business and from its Australian telehealth clinic business, Tetra Health. At the end of Q3FY20, the company’s YTD revenue stood at C$4.54 million, exceeding total FY2019 revenue. In the same time span, the company had $7.26 million in cash, with $2.12 million in cash receipts from customers.

Consolidated Statement of Cash Flows (Source: Company Reports)

Future Expectations: The company is focused on realizing the value of its significant GMP manufacturing capability and is offering a unique end to end e-commerce platform for cannabis in Australia. The company is moving towards patient-led healthcare and high-value pharmaceutical production and is likely to change its name and branding supports in December 2020.

Stock Recommendation: The company retains a potential for production ramp-up to support more than 1 million patients p.a. As per ASX, the stock of THC is inclined towards its 52-weeks’ low levels of $0.180, proffering a decent opportunity for accumulation. The stock of THC gave a negative return of 17.3% in the past three months and a negative return of 10.41% in the last one month. On a technical front, the stock of THC has a support level of ~$0.195 and a resistance level of ~$0.238. On a TTM basis, the stock of THC is trading at an EV/Sales multiple of 5.9x, lower than the industry median (Healthcare) of 12.4x, and thus seems undervalued. Considering the current trading levels, modest long-term outlook, and increase in revenue despite the global pandemic, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.215 on 13 November 2020.

Creso Pharma Limited

September 2020 Quarter Update: Creso Pharma Limited (ASX: CPH) is engaged in developing, registering, and commercializing pharmaceutical-grade cannabis and hemp-based products for use across a broad spectrum of consumer. As on 13 November 2020, the market capitalization of the company stood at ~$22.02 million. During the quarter ended 30 September 2020, the company signed a commercial agreement with DHS Business Portugal to introduce its products into the Portuguese and Spanish markets. During the quarter, Mernova, the wholly-owned Canadian subsidiary of CPH, continued to build sales momentum and reported total sales revenue of $596k. At the quarter end, CPH had cash reserves of $2.56 million and raised $7.992 million via a share placement. During the quarter, the company used $1.91 million of cash for operating activities.

Quarterly Cash Flow Activities (Source: Company Reports)

Third Purchase Order from Nova Scotia: Mernova Medicinal Inc. has received and has delivered its third purchase order for 20 cases of Mimosa (15-20% THC, <1% CBD) from the Nova Scotia Liquor Corporation. The company is likely to receive more purchase orders from the NSLC of its Mimosa and premium quality strains.

Stock Recommendation: The company is witnessing a significant recent increase in medicinal cannabis uptake from patients in the Israeli markets. The company remains focused on further expansion and is progressing on several business development initiatives to accelerate growth. As per ASX, the stock of CPH is trading very close to its 52-weeks’ low levels of $0.024, proffering a decent opportunity for investors to enter the market. The stock of CPH gave a negative return of 26.66% in the past three months but a positive return of 10% in the last one month. On a technical front, the stock of CPH has a support level of ~$0.030 and a resistance level of ~$0.076. On a TTM basis, the stock of CPH is trading at an EV/Sales multiple of 6.3x, lower than the industry median (Healthcare) of 12.4x, and thus seems undervalued. Considering the current trading levels, expansion into Spanish and Portuguese markets, and an increase in medicinal cannabis uptake in Israel, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.034, up by 6.250% on 13 November 2020.

Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)

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