Stocks’ Details

THC Global Group Limited

Two Facilities Receive Narcotics Licences:THC Global Group Limited (ASX: THC) is involved in delivering high-quality medicinal cannabis products to patients in Australia, under ‘Farm to Pharma’ pharmaceutical model. It also owns two Canadian companies i.e., Crystal Mountain Products and Vertical Canna Inc. Recently, the company provided an update of its activities in New Zealand, where its focus is on the provision of cannabidiol products to patients in New Zealand under its exclusive distributor agreement with Endoca. Regulations in New Zealand enable straight forward prescription process with broader patient accessibility than Australia. Till now, over 100 healthcare professionals have been enrolled on CBDinfo.co.nz, an information portal for prescribers in New Zealand.

In another update, the company informed the market that its two facilities Southport and ‘Bundy’ received S4 and S8 Narcotics licences.Product validation is expected to be completed by the end of December with supply to Australian patients to start by early 2020.


H1FY19 Income Statement (Source: Company Reports)

H1FY19 Key Highlights for the period ended June 30, 2019:Revenue from continuing operations increased by 67% to $2,136,894 on the previous corresponding period.Loss for the period increased by 80% to $5,765,724on the previous corresponding period. The increase in loss is largely attributable to the impairment of intangible assets and goodwill in H1FY19.

Stock Recommendation:THC’s share generated a negative YTD return of 17.02%. Its current ratio for H1FY19 stood at 8.71x, better than the industry median of 1.38x, which implies that the company is in a better position to address its short-term obligations. Its debt to equity multiple for H1FY19 stood at 0.02x, lower than the industry median of 0.20x. Hence, considering tailwinds from decent top-line performance, grant of narcotics license for two of its facilities, recent update on New Zealand market and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.395, up 1.282% on October 24, 2019.

 

Medlab Clinical Limited

Inks Agreement with ANC for US Market Entry:Medlab Clinical Limited (ASX: MDC) is involved in the sale of nutraceutical products and pharmaceutical research & commercialisation. Recently, the company informed the market regarding the execution of the Heads of Agreement with ANC for a US market entry using the company’s existing nutraceuticals. ANC is a US entity with audited and approved manufacturing capabilities for several large, institutional US brands. The official launch of the 1st Brand will occur in December at a major US medical conference, the 27th Annual World Congress.

In a previous update, the company highlighted that its NanoCBD™ product, developed at US operations, received its first export order and deposit for 1,500 units to Hong Kong. This will help the company to commercialise its products in countries that allow CBD from hemp as opposed to marijuana.


FY19 Income Statement (Source: Company Reports)

FY19 Financial Highlights for the Period Ended June 30, 2019:Revenue from ordinary activities after discount and promotional costs, increased by 46% to $8,086,760, as compared to the previous year. Net loss attributable to members increased by 77% to $8,090,937, as compared to the previous period. The loss can be attributed to the costs incurred on the progression of commercial operations and accelerating the company’s research projects.

Stock Recommendation:MDC’s share generated a positive YTD return of 10.26%. Its cash cycle for FY19 stood at 93.8 days, better than the industry median of 437.0 days, which implies that the company is efficiently managing its asset-liability balances. Its debt to equity multiple for FY19 stood at 0.06x, lower than the industry median of 0.20x. Hence, considering the decent top-line performance, signing of an agreement with ANC for US market entry, export orders from Hong-Kong with advance deposits and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.430 on October 24, 2019.
 

Ecofibre Limited
 

EOF Admitted into Nasdaq International Designation Program:Ecofibre Limited (ASX: EOF) is involved in breeding, growing, processing, and distributing hemp products. Recently, the company informed the market that it has been admitted into the Nasdaq International Designation program with the symbol EOFBF under OTC (over the counter) program designed for non-US companies. Two of EOF’s three businesses are situated in the US. This move would provide access to a large investor pool in the US market.

September’19 Quarter Key Highlights:Unaudited revenue for the period increased by 140% on pcp and by 17% on last quarter, to $14.4 Mn. Revenue growth was primarily driven by continued growth in the independent pharmacy segment. Ananda Professional products are now sold in over 3,800 US retail pharmacies as compared to 3,200 as on June 30, 2019. Cash from operating activities increased by 22% on the last quarter to $3.9 Mn. Unaudited cash position as on September 30, 2019 was reported at $25.1 Mn.


September’19 Quarter Key Information (Source: Company Reports)

Stock Recommendation:EOF’s share generated a positive return of 43.75% in the last 6 months and is currently trading close to its 52-week high level of $3.700. The company reported good progress during Q1FY20 and in response to the customer demand, has launched two additional topical products, a roll-on with 500 mg active cannabinoids and a pain relief lotion with 300 mg active cannabinoids.The Company’s new US headquarters and Hemp Black processing facility are on track for completion by Q4FY20. Given the backdrop of the above factors, we suggest investors to adopt a watch stance on the stock at the current market price of $3.180, down 1.242% on October 24, 2019.
 

Cann Group Limited

Annual Production Capacity at Mildura Facility to Improve by 40%:Cann Group Limited (ASX: CAN) is involved in cultivation of medicinal cannabis for both medicinal and research purposes. Recently, the company announced about the finalization of design for its large-scale state-of-the-art greenhouse facility in Mildura, which is expected to increase the annualised production capacity of the facility by 40% to 70K kg of dry flower per annum. The increased capacity is expected to generate annual revenues of around $220 Mn to $280 Mn, based on the prevailing wholesale price of cannabis dry flower. The company is also targeting some production towards value-added downstream formulations and products, which will generate higher margins and revenues. Cultivation of mother plants at the site is expected to commence in Q3CY20, and completion of the facility is expected by Q4CY20.

FY19 Key Highlights for the Period Ended June 30, 2019:Revenue and other income for the period amounted to $4,252,643, as compared to pcp revenue of $560,000. Loss attributable to members of the Group stood at $10,926,317, as compared to a loss of $4,725,857 in prior corresponding period.


FY19 Income Statement (Source: Company Reports)

Outlook:The company is focusing on the construction of the Mildura facility with specialised components from the Netherlands. It is also assessing available export pathways for medicinal cannabis products to meet the domestic demand. Moreover, the company is moving forward towards establishing its third-party GMP product manufacturing capability with IDT, enabling the production of value-added formulations that can be supplied to Australian patients.

Stock Recommendation: CAN's share generated a negative YTD return of 42.00%. Its current ratio for FY19 stood at 10.74x, better than the industry median of 1.90x. However, the stock is trading close to its 52-week low level of $1.035 given the latest shortcomings. While the increase in revenue is expected following the construction at Mildura facility and group's target towards value-added products, the volatile trading levels are prevailing. Hence, we recommend a "Hold" rating on the stock at the current market price of $1.050, down 9.483% on October 24, 2019.
 

Elixinol Global Limited

Update on Japan Operations:Elixinol Global Limited (ASX: EXL) is a global leader in the cannabis industry, selling hemp-derived CBD dietary supplements, hemp food and wellness products, as well as the cultivation and manufacture of medicinal cannabis products.

Japan Operations Update:The company recently released an update announcing a breach on the part of Elixinol Japan. As per the release, the company stated that Elixinol Japan has been selling non-compliant hemp-derived CBD products. The breach was discovered upon review of operations of each of the global business units. Non-compliance on the part of Elixinol Japan pertains to strict requirements in Japan on sourcing CBD from only hemp stalk and seed. Investigation over the same is expected to be completed by mid-November 2019.

During the half-year ended 30 June 2019, the company generated revenue amounting to $18.3 million, up 19% in comparison to pcp revenue of $15.4 million.Gross profit for the period amounted to $8.8 million as compared to prior corresponding period gross profit of $8.6 million.


Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock of the company generated negative returns of 7.84% and 51.79% over a period of 1 month and 3 months, respectively. Pursuant to the non-compliance reported in relation to Elixinol Japan, the company will assess the commercial viability of the hemp-derived CBD business unit within Elixinol Japan and provide a market update upon completion. In 1HFY19, Elixinol Japan contributed A$1.6 million or 8.7% of group pro forma revenue. Therefore, the pending investigation and assessment for Elixinol Japan represent major factors in determining stock price movements in the future. Hence, we suggest our investors to adopt a watch stance on the stock at the current market price of $1.710, down 9.043% on 24 October 2019, on account of update regarding Japan operations.

 
Comparative Price Chart (Source: Thomson Reuters)

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