Stocks’ Details
There is a ton of hullabaloo surrounding the cannabis sector as Canada will be becoming the second country in the world to legalize recreational marijuana. Below we have some useful information that seems to be lucrative and represents a growth story that can create multifold returns in years to come.

Cann Group Limited

Brighter Outlook Ahead: Cann Group Limited (ASX: CAN) is a small cap cannabis company with the market capitalization of circa $375.51 Mn as of October 16, 2018. It is involved in the operation of securing the essential licenses to undertake research and to cultivate cannabis for human medicinal and research purposes under the Australian Government’s new medicinal cannabis regulatory system. Recently, the UK government announced that the usage of medicinal cannabis is legal, and patients can prescribe medicinal cannabis for their treatment by specialist doctors from 1 November 2018. On the other hand, the company has released its proxy statement to vote for the following proposals i.e., adoption of remuneration report, the re-election of director Mr. Philip Jacobsen, approval to fix Directors remuneration, and approval of Long-Term Incentive Plan. Annual General (AGM) Meeting of Cann Group Limited will be held on 14 November 2018 to transact the aforesaid proposals. On the analysis front, Operating margin and net margin for FY18 was substantially improved to -314.3% from -30,741.7% in FY17. It mainly supported by the substantial topline growth of 18,692.0% amounting to $1.5 Mn in FY18 from $0.008 Mn over the prior year. As of now, the group is pursuing a fully integrated business model, with resources and capabilities spanning research & development; cultivation & production; manufacturing; packaging & distribution; clinical evaluation; and distribution/supply to patients in both Australia and in export markets where a legal framework exists for medicinal cannabis treatment. Hence, we expect that CAN has a brighter outlook ahead on the back of aforesaid facts while it has few Canadian shareholders.


Value-Adding Partnerships (Source: Company Reports)

Meanwhile, the share has fallen 7.88 percent in the past six months as at October 15, 2018 and traded close to 52-week lower level of $1.195. Based on foregoing, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $2.720 as the group has a strong footprint in the industry and holds decent fundamentals.

Elixinol Global Limited

Successfully Raised A$40 Mn through Institutional Placement: Elixinol Global Limited (ASX: EXL) has recently successfully raised A$400 Mn via institutional placement with strong support of new and existing international and Australian institutions at the price of A$1.85 per share which represents a 3.3% discount to the 15-days Volume Weighted Average Price (VWAP) of $1.91. This fund will be used (1) to support the growth of Elixinol USA’s hemp-derived CBD business in term of ramping up sales, marketing efforts, and expanding Elixinol USA's production capacity; (2) for expanding Elixinol’s sales and marketing activities in Europe, and (3) for fulfilling general working capital needs. As at 30 June 2018, the group had cash and cash equivalent of $14.17 Mn with virtual debt-free status, signifying healthy balance sheet position.


Revenue growth by Consumer Products Segment (Source: Company Reports)

Meanwhile, the share price has risen 24.38 percent on the past three months as at October 15, 2018 and traded close to the higher level of $2.150. By looking at its strategy to raise fund for business growth purpose and entrust its ability to drive revenue growth and profitability for its global subsidiaries, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $1.930 (up 9.66% on October 16, 2018).

AusCann Group Holdings Ltd

Long-Term Growth Driver Intact: AusCann Group Holdings Ltd (ASX: AC8) has recently signed a non-binding MoU with Canadian listed medical cannabis company Khiron Life Sciences Corp through its Chilean joint venture DayaCann. The objective of this deal is to supply high-quality cannabinoid medicines to Khiron and fulfill the needs of the Latin American market where demand is being increased rapidly. Besides this, AC8 has recently released an online education platform as part of its Medical Outreach Program to support Australian health professionals make informed decisions regarding cannabinoid therapeutics. The purpose of this program is to spread awareness about the usage of cannabinoid medicine which is why this strategy will support the volume growth in the long run. As of now, the company has enough liquidity with current ratio at 23.17x compared to the Industry average of 2.47x, indicating that the company is able to meet its short-term obligations. In our view, AC8 is in progress to solidifying its position as a leader in the development of cannabinoid medicines. Meanwhile, the share price has fallen 14.63% in the past one month as at October 15, 2018 and traded close to the average of 52 week high and low prices. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $0.890, considering the trading level and aforesaid facts.

MMJ Phytotech Limited

Shares Suspended from Trading Platform: MMJ Phytotech Limited (ASX: MMJ) is a global cannabis investment company with the market capitalization of circa $75.95 Mn. As of now, the company has a total operating processing capacity of 100,000 kilograms of dry cannabis flower and/or trim per year and is underway to increase customized processing capacity to be around 250,000 kilograms of dry cannabis per year by Q2 2019. On October 5, 2018, the shares of MMJ were suspended from trading on Australian Securities Exchange or ASX. The reason for the suspension of the securities of MMJ revolved around the affirmative shareholder approval on Resolutions 1 and 2 i.e., Approval of the Disposal, and Change to Nature of Activities. The stock last traded at the price of $0.330.

Creso Pharma Limited

Shareholders give consent to key Resolutions: Creso Pharma Limited’s (ASX: CPH) stock climbed up 4.717% on October 16, 2018 after the result of Annual General Meeting (AGM) was announced while the cannabis industry as a whole has been on the uptrend. As per the release, the shareholders of the company have approved several resolutions such as Issue of Consideration Shares and Performance Shares for Colombian acquisition, and Adoption of an Incentive Option Plan. CPH has a medicinal arm in Canada while the group has been active in the area of cannabis infused beer. Meanwhile, CPH stock has fallen 14.52% in past three months as on October 15, 2018 and traded close to 52-week lower level of $0.510. As of now, we maintain our “Hold” recommendation on the stock at the current price of $0.555.


Comparative Stock Price Movement for above stocks (Source: Thomson Reuters)

Now coming to the stock that has moved significantly up, The Hydroponics Company Limited seems to have gathered a lot of traction in a single day post a period of lull.

The Hydroponics Company Limited

THC Well Placed to Grow as Canada is Set to Legalize Recreational Cannabis: The Hydroponics Company Limited’s (ASX: THC) stock climbed up 11.818% on 16 October 2018 after the market release on its Canadian operation which relates to the legalization of recreational cannabis. As per the release, the company stated that THC is well positioned to benefit from the legalization of recreational cannabis in Canada. This move is welcomed by the company as cannabis will be considered as a legal product for adults to purchase, possess, or grow recreational cannabis in Canada market, which takes effect on October 17, 2018. This new policy will allow the company to expand its addressable market as part of its ‘Farm to Pharma’ strategy and ensure growth trajectory ahead. As of now, THC is incorporating a new subsidiary, Vertical Canna Inc which will be used as an investment and operations entity for the Company’s expanded Canadian operations over the coming months.Meanwhile, THC stock has fallen 9.09% in three months as on October 15, 2018. However, as of now, we maintain our “Hold” recommendation on the stock at the current price of $ 0.615.


 
THC Daily Chart (Source: Thomson Reuters)
 

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