Stocks’ Details

AusCann Group Holdings Ltd (ASX: AC8)

Fully integrated pharmaceutical cannabinoid Company: AusCann recently announced that its 50:50 Chilean Joint venture, DayCann has commenced planting of its second medicinal cannabis crop which was followed by the grant of its cultivation license and pursuant to the cultivation license, a maximum of 435 plants will be planted at the facility to provide a range of cannabis to be extracted and processed into trial cannabinoid formulations for the treatment of chronic and neuropathic pain. AusCann and DayCann JV is focussed on establishing a fully integrated supply chain in Latin America which will manage the operations from cultivation. AusCann’s strategic partner, Tasmanian Alkaloids has been granted a manufacturing license by the Office of Drug Control (ODC) so that it can commence its manufacturing operations in Tasmania. It will also start importing its genetics for planting in Tasmania in early 2018. Tasmania Alkaloids and AusCann are planning to combine this supply chain with AusCann’s medical outreach program so that Australian product is available for patients. AusCann is the only listed company that is integrated across the full spectrum of the Australian medicinal cannabis supply chain and is also one of the few companies to have been granted both cultivation and manufacturing licenses. The stock price has climbed up by about 80% in past six months and by almost 18% in last week (as at December 29, 2017), and we give a “Hold” recommendation at the current price of $0.805
 

Regulatory Framework (Source: Company Reports)
 

Creso Pharma Ltd (ASX: CPH)

Stepping stone for global commercialization: Recently, Creso has signed exclusive commercialization agreement with the Swiss Pharma company Doetsch Grether for marketing and distributing Creso’s CannaQIX®10 in Switzerland. It also obtained the necessary approvals to market its hemp based nutraceutical CannaQIX®10 in Switzerland which will act as a Food Supplement compliant with Swiss Federal food law. CPH recently acquired Kunna Canada Ltd and its wholly-owned Colombian subsidiary, Kunna S.A.S for up to US$7.15m in shares which will be issued at a deemed price of A$1.10 and up to US$1m in performance shares and a US$250,000 exclusively option payment. Post-acquisition, Creso has a strong foothold in the growing Latin America region. It allowed to integrate its supply chain and produced its own medical cannabis and supply its existing planned products to the Colombian market. Creso is the only Australian-listed medical cannabis company with direct exposure to the Colombian market which is expected to be exporting more than 40.5 tonnes of medical cannabis oil by 2019. Colombian market is growing strongly as cannabis consumption has increased 15% per annum between 2008 & 2013 and US $86.3m has been spent on cannabis. Creso will be the only company which will be listed on the ASX with the capacity to commercially cultivate medical-grade cannabis in Colombia. Granting of a cultivation license in Colombia will also give Creso a significant competitive edge as it will be the only company to commercially cultivate medical-grade cannabis in the Colombian environment. The group had recently signed a binding letter of intent with LGC Capital Ltd and Baltic Beer Company Ltd, which will create a bespoke portfolio of unique cannabis and hemp deprived alcoholic and non-alcoholic beverages; and is also planning to expand its products offerings into the growing edible and lifestyle markets. Prices increased by 64% in the past six months and by 7% in the past one week (as at December 29, 2017). Given the run-up and potential, we put a “Hold” recommendation on this stock at the current price of $0.93
 

The Hydroponics Company Ltd (ASX: THC)

Building the business: Recently, THC’s wholly owned Canadian subsidiary Crystal Mountain-Dragon Vision (CMDV) entered into an exclusive distribution contract with Nanolux Technology Inc. Nanolux is a leader in supplying innovative lighting technologies to the hydroponics markets with sales in excess of $100m. This gives CMDV to leverage its growth in the rapidly expanding Canadian market for cannabis which will increase the range of lighting products available to control and optimise growing conditions. This agreement will add to the portfolio of its products which are currently marketed by CMDV to the Canadian marketplace for cannabis growth and production. THC plans to continue to build the business organically, adding new market leading agencies to the portfolio and is also currently advancing its discussions with several acquisition targets.
 

Nanolux Products (Source: Company Reports)
 
Une-Innovative Consulting Australia Pty Ltd also became a substantial holder of THC by holding 7,587,302 shares. There was a huge rise in the prices in the past three months with a 152% surge and this trend continued with 8% rise in the past one week. We give this stock a “Speculative Buy” at the current price of $ $0.695
 

Cann Group Ltd (ASX: CAN)

Commissioning of the Northern Facility: Cann Group Ltd recently announced commissioning of Cann’s Northern cultivation and R&D (Northern Facility) facility in Melbourne. Northern Facility allows Cann to expand its cultivation capacity with up to 600m of new flowering room capacity, complementing the existing Southern Facility (160m flowering room capacity). The Company also received a permit to start cultivation at its Southern Facility in May and has since completed three harvests of medical cannabis material. The company also indicated for the receipt of tissue culture material for several strains of medical cannabis under its technical services agreement with Agriculture Victoria (AgVic), which will be scaled up in the coming months. Cann Group was eligible for the new permit under its cultivation licenses for medical cannabis supply and research which were varied by the ODC (Office of Drug Control) in October to include the Northern Facility. Cann Group recently completed its placement of fully paid ordinary shares in the Company at $2.50 each to institutional, sophisticated and professional investors which has raised $58.7 million. This also represents the first stage of the capital raising process. While the stock has surged by 338% in the past six months, Canaccord Financial Group ceased to be a substantial holder of Cann Group in December 2017. Given the trading scenario, the stock looks “Expensive” at the current price of $2.86
 

Financial Results (Source: Company Reports)
 

MMJ PhytoTech Ltd (ASX: MMJ)

Strategic investments: Recently, MMJ finalised its due diligence and signed the formal agreements to subscribe for C$2 million in secured convertible debentures in Toronto-based Weed Me Inc. Under this MMJ negotiated and improved its investment terms including a reduction in the pre-money valuation of Weed Me from C$10 million to C$9.2 million. Through this strategic investment, MMJ has strengthened its position in the Canadian cannabis sector, via its respective holdings in Harvest One Inc which is 59%. MMJ also made few changes in its investment like it appointed its Chief Operating Officer as the Leader of PTL (Phyto Tech Therapeutics Limited) research and development following the departure of Dr Heffetz. Meanwhile, MMJ has been continually focussing on cost-effective, fast-to-market oral prescription drugs. Further, MMJ’s first clinical trial highlighted the favourable bioavailability of the capsules in comparison to Sativex – a market-leading, commercially available cannabinoid oral spray produced by GW Pharmaceuticals. The stock looks to be an interesting one to watch in 2018 while we give an “Expensive” recommendation at the current price of $0.455
 

Zelda Therapeutics Ltd (ASX: ZLD)

Clinical trial to be driver for growth: Zelda recently announced that it has entered into a research agreement with Children’s Hospital of Philadelphia (CHOP) to study the pharmacology of cannabinoids and this study will focus on autism with an observational trial to better understand the efficacy of treatment in existing patients and will help to work closely with patient advocacy group and licensed growers. This will be an important United States based study and it may become a key milestone in the ongoing study of cannabinoids in controlled, clinical settings and this study is expected to commence in early 2018. It is worth noting that Australia’s first medicinal cannabis trial for insomnia also got approved with the full regulatory approval. The above-stated trial will be undertaken by University of Western Australia. The Company has been focussed on completing its medical cannabis formulations to treat a number of disease conditions and is also progressing its research to clinical trials. It has the access to US and Chile’s patient data. Results of trial are expected to be out in Q3 2018 and if positive then the Company will be well positioned to progress commercialisation activities for this formulation.ZLD stock was down by 31% in last one month but has been up a bit in last five days (as at December 29, 2017) followed by 7.5% rise on January 02, 2018. It is to be noted that the earlier movement is also related to ZLD responding to ASX price query and stating that the approval on protocol was sought in June 2017 while health approvals and final approval after multiple amendments were granted at the end of November 2017 and the group has not faltered on the ASX listing rules. Given the sentiment, we put a “Hold” recommendation on the stock at the current price of $0.10
 

Queensland Bauxite Ltd (ASX: QBL)

Progress according to the plan: Recently, QBL’s subsidiary Medical Cannabis Limited (MCL) executed its business plan successfully in relation to MCL’s Vitahemp food company and its impressive client list. MCL recently announced a deal with AlgaeTec whereby MCL will become a 19.9% shareholder of AlgaeTech so MCL will enjoy seed bank collection for product development for veterinary purposes. After the grant of Mineral Development License (MDL) from the Queensland Department of Natural Resources and Mines, the work programme under the MDL has been progressing according to the plan and also bulk sample have been taken as per the schedule. The operational results from the working of the MDL will be a key part of the overall strategy to develop an export operation in a staged development of South Johnstone which will allow long term mining and export on a prospect basis at low cost which will be within the project area. Meanwhile, QBL stock showed a dip of 22% in one month as on December 29, 2017 and was down 5.3% on January 02, 2018. Given the latest development, it will be prudent to keep an eye on this stock for any key positive catalysts with regards to growth in the cannabis sector. We give an “Expensive” recommendation at the current price of $0.054
 

Stemcell United Ltd (ASX: SCU)

Prospects yet to be unveiled: While most of the key pot stocks have been on the up-surge, SCU has fallen 53.5% in last six months and is yet to reveal true potential in cannabis sector. Lai Danny Kong Sang became a substantial holder of Stemcell by acquiring 6.83% voting power in November 2017 while 30,000,000 shares were allotted to the investors via a Private Placement. On the other hand, the group finished the market trials of its dendrobium essence infused facial mask (“Masks”) and has finalized the ingredients formulation for the Masks. The group was otherwise battered few months back and had reported a loss of $3.6 million in FY17 owing to impairment of an intangible asset. Though prices decreased by 30% in past one month, but we could see a rise in prices in the last week with a 2.6% jump, which was again lost on January 02, 2018. Given the volatility, we put a “Hold” recommendation for this stock at the current price of $0.039

 
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