THC Global Group Limited

Grant of Licences:THC Global Group Limited (ASX: THC) is a farm to pharma diversified vertically integrated cannabis company, which owns the largest bio-pharma manufacturing facility in the Southern Hemisphere. The market capitalisation of the company stood at ~A$51.83 Mn as on 17^th October 2019. Recently, the company through a release provided an update on its Australian cannabis manufacturing milestones in the lead up to the company commencing commercial production of medicinal cannabis. It was mentioned that THC has been granted Schedule 8 and Schedule 4 licences at Southport and ‘Bundy’ facilities to enable manufacture and wholesale of S8 and S4 drugs, which include medicinal cannabis. The company currently possesses all licences which are required to enable the supply of medicinal cannabis produced at its Southport manufacturing facility to Australian patients.

In another update, the company stated that it has issued 187,500 fully paid ordinary shares at the consideration of $0.40 on 15^th October 2019.The shares have been issued for the conversion of THCO Listed options. As per the release dated 5^th September 2019, the company announced that it has secured an agreement to lease a property with 66,000m² of existing hydroponics greenhouses, as well as an additional 180,000m² of agricultural land for the cultivation of medicinal cannabis in Bundaberg, Queensland. THC Global expects to produce initial 80,000kg of the dried cannabis flower from hydroponics growing annually at the property, with potential to increase the capacity through exploitation of open-field cultivation area.

The following picture depicts an overview of profit & loss statement for the half-year ended 30^th June 2019:


Profit & Loss (Source: Company Reports)

What to Expect:THC Global has focused strategically on the first product bottling as next significant milestone in implementing the scalable, high quality, and cost-competitive business.

Considering that the company has secured a significant growing capacity over multiple proprietary cultivation sites, as well as an industry-leading pharmaceuticals biomanufacturing facility with attached testing and product development laboratory, it is in prime position to service domestic patients and global export market.The company’s commercial partners operate throughout four continents, supporting future international growth.

Stock Recommendation:The company is now the holder of a full suite of cannabis licences in Australia, enabling a Farm to Pharma production model. As at 30^th June 2019, the group has cash and cash equivalents of $5,689,612. As per the half-year report, if required, the group has an ability to continue to raise additional funds on a timely basis and scale back a significant portion of its development activities.

Current ratio of the company stood at 8.71x in 1H FY19 in comparison to the industry median of 1.38x. This implies that the company is in a decent position to address its short-term obligations against the broader industry. Asset to equity ratio stood at 1.20x in 1H FY19 against the industry median of 1.95x. As per ASX, the stock of THC is trading close to its 52-week lower levels of $0.375 and generated a negative return of 13.64% in the span of previous one month.

Therefore, in light of above-stated facts and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.400 per share (up 5.263% on 17^th October 2019, owing to the receipt of S4 and S8 Narcotics Licences).

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