For the past one year, pot stocks seem to have witnessed a sinusoidal trend with needle moving more in the positive territory. Despite many favourable legislations passed in different jurisdictions, the stocks lately are on a retreat as volatility takes charge and heath care companies are under the radar of new federal budget with R&D regulations.



Stocks’ Details

AusCann Group Holdings Ltd

Leveraging strategic partnerships: AusCann Group Holdings Ltd (ASX: AC8) has strengthened its key partnerships and progressed well on its operations. According to the latest results for the quarter ended 31 March 2018, AusCann and Tasmanian Alkaloids have commenced operations to produce final dose cannabinoid pharmaceuticals for the domestic and international markets. Additionally, the Federal Government recently announced to allow export of medical cannabis. With this announcement, the AusCann and Tasmanian Alkaloids’ partnership is expected to help expand footprints into international market resulting into topline growth of the company.


Exemplary Partners (Source: Company Reports)

Further, AusCann is building strong distribution channels for AusCann’s cannabinoid medicines produced locally with Tasmanian Alkaloids and imported from Canopy Growth Corporation (Canada), through the agreement with Australian Pharmaceutical Industries. AusCann is also working with Canopy Growth Corporation to become principal suppliers of medical cannabis products to the Australian market.  On the financial front, the company invested approximately $1.5 million in Q3 FY18 on research and development, operating costs, joint venture expenses, consulting and legal fees and other associated expenses. This investment will help in premiumization of its product mix portfolio which will aid revenue in future. Additionally, AC8 reported cash reserves of $11.89 Mn and is well funded to maintain its operational momentum in Q4FY18 and beyond. With a year to date rise of 82.6%, it might be good to “Hold” the stock at the current market price of $ 1.435.
 

Cann Group Limited

Takeover speculation: Cann Group Limited (ASX: CAN) has lately received two new licenses from the Office of Drug Control (ODC) to enable continuation of cultivation and production of cannabis for research and medicinal purposes. Besides this, the Group has got the grant of import permits to get genetics and cannabis oils from its Canadian partners. It has also appointed Aurora Cannabis Chief Global Business Development Officer Mr. Neil Belot as a Director of the company. This followed Aurora’s participation in Cann’s $60 Mn placement in which it increased its holding in Cann to 22.9%. Further, the group is progressing with the site selection process for its Stage 3 cultivation and GMP (Good Manufacturing Practice) manufacturing hub facility. The final design will be dependent on the selected site but is expected to be approximately 23,500 square meters, with some 14,000 square meters flowering room capacity.Addressing concerns relating to takeover speculation as reported in media,Group provided an update wherein it declined about receiving any proposal for a takeover bid from Aurora Cannabis Inc. as such, though some preliminary discussions have happened. While the stock has been added to all ordinaries effective March 19, 2018, it trades at a higher level and looks touch “Expensive” at the current market price of $ 3.490.
 

The Hydroponics Company Limited

Update on Australian Operation and Rollout of IP Licensing Agreement: The Hydroponics Company Limited (ASX: THC) provided an update on its Australia Operation following the recent acquisition of a pharmaceutical biomanufacturing facility and the entering into the binding term sheet with Meluka Health to lease a USDA organic certified site for the cultivation of organic medicinal cannabis crops in northern New South Wales. According to the release, the group has been able to secure several key personnel that previously worked at the recently acquired biomanufacturing facility in Queensland. Apart from this, THC Pharma Pty Ltd was incorporated as a wholly owned subsidiary and led by Ken Charteris as Executive Director. The company has appointed Dr. Michael Harrison as an API Manager for the Queensland biomanufacturing facility. Regarding its IP licensing agreement, through its subsidiary (as licensee) with National Access Cannabis (as licensor), both parties have approved for the termination of the Agreement, effective from 4 May 2018 with no penalty to either party as it was not a supportive model as per current Australian regulatory framework. Based on foregoing developments, we maintain our “Hold” recommendation on the stock at the current market price of $ 0.575, while the stock has plunged about 43.3% in last six months at the back of prevailing volatility.
 

Creso Pharma Limited

Lucrative Relationships:Creso Pharma Limited (ASX: CPH) has signed a commercial agreement with Mediphos OTC Consumer Health BV with the objective of commercialising its CBD hemp-based nutraceutical product cannaQIX in the Benelux region (Belgium, the Netherlands, and Luxembourg). According to the release, the first purchase order for cannaQIX with a value of 40,000 CHF (A$53,277) has been placed at the time of signing the agreement. This agreement follows a successful, revenue generating launch of cannaQIX in Switzerland and Lichtenstein and the pending launch in the UK.


CannaQIX Product (Source: Company Reports)

Recently, the group informed to the market that it is entering the Israeli medical cannabis market through a strategic binding agreement with Cohen Propagation Nurseries Limited. Under the agreement, the partners will establish and incorporate a joint venture to operate a medical cannabis growing facility in Israel. We expect that it is a key step for the company to expand its wings into the Israeli medical cannabis market. As of now, we give a “Hold” recommendation on the stock at the current market price of $ 0.700, considering that the aforesaid agreements will provide a new pathway into the lucrative markets. The stock has otherwise fallen about 19.77% in last three months but advanced up by 10% in last one month, as at May 23, 2018.
 

Zelda Therapeutics Limited

Potential for Growth: The needle for Zelda Therapeutics Limited (ASX: ZLD) moved in the negative zone as it was down 6.667% on May 24, 2018 while the group is beefing up its management team. ZLD lately appointed Dr Richard Hopkins as a full-time Managing Director, effective from 1 July 2018. The group has provided an operational update for the three-month period to 31 March 2018 and notified that it has received approval from the Institutional Review Board (IRB) for its study of the pharmacology of cannabinoids in the treatment of paediatric autism patients which will be conducted at the USA-based Children’s Hospital of Philadelphia (CHOP). The positive results will allow Zelda to potentially expand into a formal clinical trial to study the efficacy of standardised, high-quality medicines. The business strategy is on track and the group is building a platform for the next phase of its growth. Additionally, ZLD at the end of the quarter had cash reserves of $6.17 Mn. As of now, we give a “Hold” recommendation on the stock at the current market price of $ 0.112, based on the potential for growth given the pipeline of activities.
 

Roto-Gro International Limited

Attractive Acquisition: Roto-Gro World Wide (Canada) Inc., a wholly-owned subsidiary of the Roto-Gro International Limited (ASX: RGI) has entered into an agreement with organic perishable foods grower, Gibio Inc. wherein RotoGro has agreed to invest CAD $375,000 in return for 9.09% of Gibio’s fully paid ordinary shares on issue. Following this investment, RotoGro and Gibio will construct two new rotational hydroponic garden prototypes, bespoke to Gibio’s operations in accordance with the technical collaboration, testing, and refinement to date. With the completion of this, these prototypes will undergo a final round of testing where any IP additions to RotoGro’s existing designs bespoke to the Gibio operations shall be owned by Gibio. Apart from this, Roto-Gro World Wide Inc. has entered into another agreement to acquire 100% fertigation assets and ongoing contracts of Hanson’s Water Treatment Inc. through its wholly-owned subsidiary, Global Fertigation Solutions Inc. (GFS).This acquisition will provide a leverage to Hanson’s specialized fertigation business line for water treatment and nutrient management in the viticulture, perishable foods, and lawful cannabis space. Additionally, the transaction of this deal is equivalent to three times Hanson Fertigation's 2017 financial year EBITDA which is valued to be around $1,750,000. The Agreed Valuation will be paid through the issue of five million 5,000,000 fully-paid ordinary shares in the capital of RGI. We expect that the Company continues to be focused on expanding into industry synergistic opportunities; exploring strategic partnerships and complimentary acquisitions in its related markets. As of now, we give an “Expensive” recommendation on the stock at the current market price of $ 0.420, while it slipped by 3.4% on May 24, 2018.
 

Stemcell United Limited

Potentiality in Dendrobium Market: Stemcell United Limited (ASX: SCU) has recently signed a Co-operation Agreement with Yunnan Hua Fang Industrial Hemp Co. Ltd. under which SCU will pay HFIH an amount of RMB2 million (about A$400,000) for the consideration to secure the rights under the Agreement. Under the agreement, the group is able to utilize HFIH’s import-export licence and existing market network in China to explore further distribution of SCU’s dendrobium related products and any future TCM Cannabis beauty products it may develop. As per the latest quarterly update report,the cash and cash equivalent at the end of the quarter was around $1,909 that will be used to support business operations.  On the other hand, Lai Danny Kong Sang, became the substantial holder of the Group since April 09, 2018 by holding 1.99 per cent of the voting power. Looking ahead while the group is yet to establish itself in the cannabis space and the past performance wherein the stock had fallen 58% in last six months, we maintain our “Hold” recommendation at the current market price of $ 0.023.
 

MGC Pharmaceuticals Limited

Maltese Government Approves Medicinal Cannabis Legislation:MGC Pharmaceuticals Ltd (ASX: MGX) announced that the final legislation has been passed by the Maltese Parliament in relation to legalizing the production of cannabis for medical use in Malta. Following this development, the Company is now expecting to have final formal agreements from the Malta Medicine Authority to be signed in the coming weeks. Once the licence by the Malta Medicines Authority is issued, the group will commence work on the project in Malta. On the other hand, the company issued an aggregate of 96,681 Ordinary Shares following the activity of 6.5c listed options by optionholders who are unrelated parties. The Company has received funds from the respective optionholders totalling $6,284.27 for the exercise of MXCOD options. As of now, we maintain our “Expensive” recommendation on the stock at the current market price of $ 0.071, and will keep a watch on any positive development.

 
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