Cann Group Limited

CAN Details

FY21 Results: Cann Group Limited (ASX: CAN) is engaged in the cultivation of medicinal cannabis for medicinal and research purposes. It also develops and manufactures finished product formulations through third-party arrangements.

FY21 Business Takeaways:

• Total Revenue Growth: CAN posted a total revenue increase of 360% YoY to $8.56 million, out of which revenue from customer contracts stood at $4.29 million in FY21.
• Increase in Net Loss: The Group incurred a net loss after tax of $25.10 million in FY21 versus $16.94 million in FY20.
• Liquidity Position: The company held $3.10 million cash and cash equivalents as of 30 June 2021 versus $1.55 million as of 30 June 2020.

Satipharm Acquisition Payment Update:

• On 13 September 2021, CAN received the manufacturing equipment from Switzerland for inspection to produce Gelpell capsules at its new Mildura facility. The company is commissioning and installing equipment at the facility to accelerate production.
• With the delivery of Gelpell® equipment, CAN made the following deferred payments to Harvest One Cannabis Inc. (Harvest One) as a part of the consideration for the Satipharm acquisition (declared in February 2021).
• On 13 September 2021, CAN issued 2,725,863 shares to Harvest One at $0.295 per share and another 24,083 shares at $0.403 upon the financial accounts’ completion of the Satipharm business for FY21.

Total Revenue & Net Income from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company witnessed the maximum COVID-19 impact for licensing and permitting processes to meet the product shipment orders offshore. CAN also faces material supplier and third-party manufacturing challenges.

Outlook:

• CAN plans install pilot scale extraction equipment in preparation for the cGMP qualification and certification, expected to be completed by the 2021 close.
• The Group estimates cost savings of ~$23 million with installing the Gelpell manufacturing line and producing in-house compared to current contract manufacturing costs.
• The company also plans to install a pilot-scale Gelpell manufacturing line and commence qualification in October, with the full-scale facility coming up in FY22.
• CAN is seeking registration in the Australian over the counter (OTC) market for S3 low-dose CBD capsules and a proprietary Satipharm platform.
• CAN will hold an online Annual General Meeting (AGM) on 10 November 2021.
  

Stock Recommendation: The stock of CAN gave a negative return of 22.97% in the past three months and a negative return of 49.99% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.275 - $0.915. Considering the current trading levels, decent financial results in FY21, expanded base with the Satipharm business acquisition, ongoing progress on adding an extraction facility and Gelpell manufacturing capability to the existing Mildura facility with the estimated cost savings & efficiencies, technical levels mentioned below and associated risks of COVID-19, delays in shipment and permits, and supply chain disruptions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.275, as on 24 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia. Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and considering the associated risks of COVID-19, regulatory changes, and integration synergies.

Technical Commentary:

On the daily chart, CAN prices are trading in a horizontal channel pattern for the past 2 months. Currently, prices are sustaining above the lower band of the pattern. Moreover, the momentum oscillator RSI (14-period) is trading near an overbought zone at (~34.83 levels) and formed a positive divergence, which indicates the possibility of recovery in the stock from the current levels.

CAN Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.