Join us as we take a look at the Australian cannabis companies that are primed for growth in 2020.
The Australian Cannabis Industry has made some huge strides over the last few years.
While the country only legalised marijuana exports in 2018—arriving moderately late to the party—Australia is already well-positioned to become a major player in the global export market, which is expected to be worth approximately $55 billion by 2025.
Although this should come as no surprise, as Australia already has a thriving agro-pharma sector, and is responsible for approximately 50% of the world's legal poppy supply. These plants are then processed by pharmaceutical companies before being manufactured into medical-grade opiates such as codeine and morphine.
In 2019 we also saw a number of changes to the legislative landscape begin to come into effect, as the Australian Capital Territory legalized recreational cannabis use, and medicinal marijuana prescriptions began to skyrocket throughout Australia.
In fact, Freshleaf Analytics estimates that the level of medicinal cannabis approvals in Australia skyrocketed by more than 985% last year, which translates to roughly $50-$60 million in annualized revenue.
However, the market is still in an embryonic stage of development, which can often make it difficult to separate the winners from the losers, while undiscovered up-and-comers are even harder to spot. So, for these reasons and more, we've decided to take a look a some of the new heavy hitters stepping up to the plate in 2020.
Emerald Clinics is an Australian healthcare provider that specialises in cannabis-based medical treatment and already has more than 1,000 patients on the books.
The company has four clinics in Melbourne, Perth, Sydney and regional NSW, and has also launched a $6-8 million IPO—with an additional $6.8 million having already been raised prior to this—in preparation for its listing on the ASX in February 2020, where it will trade under ticker code EMD.
As part of the raise, Emerald is looking to issue approximately 30-40 million shares at 0.20 apiece, which will set the company's pre-money, fully diluted market capitalisation at roughly $31 million.
Emerald is well positioned to be a major player in delivering such real-world evidence for cannabinoid treatments with the scope to expend this into other unconventional drugs. Emerald Clinics CEO and Managing Director, Dr Michael Winlo
Aside from providing treatment to individuals with eligible conditions, one of the key features that sets Emerald Clinics apart from the competitors is its dedication to research, with a particular focus on capturing a broad range of highly valuable trial-grade data from its patient base.
While this may sound boring, the company is actually sitting on a potential goldmine, as Emerald then takes this anonymised patient data and sells it to every corner of the cannabis industry, from growers to health insurers, big pharma and even governments.
Compounding this further is the current crackdown on cowboy operators in the US, which saw the Food and Drug Administration (FDA) raise safety concerns about CBD in late 2019 before issuing more than 15 cannabis companies with warnings for marketing unapproved products.
One of the biggest players in the game, Elixinol Global, was even forced to inform its shareholders that it may soon be hit with a class-action lawsuit alleging that the company's products are mislabelled as dietary supplements.
Although this was an unfortunate development for investors in the affected companies, it was a largely inevitable outcome of the US Cannabis Industry's ongoing maturation, as the market had become increasingly flooded with CBD products making dubious claims without the clinical data to back it up.
More importantly, this new wave of regulation also presents a huge potential upside for Emerald Clinics' data harvesting business, as many cannabis companies will now be forced to put their money where their mouth is if they wish to continue marketing their products.
Luckily for investors, the only way they'll be able to do this is by either purchasing Emerald's patient data, or by engaging in costly, time-consuming clinical trials. According to the CEO and Managing Director of Emerald Clinics, Dr Michael Winlo, this is where the company's true value resides.
"There is a lot of clinical apprehension amongst regulators, payers and clinicians behind the use of medicinal cannabis, specifically, and so the only way to address that is to compile robust, clinical evidence that supports any claims of benefits that these products [provide]," Dr Winlo said.
"In Australia and foreign markets, a lack of quality clinical evidence for medicinal cannabis means there is apprehension amongst regulators, health insurers and clinicians to register, pay and prescribe. Further to this, regulators are now taking action on unsubstantiated claims being made by some licenced producers."
"The acceptance of real-world evidence, as opposed to a traditional market authorisation pathway involving clinical trials, is gaining significant momentum in jurisdictions through Europe and North America with substantial investment being made by big pharma."
Emerald Clinics also has some serious managerial muscle sitting on its bench, which includes Dr Winlo himself, who is the former CEO of Linear Clinical Research and was previously employed in Silicon Valley by the company Palantir.
The Co-Founder and Director of Zelda Therapeutics, Dr Stewart Washer, also serves as the Executive Chairman of the company's Board, while Botanix Pharmaceuticals Co-Founder Matt Callahan is employed as a non-executive director.
I don't know about you, but that seems like a pretty winning combination to me.
Why we like Emerald Clinics
- The company's patient numbers are set to experience significant growth in 2019.
- Emerald's data harvesting operations will soon provide a massive revenue boost as regulation becomes an increasingly central preoccupation of the global cannabis industry.
- The company will well-funded thanks to its upcoming IPO, allowing it to pursue further expansion plans in 2020.
Cannatrek is a leading medicinal cannabis producer and was one of the first companies in Australia to secure the necessary licenses to cultivate, research and manufacture and cannabis-based medicine.
Cannatrek combines cutting edge cultivation techniques with top-of-the-line manufacturing facilities, allowing them to produce affordable, high-quality cannabis products. And while the company has only been active in the Australian cannabis market for a little over three years, Cannatrek's team of talented entrepreneurs and researchers has managed to make considerable headway.
In fact, Cannatrek is already poised to become one of the largest producers and wholesalers of medicinal cannabis in Australia—thanks to its strong emphasis on patient affordability—while also having the necessary production capacity to supply additional international markets.
Cannatrek is positioned as a leading provider of medicinal cannabis products and services to doctors, pharmacies and patients across Australia as a licensed importer, wholesaler and now, local cultivator. Our aim is to cultivate, process and manufacture affordable medicinal cannabis as a clean, green, therapeutic product of choice for hundreds of thousands of patients in Australia and overseas. Cannatrek CEO, Tommy Huppert
The company is also in the process of constructing a $160 million production facility in Shepparton, Victoria, which will create more than 400 jobs a year for the local region. Once fully operational, the Shepparton Facility will be able to produce roughly 160 tonnes of medicinal cannabis per year, making it one of the largest cannabis manufacturing sites in the world.
According to the CEO of Cannatrek, Tommy Huppert, the company believes that the Shepparton region could eventually become a major epicentre for the cannabis cultivation industry in Australia thanks to its population of highly skilled agro-tech professionals.
"We will be a major employer and there will be significant and positive knock-on effects in the region. We are now preparing the development to build a scalable project and we have received planning permission for the entire project," Huppert said.
"We believe that the region will become a major centre for the production of medicinal cannabis. We are delighted that the local council is so enthusiastic about our project."
"With the development assistance that we are getting from the Victorian Government, we are confident that we can be a major low-cost producer of medicinal cannabis for Australian patients, as well as for world markets," he said.
However, the true key to the company's success is its five-point "Seed to Patient" business model, which has provided Cannatrek with a rock-solid base to launch its long-term expansion plans. As a result, the company underwent significant growth during 2019 and is poised to exceed $1 million in revenue for the 2020 period.
Cannatrek believes that cannabis industry arms race will be won by the marathon runners—and not the sprinters—which is why one of its two biggest focuses is on financial and regulatory risk management.
As the company is already a holder of the necessary ODC licenses needed to commercialise its cannabis crop, one of the key regulatory risks for the company is being hit with significant operational delays.
To ensure this is always avoided, Cannatrek has been working with a team of experts to ensure that every compliance requirement is fully accounted for, further reducing the danger of costly delays. More importantly, the company is also being considered for Major Project Status (MPS), which will prioritise permits and approvals across all levels of government, including the ODC.
Additionally, Cannatrek has already managed to successfully raise more than $14 million to date and is currently in the midst of a $15 million pre-IPO seed round which will provide strategic depth and allow the company to scale and build its second production site at the Shepparton Facility
Cannatrek's vertically integrated business model is also well suited to pursuing economies of scale in production and distribution, which the company believes could eventually be expanded to encompass more than 100,000 medicinal cannabis patients. As part of this, the company is developing a new IT platform aimed at the medicinal cannabis market that will be rolled out to patients, GPs, pharmacists and regulators in 2020.
Why we like Cannatrek
- Cannatrek is well-positioned to become one of the leading medicinal cannabis producers and wholesalers in Australia.
- The company is both well-funded and well-placed to pursue economies of scale.
- A strong focus on regulatory compliance and financial risk management will ensure that Cannatrek avoids many of the share price volatility that plagues many cannabis producers.
Little Green Pharma
Little Green Pharma is a cannabis company based in Western Australia that initially made a big splash in April 2017, when it was granted one of the country's first Medical Cannabis Cultivation licenses
And since then, Little Green Pharma has continued to build on their first-mover status by selling more than 4,500 bottles of medicinal cannabis oil and expanding operations overseas with a specific focus on Europe, including Germany and the UK.
However, improving people's lives is also a key component of Little Green Pharma's strategic business model, as they firmly believe that "doing the right thing and going about it in the right way" will result in a high return for investors.
Little Green Pharma is strongly positioned to capture value from opportunities relating to the emerging medicinal cannabis industry in Australia and internationally. Its listing on the ASX will assist in raising awareness amongst investors and the wider public and providing the funds and momentum to accelerate its growth strategy. Little Green Pharma Managing Director, Fleta Solomon
The company put on a show-stopping performance in 2019, which saw LGP receive its first commercial order from the German market while also making continued progress with its facility expansion and planned ASX-listing.
Over the last 12 months, Little Green Pharma also experienced a substantial increase in patient demand, leading its patient approval numbers to swell to approximately 1,500.
As a result, the company has continued to experience month-on-month revenue growth, which is likely to remain consistent in 2020. This led to cumulative monthly sales of almost $550,000 for the first nine months of 2019, while a further $106,000 was generated in October alone.
The company's upcoming IPO is also scheduled to take place on 7 February 2020, with the aim of raising $10 million through the offer of 22.22 million shares at 0.45 each.
Part of the money raised from the IPO has already been set aside for the continued expansion of the company's WA-based indoor cultivation facility. The manufacturing site currently has a production capacity of 15,000 bottles per year, however, once LGP's proposed expansion plans are completed later in 2020 this number will rise to 110,000, significantly widening the company's potential addressable market.
"So, call it another nine months from now, we will be starting to reap the benefits of that particular volume. Conservatively, I will say that we will have 20,000 patients in the next year," Managing Director Fleta Solomon said.
"In terms of surplus supply, it will never be a problem, at least in the next four or five years. And the reason being there is just such a worldwide shortage of high-quality medicinal cannabis. Which is why we have managed to secure a number of distribution agreements throughout the world."
"We have the capability to deliver and to export and have our product distributed into certain jurisdictions. And really to fulfil that, we're looking for volume. Hence, why we're building out our expansion cultivation project at the moment. Then from there, we'll look further and beyond and say, do we look at other cultivation licenses in other jurisdictions?"
Meanwhile, another 10% of the funds raised will be budgeted for education and training activities, while the remaining funds will be used to cover the cost associated with regulatory compliance, listing expenses and the build-up of inventory.
Little Green Pharma also expects to further expand its three-product range in 2020, as further products are pushed through the development pipeline, while its patented small particle formulation—which the company believes will significantly reduce the required dosage of cannabis for patients—is currently being pushed towards product development validation.
Another one of the company's key strengths is its focus on Good Manufacturing Practices (GMP) manufacturing standards, which makes it, "one of only a handful of companies across the globe" who are capable of exporting cannabis to Europe. This puts LGP in the position of being able to go toe-to-toe with some of the larger Canadian heavyweights who are still, "years away from actually getting that approval or accreditation".
Why we like Little Green Pharma
- LGP experienced an exponential increase in prescription numbers during 2019, growing to 1,500 patient approvals.
- Once the company's proposed expansion to its WA facility is complete its production capacity will be more than seven times greater, rising from 15,000 to 110,000 bottles per year.
- Little Green Pharma has continued to experience month-on-month revenue growth, while its upcoming IPO is set to generate an additional $10 million in funding.
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