Althea Group – Leading the Way in Patient Acquisition

The Althea Group's (ASX: AGH) ultimate ambition is to dominate the Australian market when it comes to the importation, cultivation, and supply of medicinal marijuana. The Melbourne-based company is pursuing this goal via a three-stage business model that is focused on scalable domestic production, sales-driven growth, and early revenue generation.

Since its' founding in 2017, Althea has managed to successfully push five branded medical products onto the market and has pursued strategic partnerships with international companies such as the Canadian low-cost cannabis grower, Aphria (NYSE:APHA), which owns a 25% stake in the company.

Althea has also developed a web-based platform and mobile phone application—known as the Althea Concierge—which has given patients greater access to its' marijuana products. The app is already showing a significant uptake with consumers, and as of February this year the company celebrated the 354th prescription of Althea's medicinal cannabis to an Australian patient.   

The CEO of Althea, Joshua Fegan, was confident about the company's prospects in 2019, saying that he is "extremely pleased with the results to date, given that over 70% of all products dispensed were provided to patients within the last 3.5 months."

"Importantly, our sales are now accelerating and have not come through clinical or observational trials, but by doctors making an informed decision to prescribe Althea's products to patients paying out of pocket."

"Althea's immediate focus is on continuing to educate doctors and rapidly building our patient base,"

 – Josh Fegan, Althea CEO

Following a heavily over-subscribed IPO in 2018—which saw the company raise $19.6 million in funding—Althea has managed to triple its initial market capitalisation, going from $40.6 million to $121.8 million. Although its' market listing came fairly late in the game, strong investor confidence means that Althea can now go toe-to-toe with some of the Australian cannabis sector's biggest players, including AusCann and the Cann Group.

The dispensaries

Although Australian doctors have proven reluctant to treat patients with medicinal cannabis thus far, there are already 109 medical professionals who are prescribing Althea's products. This number may also be set to increase following a new product supply and distribution agreement with Cannvalate, who will provide Althea with access to one of the largest medicinal cannabis prescribing networks in Australia.

The deal will see Cannvalate appointed as a non-exclusive distributor of Althea's medicinal cannabis products, increasing its' availability in every Australian state. Despite only receiving its' license to sell medical marijuana in 2018, Cannvalate-led prescriptions already account for more than 30% of the Australian market, and the company has seen an 800% increase in the total number of monthly prescriptions made over the last twelve months.

According to the CEO of Cannvalate, Dr Sud Agarwal, the company is honoured to be representing Althea and its high-caliber medicinal cannabis products through their network of more than 1,000 doctors and 600 pharmacies.

"Our specialist medical panel has reviewed Althea's product range and has provided a detailed plan on how to target each of its products to the most appropriate specialists and our education team has been briefed to provide the support necessary to allow Althea to carve a strong market presence," Agarwal said.

Althea has stated that it expects the newly officiated partnership with Cannvalate to rapidly boost its' network of existing prescribers, primarily specialist doctors, and patient base.

Earlier this year the company also announced a new research collaboration with Cannabis Access Clinics, which will focus on promoting greater understanding of medicinal cannabis and achieving quality patient outcomes. The agreement was seen as another big win for Althea, as Cannabis Access Clinics also has a sizeable medicinal cannabis distribution network, with 8 clinics located across Australia and New Zealand.

"The collaboration with Cannabis Access Clinics provides an opportunity for Althea to share our expertise with their prescribers," CEO Josh Fegan said. 

"Althea remains open to similar arrangements with other emerging destination clinics, as it complements our overarching strategy of reaching and providing education to as many doctors as possible."

It was the worst of years. It was the best of years.

The company did attract negative press towards the end of last year, after being caught up in a short selling attack on Aphria, one of Canada's largest marijuana producers. Allegations were leveled by short sellers that the Canadian company was purchasing "worthless" companies in Latin America and Jamaica as a means of bolstering the wealth of insiders.

Although Aphria denied the accusations—calling them "a malicious and self-serving" gambit to manipulating share prices—the Althea Group found itself caught in the crossfire due to the company's close ties to the Canadian cannabis giant. Aphria is currently the key cannabis supplier for Althea, and one of its' senior board executives also owns a quarter stake in the Australian company.

While the short seller's claims may be cause for some concern, Althea's largest shareholder, CEO Josh Fegan, brushed off the news as unlikely to affect the company's share value. "Irrespective of the report and the discussions around it, the Althea operations remain firmly on track."

"We have no concerns around the supply chain, another batch is leaving Canada next week, and we have an import permit for another batch in 2019. We've got no concerns about current and immediate supply," he said.

When news of the Aphria scandal broke in December it coincided with Althea stock hitting a low for 2018 of 0.180 per share. However, the stock price has subsequently rebounded in 2019, following the February announcement that Althea will be entering the UK cannabis market. The company will be one of the first to enter the UK market—following the November 2018 decision by the NHS to legalise medicinal marijuana—via its' newly acquired subsidiary, Althea MMJ UK Ltd.

Althea's entry into the UK market will be supported by its' partnership with Aphria, which has signed off on trademark licensing and new cannabis product acquisition agreements for the UK branch. The product acquisition deal will provide Althea UK with an ongoing supply of medicinal grade cannabis, allowing it to focus its' attention on expanding patient access and building a product distribution network.

Power to the patients

Since Althea entered the Australian cannabis sector in May last year, it has already managed to distribute medicinal marijuana to 93 healthcare professionals who are now prescribing it across the country, representing 20% of the total market. If Althea's UK bid is successful, then it may eventually pave the way for the company to expand further into additional European markets.

"We know focusing on improving patient access to medicinal cannabis and educating medical practitioners on treatment is the key to establishing market share, so the UK market entry will be based on our three-phase business model successfully implemented in Australia, CEO Josh Fegan said.

"Focused on early revenue generation through importation and distribution of products, the education of healthcare professionals and scalable long-term supply of high-quality products, our approach is unique globally."

The model can be rolled out in other countries where patient access is similarly highly regulated.

According to Althea, recent research suggests that medical marijuana may be appropriate for up to 2.9 million patients in the UK alone. The company is also developing an Althea UK Concierge app—following the success of its' Australian iteration—which will assist in streamlining "the prescription process for specialist doctors in the UK".

When discussing the new company's launch, the CEO, Josh Fegan, stated that the "UK's highly regulated framework for prescribing, supplying and possessing medicinal cannabis products is very similar to that of Australia."

"We look forward to collaborating with UK health authorities and healthcare professionals to share our extensive experience in providing cannabis-based products for medicinal use to tackle unmet medical needs across a range of conditions and disease areas," he said.

Josh Fegan, Althea CEO. Supplied

The company's first-mover advantage — along with its ties to the Canadian pot juggernaut, Aphria — will also likely provide an additional competitive edge as Althea begins its' incursion into the UK market. Considering Althea's medicinal cannabis has already captured a significant portion of Australia's patient-base, it seems likely that investors are betting on the pot stock's ability to replicate these results with British consumers.

While Althea had an impressive start when it was listed on the ASX in September last year—hitting a high of 0.665 a share—the cannabis stock proceeded to heavily decline in value in the following months, before hitting an eventual low for the year in December. This was partially the result of an industry-wide downturn that took place in 2018, as investors became nervous about the cannabis industry's status as a high-risk market. 

When news of Althea's expansion into the UK market emerged, it caused a spike in the cannabis stock's value, which saw shares 10.45% higher by the day's end. Since the announcement was made shares in the company have seen a continued increase in value, and as of February 22, the stock is currently selling for 0.42 a share. 

The launch of Althea UK appears to have strengthened investor sentiment in the company, despite the increased market volatility that dominated the fourth quarter of 2018. This renewal in investor confidence suggests that the market expects a successful outcome from Althea's expansion into the UK.

Representatives for Althea have already confirmed that the company's UK sales strategy will be centered on growing "one-to-one patient and medical practitioner relationships", while also focusing on leveraging IP from its' Australian operations. The company expects to begin supplying UK-based patients with medicinal cannabis products by as early as next month, indicating that it intends to pursue a rapid rollout in an attempt to secure itself a piece of the market before the landscape becomes too crowded. 

Big data for later

Althea has significantly differentiated itself from most of the ASX listed pot stocks in that it is not cultivation focussed, but rather patient-centric in its strategy. With their Concierge platform about to launch with a newly updated version, the focus is really on the feedback data that the patients will be able to give through the app.

"The key is the data in the first two weeks," said Fegan, "as after that they will either be feeling better or the strain they are taking may not have had the desired effect."

Althea will be recording all the data from what the doctor has prescribed and how that prescription has impacted the patient's symptoms and ailments. Althea can then aggregate (anonymously) the data to deliver qualitative output that will drive new drug formulations and better patient prescriptions.

As many of our readers know, we believe the future lies in owning the customer and creating protectable brands. In this regard, Althea is leading the way. They have a laser-focused strategy on how to grab patient market share, and through a combination of sales reps, information evenings and one-on-one doctor training, aim to capture the mind and wallet of the patient. Smart.

With over $19 million on the balance sheet, they are well funded and have the available resources to develop their cultivation facility. The facility, when fully operational, will be capable of producing 3,000 kilograms per annum, and includes an onsite manufacturing (extraction) facility.

They also have the option to expand the facility to increase overall annual capacity to 23,000 kilograms which would make them one of the larger producers in the Southern Hemisphere. But for the moment, it's patient focussed, signing 4-5 new patients every day.

The Bottom Line

Althea arrived late the Australian cannabis party, but in a very short time have aggressively captured nearly 20% of the Australian patient base. With solid partnerships secured with the two largest dispensary chains in Australia, and cutting edge technology that will drive future IP and genetic development, the company is executing superbly on their three-phase strategy.

A strong management team with deep agricultural and cultivation experience, led by a very capable CEO and a small army of on-the-ground sales reps, Althea is going after the most valuable part of the market – the consumers. Research has shown that medicinal patients are very loyal to their medicinal brands and hence first-mover advantage is critical in the nascent Australian and United Kingdom markets.

Their technology could well be the foundation for future intellectual and IP-driven moats and should deliver value for the company for the foreseeable future. And with their UK operation now up and running (and their eyes on other international markets) we feel there is significant upside to the share price.

Are we bullish on Althea – you bet we are.

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Mark Bernberg
Mark Bernberg

Mark Bernberg is a long-time cannabis investing enthusiast and founder of The Green Fund, Asia Pacific's preeminent media house, positioned at the forefront of the global cannabis industry.

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