Here's how Australian cannabis stocks performed in the most recent quarter ending in March 2020.
If you thought last quarter was rough for pot stocks…
Just a few months ago, we were talking about the "capital crunch" that cannabis companies found themselves in, following on from the brutality that the industry faced in 2019. The vaping crisis over in the U.S. combined with a slow rollout of Canada's legalization 2.0 really shifted the tone that many had toward the cannabis industry. Much of the initial hype surrounding cannabis faded away, and investors went from bullish to bearish seemingly overnight. Capital dried up, and pot stocks began to plummet as a result.
Now, many investors, as well as companies, would love to be back in 2019 conditions, with the COVID-19 pandemic now upon us. In Australia, unemployment figures are predicted to hit 10%, a rate unseen since 1994 – with the Reserve Bank of Australia deeming it the biggest contraction in the country's economy since the Great Depression.
However, there is great potential in the Australian cannabis market, with Prohibition Partners predicting the Oceania region will be worth $1.55B by 2024, and 79% of that worth being comprised within Australia. While we are in a rough patch at the moment, there are real gains to be made in the years ahead.
With all of this in mind, let's take a look at the most recent quarterly results of Australian cannabis stocks, and find out how each player is weathering the current COVID-19 storm.
MGC Pharmaceuticals (ASX:MXC)
MGC Pharmaceuticals is a European based 'Seed to Medicine' bio-pharma company specializing in the development and production of phytocannabinoid derived medicines.
MGC had quite the eventful quarter, with a continued uptick in both patient numbers and prescribed products, reaching over 2,750 prescriptions and 1,100 patients receiving MGC Pharma's products. The company also released its COVID-19 operational plan earlier in April, which involved shifting the staff to a "remote working model" and cutting back the salaries of both staff and management by up to 50% in order to minimize expenses and avoid redundancies.
The quarter saw some strong results for the company, who brought in $832k in cash receipts from product sales, representing close to double what MGC brought in the previous quarter.
Additionally, MGC formed several new agreements over the period, including a minimum seven-year supply and distribution agreement with ONIX Empreendimentos e Participações for a minimum order volume of 20,000 units for year one, as well as forming an agreement with a Polish NGO named Cannabis House Association, which sees that MGC will provide its product line to initially 15 pharmacies, with a full rollout expected to reach 250 locations within two years.
Finally, the company entered into a white label supply agreement with THC Global at the end of January for a minimum of 18 months for the production and supply of the white label pharmaceutical-grade Canndeo branded phytocannabinoid products to Australia and New Zealand.
During the quarter, MGC announced that the company's driving trial for CannEpil will be put on hold due to the closure of Universities, and while Phase II trials commenced for CogniCann in March, results will not come by Q3 as expected, due to a tightening of restrictions in access to aged care facilities in response to COVID-19.
Though perhaps most interesting is the announcement of MGC's Phase II trial in Israel for ArtemiC, an anti-inflammatory drug being tested on COVID-19 patients. Should the trial be successful, MGC could be sitting on a goldmine.
Over the quarter, the company spent $1.8 million in operating expenses while ending with $950,000 in the bank, representing 0.5 quarters worth of cash runway. Though MGC recently completed a share placement with Cannacord Genuity to raise a further $3.5 million, which should keep MGC afloat for at least another 6 months.
Althea Group Holdings (ASX:AGH)
Althea Group Holdings (ASX:AGH), is a licensed producer, supplier, and exporter of pharmaceutical-grade medicinal cannabis that has prescribed medicinal cannabis products to over 5,800 patients.
Against all odds, Althea had a pretty remarkable quarter, bringing in a record-high unaudited revenue of $1,524,359 which is up 39% from the previous quarter. In March alone the company brought in $606,351, making it the best month for revenue in Althea's history.
The company added 596 patients in March, bringing it to a total of 5,803 patients, as well as increasing the number of healthcare professionals prescribing Althea's products to 509.
Althea's receipts from customers were up 65% over the previous quarter, totaling $1,487,679 for the March quarter, with 25% of sales derived from CBD100, Althea's full-spectrum CBD product.
Cash outflows for the quarter were $7.3M, of which $2.5M was operational and $4.8M was spent on capital expenditure. Though almost all of Althea's Capex was spent on the Peak Processing facility in Canada that has since been completed and now awaits Health Canada approval. Moving forward, this should be a large source of revenue for the company.
Althea's cash at the end of the quarter was $15.07M, giving the company over five quarters worth of cash runway. With the buildout of the Peak facility completed, and revenue and prescription numbers continuing to climb, Althea Group is in incredible shape moving forward.
Botanix Pharmaceuticals (ASX:BOT)
Botanix Pharma (ASX:BOT) is an Australian medical dermatology company engaged in the development of cannabinoid-based products for the treatment of a range of skin conditions and is working to get the first cannabinoid products approved by the FDA.
The travel restrictions caused by COVID-19 have created clinical development challenges for BOT, which has prompted the company to put several of its cannabinoid formula trials on hold. As a result, trials involving BTX 1204, designed to treat atopic dermatitis, as well as BTX 1702 designed for papulopustular rosacea have been placed on hold.
BTX 1503 is the company's acne drug, which achieved statistically significant results in phase II trials in March. Due to the recent success of BTX 1503, Botanix will be meeting up with the FDA to discuss the path forward in acquiring a New Drug Application.
BTX 1801 is Botanix's antimicrobial platform, which is designed to target the prevention of surgical site infections. Due to restriction measures, the BTX 1801 Phase 2a clinical study will be conducted entirely within Western Australia. Once travel restrictions loosen, the company hopes to complete the study by the third quarter of 2020.
Since quarters-end, BTX 1801 has received Qualified Infectious Disease Product (QIDP) designation from the FDA Office of Antimicrobial Products, providing an additional five years of regulatory exclusivity, on top of the standard regulatory protection that comes with the approval of a New Drug Application. The Company will continue to work with the FDA to progress its 'fast-track' status application this quarter.
During the quarter Botanix spent $3.07m on R&D, primarily for BTX 1204, and the company also received an R&D Tax refund of A$7.6m. Botanix ended the quarter with A$30.43m in cash, giving the company nearly 7 quarters of runway left. Botanix is well-funded to continue for nearly 48 months at its current capacity, and the company will see massive returns if it can continue successfully progressing its drug candidate pipeline.
However, due to these recent COVID-19 restrictions and the supply chain effects they have had, only two of BOT's total portfolio of drugs are currently being pursued, severely narrowing the chances of drug development in the near-term.
Medlab Clinical (ASX:MDC)
Despite hindrances to the supply chain caused by COVID-19, Medlab made real headway with its flagship drug for cancer pain 'NanaBis.' The company sold over 2,000 bottles and achieved a 26% increase over the previous best quarter of sales, as well as achieving statistically significant results for the drug in its trial at Royal North Shore hospital.
The recently completed RNSH trial will be used as a springboard for the company to launch its Ethics approved Observational Study on NanaBis, in order to continue progressing the drug toward registration. In addition to pursuing the registration of NanaBis, Medlab also completed a Depression trial for its multi-patented probiotic product, NRGBiotic™, at the Queensland University of Technology (QUT).
A primary source of income for Medlab continues to be its nutraceutical range of products, which experienced a 42% increase in sales over the previous quarter and have been expanding into new revenue territories including the US, UK and Asia. The Company recently announced a Heads of Agreement to expand its nutraceutical range through a potential supply agreement into India and Eastern Europe.
During the March quarter, MDC brought in $1,356,000 in receipts from customers and used $3,114,000 in operating expenses, leaving the company with $6,397,000 left in the bank. Additionally, the company has access to $1,675,000 in loan facilities totaling just over $8 million in available funding for Medlab.
This gives Medlab just over 6 months' worth of cash runway, suggesting the company may need to perform a capital raise in the near-term.
Cronos Australia (ASX:CAU)
Cronos Australia Limited is a cannabis company with an "asset-light" business model that is dedicated to providing medicinal cannabis products to Australian patients.
The March quarter presented some challenges for Cronos Australia, particularly the fact that the company's Chief Operating Officer, Mr. Peter Righetti, stepped down from the company. This kind of dramatic shift in leadership always presents red flags for investors, especially given that the company only began two years ago.
Though putting aside the COO resignation, the quarter was relatively uneventful for Cronos Australia.
In February 2020 Cronos Australia announced that it had acquired a 51% equity interest in a Melbourne-based cannabis clinic operator, Cannadoc Health Pty Ltd, for $300,000. Though news of this acquisition hardly excited investors, as Cannadoc has a significantly smaller market presence compared to more established players such as Cannabis Access Clinics (CAC) or Emerald Clinics.
Additionally, during the quarter the company received its first shipment of PEACE NATURALS branded medicinal cannabis oils from Peace Naturals Project Inc., an indirect, wholly-owned subsidiary of Cronos Group, which began to be prescribed and sold under the SAS-B Scheme. As a result, the company brought in just shy of $45,000 for the quarter in cash receipts.
The company spent $827,618 in operating expenses and over $500,000 in investing activities for the quarter, leaving Cronos Australia with $15.8 million left in the bank. CAU remains very well funded with low expenses thanks to it's "asset-light" business model, however, this has also left Cronos Australia somewhat directionless, particularly given the recent departure of the company's COO.
The future is uncertain for Cronos Australia, and clear guidance is required if investors are going to get excited about this stock.
Zelira Therapeutics (ASX:ZLD)
Zelira Therapeutics Ltd is a leading global therapeutic medicinal cannabis company focused on developing a portfolio of proprietary revenue-generating products.
The March quarter saw Zelira move forward with many of its drug candidates, with the company's insomnia formulation ZLT-101 meeting its primary endpoints for efficacy and safety, as well as achieving a statistically significant improvement in insomnia scores among participants.
Additionally, the company added Emerald Clinics as a second site for its opioid reduction study, and Zelira is on track to publish results in the second quarter of 2020.
Then there's Zelira's study into the effects of cannabis on autism which has just finished recruitment in January this year, with results due in peer-reviewed journals in the coming months. The information gleaned from ZLD's autism study has assisted in the design of a Phase I/2a clinical trial for children and adolescents with autism, and as a result, the company has submitted the trial design to the Australian National Health and Medical Research Council (NH&MRC) certified Human Research Ethics Committee for review.
Lastly is Zelira's collaboration with the Parkinson's Foundation, which was announced in January this year. The collaboration came in the form of a survey that was distributed among people with Parkinson's, in order to understand the effects cannabis had on their condition.
Both Zelira and the Parkinson's Foundation reviewed the results of over 1000 respondents, and the two companies will be exploring how they might inform a future clinical trial on the safety and efficacy of medical cannabis use by people with Parkinson's disease. Zelira is aiming to launch its first product for Parkinson's disease in the second half of 2020.
The company brought in $234,000 in customer receipts for the March quarter, though this figure was dwarfed by the $1.5 million in operating expenses over the same period. However, Zelira Therapeutics ended the quarter with just over $4 million in the bank, thanks to placement to raise $4,642,759 in February.
This gives the company 3 quarters worth of cash runway, enough to see them through 2020. However, Zelira will need to show some aces in their drug candidate deck if they want to keep afloat beyond 2020.
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Which ASX Pot Stocks Will Succeed?
While the Australian cannabis industry remains nascent and volatile, with added pressure due to the current economic downturn caused by the COVID-19 pandemic, there is still a lot of promise to come in the near future with Australian cannabis companies.
As far as the stocks mentioned above, Medlab will need to secure a licensing agreement or perform a capital raise in order to keep the company funded beyond the next 6 months. We can only hope MDC manages to snag itself a licensing agreement.
MGC Pharma saw continued growth during the quarter and managed to implement several supply agreements which should improve revenues moving forward, and if the company can gain any traction with its COVID-19 formula, MGC could be sitting pretty.
Similarly, Zelira has several nest-eggs cooking in the oven, studying insomnia, autism, opioid reduction and Parkinson's, each of which will be used as a springboard for the company to develop products to be released in the second half of this year. Zelira is definitely one to keep an eye on.
Cronos remains asset-light, but also direction and execution-light. The company will need to really step up and outline a clear vision for the future if it is to entice any future investors.
Lastly, we have Althea Group, who achieved record revenues, have a growing patient and prescriber base, and now, the Peak Processing facility which has since been completed and awaits approval. With less Capex required next quarter, $15M in the bank and strong growth, the future is looking bright for Althea.
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