AusCann Makes Shift from Cannabis Farmer to Pill Manufacturer

 

Following the bun fight in 2017 to get onto the ASX, AusCann (ASX:AC8) was Australia's number 2 pot stock and the first to secure all three growing, R&D and manufacturing licences.

But two years later investors are asking what they've got from a dramatic switch in strategy and when the share price will stop a 12 month slide.

Chairman Mal Washer says the wheels should start moving from this month onwards.

"We're pretty happy that this year we're going to turn things around."

Big pharma not a big farmer

AusCann started out as a medical cannabis farmer: they had plans to grow their own, make products, and do a bit of R&D.

Today, they've effectively dumped the growing side of the business in Australia and want to become a pill manufacturer.

They've bet that hard shell capsules — pills that look like Panadol mini-caps — are the future since doctors are more likely to understand a pill than an oil.

The company spent $5.25m on an R&D facility in Perth in January, and will maintain a small cultivation unit for research purposes only.

In February this year, AusCann pinched Ido Kanyon for CEO from Israeli firm Teva Pharmaceuticals, who is due in the hot seat in Perth on May 22.

Washer is hoping his presence will be the kickstart the new strategy needs.

"We are not going to be growers, that's not our main aim. We'll have genetics… and we'll have some product that we'll grow in our West Australian site… but we're a pharmaceutical company and that's how we want to identify ourselves," he told Stockhead over a crackly line from Perth.

Finding the good stuff

AusCann's strategic shift was underway by the middle of 2018. They had a prototype pill by August, a manufacturer by November, and promises of the first pills for chronic pain on the market by June this year.

"We will have a product for the Special Access Scheme this year, there's no doubt we'll have that," Washer said, adding that he hoped the first pills could be available on the SAS within a few months.

The hold up has been finding quality resin because little is yet produced to good manufacturing practices (GMP) standards, a strict medical grade level of certification, Washer says.

They eventually sourced resin from Canadian firm Medipharm.

An oil supply deal with Cann Group (ASX:CAN) has stalled because Cann is yet to build their own large-scale farm as well as obtain a manufacturing licence.

 

"We want GMP-grade oil because if we're going to do things in trials later we need products that are top quality. Cann can do that, as can Medipharm,"

– AusCann Chairman, Mal Washer

 

The company plans to outsource clinical trials for the pill for pain, and use the R&D site to look at transdermal treatments (think Botanix Pharma's (ASX:BOT) cannabis skin creams) and gels.

Share price still falling

Washer blames sellers coming out of escrow for the long decline in the stock.

He says a lot of people got cheap shares in the backdoor listing and have been selling since 133 million came out of escrow in February, but the bulk have been sold.

However, that doesn't account for the fact that AusCann's stock has been sliding since April last year.

 

 

 

What happened to those deals?

AusCann has made several announcements about potential tie-ups over the last two years, about which little information has emerged.

The biggest one on investors' minds is the Chilean venture DayaCann.

Washer says it's planted two crops since the launch in 2016. The plan was to grow plants in Chile and export to Australia to turn into resin, but ran into an obstacle: the Chilean government has been reluctant to allow exports from its only licensed marijuana grower.

Late last year DayaCann signed a $1.67m deal to grow for Canadian cannabis manufacturer Khiron Life Sciences. The first crop should be in the ground by the end of 2019.

AusCann is owed just over $1m by DayaCann. Washer says they will be paid this out of the Khiron money at the least by the start of 2020.

He also says Khiron will inevitably want to export product and is likely to face the same problem AusCann has with the government, but he's hopeful that with another foreign player in town they may be able to nudge the Chilean government towards exports.

The other notable deal AusCann signed in 2017 was with Tasmanian Alkaloids to grow, manufacture and distribute products locally and internationally.

Washer says it's still on but, once again, the partner is waiting on Office of Drug Control approvals. He says the original deal has been pared down to growing, but in the meantime Medipharm, Cann and PCI have come along to fill the space once intended for Tasmanian Alkaloids.

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Louis O'Neill
Louis O'Neill

Louis is a writer based in Sydney with a focus on social and political issues. Having interviewed local politicians and entrepreneurs, Louis now focuses on cannabis culture, legislation & reform.

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