A look at how Australian Cannabis Stocks performed in Q2 2019
The month of July saw almost all of the ASX-listed cannabis companies release their "4C" quarterly earnings report for the period ending 30 June 2019.
Unfortunately, most of the Aussie pot stocks are producing very little revenue, and still burning significant cash. But, some are starting to execute on their strategy.
Here's a quick review of each of the major companies and how they faired.
THC used the opportunity to update the market on a number of key milestones.
They now have the required licenses for their two manufacturing facilities, which includes both the Southport Facility—the largest bio-pharmaceutical extraction facility in the Southern Hemisphere—and for their Bundaberg Strain R&D & Cultivation Facility, which posseses its own separate manufacturing capability.
This means that THC Global's Bundaberg Facility holds the full suite of cannabis licenses under the Australian medicinal cannabis regulatory scheme, including a Cannabis Research Licence, Medicinal Cannabis (Cultivation) Licence, and a Manufacture Licence, allowing for "farm-to-pharma" production at the site. The Bundaberg Facility also holds the necessary permits to allow cultivation for research purposes, which is currently underway.
The receipt of Manufacture Licences at Southport and Bundaberg enables the company to apply for cultivation permits, which means that they will be able to supply the Southport and Bundaberg manufacturing facilities with their own cannabis biomass. The Southport Facility—the jewel in the crown as far as their assets go—is capable of producing an initial annualised 12,000kg of Good Manufacturing Practices (GMP) compliant Active Pharmaceutical Ingredient (API) isolates, or equivalent quantities of full-spectrum and broad-spectrum extracts.
Look for both supply agreements for the biomass and off-take agreements for the sale of finished oils and API's in the coming months.
Their Canadian-based hydro-equipment company, Crystal Mountain, saw marginal increases in sales that did, however, result in an unaudited profit for the company.
And staying with Canada, the company also announced that they expect to commence initial construction activities at their Nova Scotia cultivation facility in the coming months. The first stage of the project will be a 20,000 square foot cultivation facility, followed by an extraction and processing facility to be later built. THC Global is in a unique position in Canada, as the Nova Scotia project has received a Letter of Readiness from the Canadian cannabis regulator, potentially grandfathering the project into the earlier cannabis regulations, enabling a quicker licensing process.
The company is yet to announce how they intend to finance this facility, but according to company insiders, management are actively working on this.
With revenue of $578,000 and Net Cash Used in Operation Activities of ($1.83 million), the company still has some way to go to become profitable. They ended the quarter with $5.7 million in the bank and guidance of estimated cash outflows for the coming quarter of $2.21 million.
The big news coming from Elixinol Global was the appointment of a new CEO, Stratos Karousos, with founder and ex-CEO—Paul Benhaim—stepping down to take on the role of Chief Innovation Officer. This came as a great shock to the market, being announced very much out of the blue. We have recently interviewed Paul Benhaim and will release the full story soon.
During the quarter, the company announced that their new Colorado facility is operational, which more than doubles their current production capacity. In addition, Elixinol launched Infusion Strategies, a strategic partnership with RFI, increasing their exposure to the CBD-infused dietary supplement, nutraceutical, food, and beverage industries via distribution to RFI's customers;
They also finalised their previously announced acquisition of a 25% stake in US-based Pet Releaf, a leading brand in the high growth CBD pet products market.
Notably, the company also completed a significant $50m capital raise, accelerating its US expansion. This really firms up their balance sheet, giving the company further options moving forward. One of these options is their Australian medicinal cannabis division – Nunyara.
During the quarter, Nunyara was granted its manufacturing licenses, one of 3 licenses applied for. Speaking with the company it became evident that they have a decision to make on this. This was a project launched two years ago, and given the lengthy delays by the ODC, has left the company with the decision of whether to continue to focus on the CBD business in the US and Europe, or potentially be distracted with a very late-to-the-game medicinal cannabis company. Watch this space
Elixinol Global's US-based wholly-owned subsidiary, Elixinol, has continued to focus on gaining distribution through nationally recognised retail outlets. Elixinol's products are currently sold at over 1,000 natural, specialty and conventional supermarkets in the USA
Elixinol Global's Dutch-based wholly-owned subsidiary, Elixinol B.V., has also continued to make strong progress in Europe, with co-branded products sold under the "Naturopathica" brand now being available via Europe's leading health and wellness retailer, Holland & Barrett's, which can be found in their online store—which is located at HollandandBarrett.com— and in over 800 Holland & Barrett retail stores.
Elixinol secured Q2 group revenue of $9.9 million, representing 19% growth on the prior corresponding period in 2018 of $8.3m. This also amounts to 18% growth quarter on quarter (QoQ) when compared to its Q1 2019 revenue of $8.4 million.
The net cash used in operating activities ($19.3 million)—which included $6.2 million for the 25% purchase of PetrReleaf and $1.7m in expanding the Colorado hemp production—has left the company with a healthy remaining cash balance of $47 million. With estimated cash outflows for the coming quarter of $25.5 million, we think investors should pay close attention to revenue and margins in the coming quarters.
In Q2 2019 the Australian and US-based agritech business has continued to drive sales and promoted further growth of its soil moisture monitoring sensor technology, CropLogic realTime, while opening up new markets in Idaho and continuing to expand in Washington State.
Expansion into the USA—particularly the Pacific Northwest—continued to great success, with better than expected installations of CropLogic realTime in the two new sales zones that opened this season.
Their wholly-owned subsidiary—which is known as LogicalCropping—is based in Bend, Oregon, and successfully planted its first Hemp crop as part of a 500-acre trial farm (which was initially planned to be only 100 acres in size). Having secured leading hemp genetics, the crop is now successfully growing and looks on track for an October harvest.
Management expects to harvest between 800,000 and 1.1 million pounds of biomass, and have already secured the services of an extraction company to process the harvest. The current market-related price for a pound of hemp biomass is US$35 per pound, which has been validated by their first off-take agreement for nearly 1/3 of the inital harvest at US$35 per pound.
Revenue of $464,000 with NCUOA of $3.7 million left the company with a cash balance of only $2.7 million at the end of the quarter. Although guidance for next quarter's expenditure of $3.8 million looks like it will place capital constraints on the company, they expect this to be offset by significant cash flow arising from the trial farm's harvest. One to watch!
AC8 have endured a very tough year, with the share price listing at nearly 70% of its value at the lows set in March. However, with the appointment of a new CEO, Ido Kanyon (ex Israeli-based TEVA pharma)—and a more defined strategy—they seem to be finally moving in the right direction.
During the quarter they also fufillied their first commercial shipment of medical cannabis concentrate from MediPharm Labs, representing the first-ever bulk international shipment of active pharmaceutical ingredient medical cannabis concentrate from Canada to Australia.
They also penned a new supply agreement with TasAlk, in line with AusCann's strategy to de-risk the supply chain and secure high-quality pharmaceutical suppliers across the product value chain.
The agreement supersedes the original Alliance Agreement from May 2017, and is part of AusCann's strategy to de-risk and provide geographical diversity in its supply chain, through a core number of pharmaceutical GMP suppliers.
The company's new focus is on the development and manufacture of hard-shell cannabinoid medicines, which addresses the need for stability and precise dosing in the treatment of patients with cannabinoid-based medicines. As part of this, Auscann will continue the production scale-up of the capsules in a Good Manufacturing Practice (GMP) environment.
The company is targeting to have its first product line ready for clinical trials towards the end of 2019.
Auscann ended Q2 2019 with revenue of $671,000, thanks in part to the minimal cash used in operating activities. As a result, the company finished the quarter with a cash balance north of $35 million, and guidance of $4.3 million in expenditure for the coming quarter.
Medlab delivered stellar results for Q219.
Their cancer pain cannabis drug, Nanabis—which has shown to assist in the reduction of opioid use, delivering a better quality of life and the associated reduction of pain symptoms—is nearing the completion of its Phase 2 trial, with the early results being very promising.
Heads of Agreement for NanaBis have been executed with both a Canadian pharmaceutical company, Pharmascience, and the Thai-listed pharmaceutical company, Mega Lifesciences Public Company Limited, for the distribution of NanaBis in Canada and South America, respectively.
The company's recently launched Medical Cannabis product—which is sold under the name NanoCBD™—has just succesfully come through the research and development phase, and is expected to be available in global markets by the start of 2020. Similarly to NanaBis, NanoCBD utilises Medlab's proprietary delivery platform, NanoCelle, to administer a pure, standardised CBD extract from Hemp.
During the last quarter, Medlab executed the rollout, placement, and commencement of marketing for its self-branded nutraceutical range products, NRGBiotic, into Priceline and Terry White Chemmart pharmacies through their respective wholesalers. The range can now be found in over 3,000 Australian pharmacies. This resulted in an increase in cash outflows, in particular relating to the acquisition of inventory.
The company achieved record quarterly collections of $2.589 million, an increase of approximately 170% over the March quarter. Year on year growth in revenue was also in excess of 50% (excluding R&D incentive and after discounts).
Net cash used in operating activities came in at $3 million, leaving the company with $11.4 million cash in the bank at the end of the quarter. With solid sales and a strong pipeline of medicinal cannabis IP, Medlab is quickly becoming one of the stronger contenders for top dog in the cannabis space on the ASX.
The Cann Group
During the quarter, the Victorian Government took delivery of the first Australian sourced and commercially grown cannabis resin for use by Australian patients. This cannabis resin was extracted from dry cannabis flower produced at Cann Group's Southern Facility in Melbourne.
Q2 2019 also saw Cann complete its first harvest of internationally sourced genetics as it continues to expand its capabilities as a commercial medicinal cannabis cultivator.
Finally, after moving the planned cultivation facility from Melbourne Airport to Mildura, the company also took possession of the site which has been secured as part of its planned third facility, which will feature a state-of-the-art greenhouse for the large scale cultivation and production of medicinal cannabis.
"The Mildura facility is expected to produce up to 50,000 kilograms of dry flower per year and should be up and running by the second half of 2020."
– Peter Crock, Cann Group CEO
The first prefabricated elements required for the greenhouse structure have now been shipped by Cann's supplier in the Netherlands. Incorporation of design enhancements and scope changes from Aurora Larssen Projects are also being finalised, with the potential to expand the facility further through additional flowering room and processing areas which can be added into the final design.
In late June, Aurora Cannabis received an import permit from Health Canada for cannabis cultivated by the Cann Group.
Announced in March 2019, Cann's off-take agreement with Aurora Cannabis will see GMP processed dry flower, extracted resin, and manufactured medicinal cannabis products supplied to Aurora by Cann until 2024. This covers Cann's full production capacity beyond that produced for domestic needs.
In April, the Cann Group announced that it had completed a strategic investment in the New Zealand based medicinal cannabis company, Pure Cann NZ Limited. Cann Group's strategic investment of NZ$6 million in Pure Cann secures a 20% ownership stake, accruing over stages with the initial 10% to be completed on or before 30 August 2019, along with a further 10% upon the new NZ regulations coming into force and Pure Cann's Board approving the construction of its commercial cultivation facility. Cann Group also has an option to increase that position to 30%.
Receipts from customers totaled $1.43 million, with cash used in operating activities of $2.08million. The company ended the quarter with a very healthy cash balance of $46.4 million, with guidance for next quarter's expenditure of $13.7 million
The June quarter saw Althea achieve a significant increase in patient and prescriber numbers, which translated into a continued increase in sales. By the end of the quarter, over 1,300 patients had been prescribed Althea medicinal cannabis products, representing an average month-on-month growth of 144%.
At the same time, the number of Healthcare Professionals (HCPs) prescribing Althea's medicinal cannabis products also continued to grow rapidly. 225 Healthcare Professionals have prescribed Althea medicinal cannabis products to date, with an average month-on-month increase of 127%.
During the quarter, Althea was also granted a Hemp Cultivation License by Agriculture Victoria. The License allows for the cultivation and processing of low-THC (Hemp) cannabis, allowing Althea to gain hands-on production experience with the cannabis plant in a tissue culture laboratory environment.
In another major milestone, the company was granted the planning permit for its fully-funded and approved cannabis cultivation and manufacturing facility in Victoria.
During the June quarter, significant progress was made regarding the company's UK operations. In June, Althea received its first patient prescription for medicinal cannabis in the UK, and at the end of the quarter they also announced that they would be supplying medicinal cannabis to Project TWENTY21—the UK's first national pilot program for medicinal cannabis—which aims to enroll 20,000 patients before the end of 2021.
The company recorded unaudited sales of $411,663 for the period, representing quarter-on-quarter growth of 226%. Net cash used in operating activities came in at $2.65 million, with cash in the bank at the end of the quarter of $14.9 million. The company subsequently closed a $30 million raise following the quarter's end, for the purposes of purchasing a Canadian extraction facility targeting the recreational market.
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