The ASX-listed medicinal cannabis company, AusCann Group Holdings (ASX:AC8), has finally secured an agreement with a Tasmanian cannabis cultivator after first beginning negotiations in 2017.
The Westbury-based company, Tasmanian Alkaloids, officially signed off on the three-year agreement at the start of this month, which will see high quality cannabis resin supplied to AusCann as raw material for its hard-shell capsules and other products.
Tasmanian Alkaloids is an established manufacturer of raw alkaloid materials that has been in operation since 1976. The company currently produces approximately 40 percent of the world's legal poppy supply—which are used to create opiate-based medicines—and boasts a cutting-edge manufacturing facility that is fully Good Manufacturing Practice standard compliant.
The new agreement is intended to replace a previous arrangement between the two companies focused on the establishment of medicinal cannabis supply chain with operations in cultivation, manufacture and distribution in Australia and overseas.
"This partnership with Tasmanian Alkaloids significantly builds on our position within the Australian market as a leading medicinal cannabis company that intends to cultivate, manufacture and supply the Australian market with access to high quality medicinal cannabis products."
– Former Managing Director of AusCann, Elaine Darby
The chief executive of Tasmanian Alkaloids, Doug Blackaby, commented that "this agreement is a welcomed milestone for both parties, providing TasAlk with a defined quantity of business and allowing continued freedom to operate across the full supply chain."
As part of the deal, AusCann has agreed to buy at least 30 percent of its cannabis resin from Tasmanian Alkaloids for the duration of the contract, with an option to extend the agreement for an additional three years.
The resin will be made available to AusCann as early as 2020, which comes as part of a broader move by the company to reposition itself as a cannabis pharmaceuticals manufacturer, after initially entering the market as a grower and manufacturer.
According to the CEO of AusCann, Ido Kanyon, the deal with provide the company with supply chain flexibility by ensuring that its supply of raw materials for its hard-shell capsules, which "address the critical need for stability and consistency of dose in cannabinoids-based medicines".
"We are delighted to continue the relationship with TasAlk, evolving into a supply agreement which benefits both companies," Kanyon said.
"The supply agreement with TasAlk provides us with flexibility in managing our supply chain and costs and (to) maximise our value creation as we commence bringing our pharmaceutical cannabinoids-based product to market."
AusCann will initially target the treatment of chronic pain within the Australian market, before exploring subsequent international export opportunities and possible expansion into additional medical spheres.
The deal is a significant win for AusCann, as its partnership with Tasmanian Alkaloids is an ideal strategic fit. AusCann will now have access to the company's wealth of experience in the cultivation, manufacture and distribution of therapeutic pain management products, while Tasmanian Alkaloids will gain exposure to the increasingly lucrative medicinal cannabis space.
Additionally, the partnership has the potential to act as a stock price catalyst for both companies, as it will offer stability to AusCann's supply chain, while also significantly bolstering Tasmanian Alkaloids' revenue with another substantial offtake agreement.
News of the deal sent AusCann stock climbing by 7.46 percent, leading the company to end the day trading at 0.36 a share as of 1 July.