Is the Australian Cannabis Index in the Midst of a Sector-Wide Upswing?

Many analysts believe this is the result of broader market forces, along with the cannabis referendums that took place during the 2020 election.

Although the Australian cannabis industry took a battering during 2020—as the coronavirus drove down revenue intake and market caps across the board—the market has started to rebound over the last month.

Despite the arrival of an sector-spanning downturn earlier this year which saw valuations plummet, multiple ASX-listed cannabis companies have begun to rally during November, which suggests that we may be in the midst of a larger industry-wide shift.

The momentum of the legal industry will likely remain unchanged regardless of the election outcome. As long as there is strong consumer demand, the industry will continue its upward growth trajectory and the pathway to legalization will likely speed up regardless.Entourage Effect Capital Managing Partner, Matt Hawkins

Many analysts believe that this is likely the result of a broader market-shaping macro event, such as the procession of successful US cannabis referendums that took place during the 3 November election.

Although the American political debate may have become increasingly polarized, voters were unified on the issue of marijuana legalization, as recreational cannabis use was simultaneously legalized in Arizona, Montana, New Jersey and South Dakota, while also being approved for medicinal purposes in Mississippi.

In an interview with MJBizDaily, cannabis industry thought leader Rhys Cohen argued that the US legalization movement would be unlikely to have a significant impact on the Australian cannabis industry. However, he did acknowledge that "de-risking cannabis for major U.S. corporations such as Facebook and Pfizer would unleash a tidal wave of global commercialization."

"The US government can significantly influence intergovernmental organizations, trade, investment and law if it so desires," Cohen said.

And while it's still too early to gauge what effect this will have on the regulatory landscape that governs Australia's cannabis industry, it seems to have exerted a positive influence on the value of ASX-listed cannabis shares over the last week.

The Australian Cannabis Index climbed from -29.92 to -21.84 by the close of trading Friday, clawing back over close to 28% in value.

At the same time, the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ)—which is an exchange traded fund (ETF) that exclusively tracks the North American Marijuana Index—experienced an even greater spike, going from -3.31 to 10.69 during the same period.

A similar jump could also be observed in the S&P 500 Index and the AORD, which reached a respective high for the month of 19.84 and 17.05.    

Keeping this in mind, let's examine some of the ASX-listed shares that have driven the market forward over the last week.

Cann Group

Although the market may be down, investor interest in the Cann Group (ASX:CAN) is still relatively high, which led to a 77% spike in value that caused the stock to climb to 0.55 by Wednesday.

The market's attention was initially piqued when the company announced that it had secured a $50 million loan from the National Australia Bank (NAB) to expand its cannabis product facility in Mildura.

The commissioning of production at Mildura is an important step in Cann's plan to produce GMP certified medicinal cannabis at scale. The facility will utilise world-leading technology, providing Cann with a globally competitive unit price based on substantial economies of scale. Securing the support of a tier one bank is a strong validation of our strategic growth plans. Given the building demand for our products, we have the confidence to immediately ramp up production as soon as the facility is ready.Cann Group CEO, Peter Crock

The expansion buildout is currently scheduled to commence in February next year, and once completed will allow the company to increase its annual production capacity to 12,500 kg of dried flower per year.

Cann Group have confirmed that they expect the initial stages of the construction process will take approximately 9 months to complete, with the first products expected to be processed and manufactured by the facility before March 2020.

And according to the CEO Cann Group CEO, Peter Crock, the company is "extremely comfortable" with the terms of the loan facility.

"The fact that we have been able to negotiate market-competitive terms on this facility is another endorsement of our strategic growth plans," Crock said.

This was followed by the news that Cann had also secured the necessary facility licenses for the Mildura site, which means that the company now has a "clear regulatory path" for its cannabis manufacturing operations.

"The variation to our licences will enable us to proceed with certainty in respect of the building of the facility and moving into cultivation, production and manufacture from the facility seamlessly."

"We are on track to be processing and releasing material from our Mildura facility by the end of the first quarter of calendar year 2022," Crock said.

Luckily for investors the market clearly shared this sentiment, and by the close of trading that day stock in the Cann Group had increased in value by close to 8.80%.

Disclaimer: Past performance is not an indicator of future performance.

Bod Australia

Bod Australia (ASX:BDA) stock experienced a 0.015 increase after the market reacted strongly to the announcement of a $1 million binding purchase order, along with continued strong growth in medicinal cannabis sales.

The purchase order was made by one of the company's exclusive global partners, Health & Happiness Group (HKSE: 1112), for four Swisse Wellness branded hemp seed oil products that will be sold exclusively in the Italian market.

It is pleasing to see the continued growth and support for our medical cannabis product, MediCabilis™. Strong demand for our MediCabilis™ product range in Australia will continue to add to our growing revenue profile and we are confident that sales will continue to increase. I look forward to updating shareholders on sales achievements across the coming months.Bod Australia CEO, Jo Patterson

As a result, Bod's product range will soon be made available in over 4,000 pharmacies across Italy, as well as through Swisse's ecommerce channels.

Under the terms of the exclusive licensing agreement, Bod will also receive a royalty on net product sales, as well a cost plus margin for the supply of its extracts and formulas, which the company will use to underpin further revenue growth.

"This binding purchase order for A$1.0m strengthens our growing revenue profile and importantly, unlocks another market where Bod can benefit from the sale of its products under a globally recognised wellness consumer brand," Bod Australia CEO Jo Patterson said.

"H&H have an established footprint in Italy, with a footprint of 4,000 pharmacies. Swisse Wellness is also regarded as a leading brand throughout Europe, which is a major advantage for Bod and we expect to benefit from in country sales in the coming months."

"As more consumers connect with our trusted brands, we expect future purchase orders to increase in size and value. We will continue to work with H&H Group and Swisse to explore opportunities throughout Europe and North America for our CBD and hemp products, which we are confident will unlock further value for shareholders."

Additionally, the company also saw strong growth in medicinal cannabis sales during the October reporting period.

Over the course of the month there were 755 MediCabilis scripts filled, representing an 106% increase in monthly prescription volumes.

With a total of 4,400 prescriptions filled since January 2020—which constitutes an 124% increase on the previous year's sales volume—Bod has now secured roughly 57% of the market share for full plant, high CBD products in Australia.

"It is pleasing to see the continued growth and support for our medical cannabis product, MediCabilis.

While MediCabilis is being prescribed for a range of chronic conditions, we are currently achieving strongest uptake amongst patients suffering from chronic pain and anxiety. These conditions require the use of a pharmaceutical grade, standardised and consistent product, which is one of the key advantages of MediCabilis.

"Strong demand for our MediCabilis product range in Australia will continue to add to our growing revenue profile and we are confident that sales will continue to increase. I look forward to updating shareholders on sales achievements across the coming months."

Disclaimer: Past performance is not an indicator of future performance.

Elixinol Global

The Sydney-based cannabis company, Elixinol Global (ASX:EXL), saw an 18.18% climb this week, after its shares reached 0.21 a piece following a strong show of support for the company's $8.2 million capital raised aimed at accelerating commercial growth.

Under the terms of the share placement—which received considerable interest from new and existing investors—stock in Elixinol was sold at 17 cents each, representing an 8% discount on the normal trading price at the time of the sale.

We greatly appreciate the support of both existing and new investors, with demand for the placement far exceeding the funds raised. The Board also feels it important to offer new shares to existing shareholders under the same terms as the placement, so have launched a Share Purchase Plan. This funding will be instrumental to Elixinol as we continue to move the Company towards a cash flow positive position – we have recently made significant progress and I feel very positive about the long-term prospects for the Company.Elixinol Global Executive Director and Group CEO, Oliver Horn

Furthermore, the company also announced that it would be offering a share purchase plan (SPP) to eligible existing shareholders—allowing them to purchase up to A$30,000 worth of Elixinol stock—with the aim of raising a further $2 million in funding.

The market's bullish mood was buoyed even further this week, following the publication of the company's quarterly activities report for Q3 FY2020, which recorded revenue of $4.0 million.

This represents 18% quarter on quarter growth for Elixinol—exceeding the company's previous guidance of 10-15%—as it continues to focus on higher margin, consumer-led branded nutraceuticals model.

During Q3 the company's revenue mix was positioned towards branded products—which constituted 65% of Elixinol's sales—which were supported by diversified profit streams from various retail channels and e-commerce platforms.

Elixinol Europe also continued its successful expansion during the reporting period, growing by an impressive 67% while simultaneously contributing $1.0 million in revenue.

"Following aggressive efforts to reshape the business and operate from a materially lower cost base, we are very pleased to report robust revenue growth for the quarter across all business units," Elixinol Global Executive Director Oliver Horn said.

"We are seeing continued improvement in our business based on the successful roll out of our new Elixinol product ranges including skincare, and significant new distribution coming on stream with Well Pharmacy UK and Boots Ireland. Hemp Foods Australia's performance also continues to improve and contributed 25% of total revenue in Q3 FY2020 also with a much lower cost base versus prior periods."

"We now move into Q4 FY2020 with positive revenue growth momentum, a refined product range, significant new distribution relationships and a rebased cost profile all of which is giving us growing confidence for our future. While we have more work to do, I am delighted with this result."

Disclaimer: Past performance is not an indicator of future performance.

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Hugo Gray
Hugo Gray

Hugo Gray is a Melbourne-based journalist with a body of work that covers a diverse range of topics, including immigration law, sex technology, and now the rapidly expanding cannabis industry.