Will Betting Big on Coronavirus Lead to a Rebound for the Australian Cannabis Index?

We're taking an in depth look at some of the ASX-listed shares that have driven the market forward over the last week.

The Australian cannabis market has continued to expand at a rapid pace in 2020, despite the industry-wide downturn brought on by the arrival of the coronavirus pandemic.

This was due in part to the growing mainstream acceptance of cannabis—from patients, legislators, and healthcare providers alike—along with the increasing prevalence of online sales.

Most companies saw an impact on sales, but it was relatively small and short term, mostly around the time for the first national lockdowns in May / June. Unsurprisingly Melbourne based companies have been affected more. On the services side most clinics and doctors have moved to a tele-health based model and are seeing a lot more patients with COVID-19 related anxiety. FreshLeaf Analytics Managing Director, Cassandra Hunt

Additionally, the cannabis industry received a significant boost when the Australian Government announced that it had legalized over-the-counter CBD sales, opening up a potential $200 million market.

At the same time, medicinal cannabis prices have also become considerably more affordable over the last 12 months, and according to the Managing Director of FreshLeaf Analytics, Cassandra Hunt, this is because "competition" has also ramped up considerably.

"There are now 150 products in the market fighting for share. Scale is a second factor. Some of the products being supplied now in Australia are derived from raw materials that are increasingly being cultivated and produced on a large scale bringing down cost per unit," Hunt said.

"Longer term we are speculating that the legalization of cannabis as a consumer product may be accelerated by a need to find new tax revenues."

"Filling state coffers was a significant driver in the US behind legalization of cannabis for consumer use, and COVID-19 will certainly have state and federal governments here looking for years at how to generate new revenues."

Unfortunately, during the last quarter many ASX-listed shares saw uneven returns, as some companies pushed into new territory while others struggled to maintain their market cap.

As a result, the Australian Cannabis Index has been in decline since mid-October 2020, due in no small part to weakened investor confidence and a lack of positive announcements from ASX-listed pot stocks.    

However, the market is showing signs that it may be beginning to rally, and over the last week the Australian Cannabis Index has begun incrementally claw back ground, climbing from -27.11 to -27.68 by close of trading Friday.

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

Incannex Healthcare

This month shares in Incannex Healthcare (ASX:IHL) were burning red hot, after the company published promising results from the clinical trial for its anti-inflammatory drug, IHL-675A.

The release of the results also proved particularly timely, as IHL-675A makes use of a proprietary formulation of cannabidiol (CBD) and hydroxychloroquine (HCQ) to fight one of the leading causes of COVID-19 related deaths, sepsis-associated acute respiratory distress syndrome (SAARDS).

As a company, we set out to gain evidence that our proprietary combination of CBD and HCQ would exhibit synergistic outperformance against the individual constituents. Not only have we managed to achieve this, but we have significantly outperformed against our predictions of anti-inflammatory activity in the IHL-675A combination drug. Incannex Healthcare CEO and Managing Director, Joel Latham

During the clinical trial Incannex tested the drug in vivo, which demonstrated 767% improvement on the anti-inflammatory activity, leading the company to announce that it has expanded its provisional patent protection to cover "a range of other inflammatory disease".   

Incannex has also confirmed that it intends to use the data generated by this clinical trial to help refine the parameters for further research into IHL-675A, in support of its eventual goal of achieving registration with the US Food and Drug Administration (FDA).

"Potentially, this could mean that IHL-675A is a better alternative to CBD oil products for inflammatory diseases, subject to further examination," Incannex CEO Joel Latham said.

"Incannex has commenced its IHL-675A combination in vivo experiments as the next step in pursuit of our eventual ambition of FDA drug registration."

News that IHL-675A had successfully outperformed many competing drugs—demonstrating an 109% improvement on CBD alone—prompted an enthusiastic response from the market, as the drug's greatly improved efficacy rate should give it a considerable edge over rival products.

This caused share prices in Incannex to jump by almost 8% in one day, reaching a high of 8.4 a piece by the close of trading.

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

MGC Pharmaceuticals

Earlier this month, the Australian cannabis company MGC Pharmaceuticals (ASX:MXC) also sent its share price climbing after announcing the completion of Phase 2 clinical trials for its "ArtemiC" anti-inflammatory medicinal cannabis formulation.

The trial was conducted on 50 COVID-19 infected patients—with results expected before the end of 2020—who are currently receiving treatment in Israel.

We are very pleased to announce the completion of the Phase II clinical trial for ArtemiC. The second wave of the pandemic is again putting increased pressure on a number of healthcare systems around the world. We look forward to announcing full results of this trial in coming weeks and will continue to progress this important clinical trial work. MGC Pharmaceuticals Co-founder and Managing Director, Roby Zomer

The company's early stage testing has also produced promising preliminary data, and the interim results show that ArtemiC meets all primary endpoints for efficacy and safety.

Additionally, the drug has also been found to meet the FDA's primary endpoints for, "sustained clinical recovery, preventing the need of intensive care in high risk patients or invasive mechanical ventilation."

MGC Pharma has confirmed that it is well-position to fast-track ArtemiC into mass production following the final publication of data from its clinical trial, as the company believes that the drug has demonstrated considerable commercial applications.

Building on this, the company has also stated that it intends to leverage this opportunity to pursue commercial supply agreements in a number of new markets—including the Middle East, Russia, America, Europe and the UK—as many of these jurisdictions are currently grappling with a second wave of COVID-19 infections.

"The logic embodied in the ArtemiC clinical approach may be metaphorically represented in a concept of a Silver Blanket in contra-distinction to the Silver Bullet solution approach. The idea is to simultaneously obstruct multiple processes driving the disease in attempt to smother its progression rather than precisely disrupt specific processes considered to be crucial to its further development," MGC Pharma Chief Medical Officer Dr Jonathan Grunfeld said.

"The experience accumulated so far with Silver Bullet therapeutics such as specific disruption of isolated cytokine activities or distinct molecular events required for viral penetration into cells of the lungs or replication, and so on, have all failed to provide a satisfactory remedy for COVID-19."

"The shortcoming of this approach has already gained recognition in attempts to combine more than one Silver Bullet in recently designed protocols. ArtemiC takes the Silver Blanket approach one step further in that it combines ingredients with pleiotropic effects."

The news that MGC Pharma currently expects to receive the final results from its expanded double-blind, placebo-controlled Phase 2 clinical trial before the end of 2020 prompted considerable enthusiasm from investors, sending stock prices surging by 4.55% to 0.23 a share.

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

Little Green Pharma

Since late October Little Green Pharma (ASX:LGP) has been powering ahead with a series of stock price boosting announcements.

Last month the company became one of the only cannabis producers in Australia to receive a Good Manufacturing Practice (GMP) licence from the Therapeutic Goods Administration (TGA), which means that LGP will now be able to sell its cannabis medicines both locally and in the international export market.

Our focus is on producing the highest quality cannabis medicines for Australia and other countries where medicinal cannabis has been legalized. We are proud to be the first Australian company to supply Germany, the leading medicinal cannabis market in Europe, and that AMP will be introducing the LGP Classic brand.  We expect strong sales from AMP as they immediately launch and invest in introducing our LGP Classic 20:5 oil to the German market and additional LGP Classic products in the near term. Little Green Pharma Managing Director, Fleta Solomon

The license was granted for the company's manufacturing facility that was recently commissioned in Western Australia, which will soon enable LGP to reach over 175,000 units of medicinal cannabis flower—or 110,000 bottles of cannabis oil—in annual production capacity.

Aside from significantly boosting its production capacity, the receipt of this license is also expected to improve LGP's commercial agility while cutting down on manufacturing costs, as the company had previously been reliant on a third party GMP-licensed pharmaceutical developer to maintain its line of medicinal cannabis oils

"The grant represents the culmination of LGP's long-term regulatory strategy and is a clear watershed moment for the company," LGP Managing Director Fleta Solomon said.

"The grant of this GMP licence differentiates the company as the only fully TGA and ODC licensed and permitted medicinal cannabis company listed on the ASX with local Australian cultivation, manufacturing and wholesaling capacity, as well as brands in market."

"This end-to-end capability allows us to more effectively manage costs, focus on higher-margin aspects of the supply chain, and supply LGP-branded GMP-grade medicinal cannabis products into the highly regulated markets of the European Union."

Another big piece of news was the confirmation that Little Green Pharma had secured a deal with AMP German Cannabis Group Inc. (CSE: XCX), which will see LGP become the "first Australian company" to supply medicinal cannabis products into Germany.  

Under the terms of the deal, the company will import LGP's range of medicinal cannabis oils—beginning with an initial product launch of LGP Classic 20:5 Oils (THC dominant)—before eventually expanding to additional medicines once the company's brand has been adequately established in the German market.

The President and Director of AMP, Dr Stefan Feuerstein, was also highly enthusiastic about the new partnership, saying that the company had received a high volume of, "requests for medical cannabis oils during our recent sales trip through Germany."

"To meet this demand, we are introducing the premium LGP Classic brand as our first extract brand for the German market."

"We wanted our first extract in our product line to be a premium, full plant extract that our sales team can introduce along with our other medical cannabis flower products."

"We will be adding additional cannabis oils in the coming months to satisfy our customers' strong demand for this product line," Feuerstein said.

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.

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