Cann Group (ASX:CAN): Successfully producing GMP medicinal cannabis since 2017

Cann Group (ASX:CAN) is the first company in Australia that was issued a medicinal cannabis license, granted by the Australian Government’s Office of Drug Control in March 2017.

During this time, there have been various busts and booms in the cannabis sector, although there has been little hype since the aftermath of TGA’s declassification of certain types of cannabis, enabling them to be issued to patients without a prescription. Initially, this late 2020 decision was perceived by investors to mean cannabis medicines would hit pharmacy shelves immanently, although this has not eventuated because companies still had to conduct clinical trials for such medicines.

Medicinal cannabis is an attractive market to be in

All the while Cann Group has stuck at medicinal cannabis, and with good reason. Because whatever investor sentiment towards the sector may be, the market contnues to grow. Research from the Penington Institute has estimated 2-2.4m Australians use cannabis each year, both legally and illegally. The Legal Medicinal Cannabis (MC) market now exceeds 100 tonnes per year, and is estimated to be $500-700m at a patient level. The latter figure is growing by 25% year on year.

Although deregulation has taken longer than many would have hoped for, the current market is strong and growing. The growing use of delivery forms other than inhaled flower, particularly capsules, is driving its appeal with patients. Export markets overseas are growing, particularly Europe. And further deregulation could help the industry, be removing cheaper illegal players and imports.

But most importantly for Cann Group, there is a preference in the industry shifting from importation to locally-grown products. As investors who have followed the sector would attest to, it is difficult to build manufacturing facilities of any kind – especially medicinal cannabis facilities that are compliant with regulatory standards.

Cann Group has a facility that is one of a kind

Cann Group boasts the most technologically advanced indoor, full GMP medicinal cannabis cultivation and manufacturing facility in the southern hemisphere. The facility, based in Mildura, has a GMP license for contract manufacturing and packing. It can produce year-round because the glasshouse is microclimate-controlled.

Source: Company

Cann Group does not just manufacture products for itself, but offers contract growing, packing and laboratory services. It produces dried flower and oils, vapes and CBD capsules. Its products are sometimes sold white label or sold under its own brand (Bontanitech  and Satipharm).

Source: Company

The facility has an operational capacity of 10 tonnes per annum, although the company ha not fully ramped up production to meet this capacity just yet – with 4.43t produced during FY25. At first glance, neither figure would appear to be significant, but it can produce multiple crops simultaneously and has expansion capacity. Local TAFEs and Universities in the region ensure a supply of experienced staff. The company’s breeding and R&D programs at the facility are world-class.

During FY24, Cann Group sold $15.4m in products, a $1.6m increase from the year prior. This can be attributed to dried folower sales increasing by 49% over the prior corresponding period, largely through an increase in Botanitech sales. Contract packing contributed too, the new services revenue line contributed $1.2m in sales revenue going forward. Both of these cancelled out a 29% drop in oil sales, due to market shifts towards dried flower and cheaper imports – although oil sales were still nearly $5m.

Cann Group has a big 4 years planned

The company’s predominant goal for the current year (FY25) is to become EBITDA positive. It also aspires to restructure its debt and expand its Bontanitech range. For the 3 years thereafter, it has further goals to achieve including becoming cash flow positive, growing its revenue through increasing its exports. By FY28, it aims to be Australia’s largest domestic producer of medicinal cannabis and have a 14-16 tonne production target. If Cann Group can meet these targets, we imagine that the company’s $16m market capitalisation will not last for too much longer.

Cann Group will be presenting at the Pitt Street Life Sciences Conference later this month, on September 19, 2024. Stocks Down Under invites you to attend this free event either in person or online.

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