Cann Group’s shares surged 19% on a Revised Expansion Plan and Offtake Agreement

CAN

Cann Group Limited (ASX: CAN) is one of the few companies which is trying to tap the medical cannabis market by providing access to medicinal cannabis for patients. It was issued the first medicinal cannabis research licence and first medicinal cannabis cultivation licence in Australia. The company has its own research and cultivation facilities in Melbourne for the production of medicinal cannabis for sale and use in Australia.

On 19th March 2019, the company announced that it had entered into a non-binding Heads of Agreement (HOA), under which the company would be buying a site situated within the Mildura region, in North West Victoria. This land would be used for the construction of a greenhouse for a mass scale cultivation and production of medicinal cannabis which will be serviced to both the domestic and the international markets. [optin-monster-shortcode id=”swikrbu1d9j9aq0o4cko”]

The company has entered into another agreement with Aurora Cannabis Inc for the offtake of medicinal cannabis produced by Cann at its existing and planned expansion facilities until 2024. Aurora is one of the largest medical cannabis players in Canada and has a 22.9% stake in Cann Group.

These agreements are expected to help the company to position itself as a leader in all the activities that are required to facilitate the supply of medicinal cannabis like plant genetics, breeding, extraction, analysis and production techniques.

Cann group would be purchasing the Mildura site for a total amount of $10.75 million which is exclusive of GST. Currently, the company is working with two medicinal cannabis facilities in Melbourne. The new greenhouse facility which would be constructed on the purchased land is expected to produce 50,000 kilograms of dry flower per annum, and by the third quarter of 2020, it is expected to be fully commissioned with an approximate construction cost of $130 million.

Revised Expansion Plans

Earlier the company announced plans to construct its stage 3 expansion facilities at a site which is leased from Australian Pacific Airports Pty Ltd (APAM). Following are some latest changes, updates and revision of the plan:

The company is in discussion with APAM regarding the potential construction of GMP manufacturing facility and greenhouse production expansion near Tullamarine Airport. Mildura site is selected to suit the design and size of greenhouse, planned for Tullamarine. The site is also well serviced with power, gas and other necessary amenities, including provisions for wastewater treatment. Other advantages of this site include lower total build cost and lower ongoing operating costs.

Offtake Agreement

Under this offtake agreement, Cann will supply manufactured medicinal cannabis products, GMP processed dry flower and extracted resin to Aurora until 2024. However, the supply under the agreement is subject to regulatory approvals and are strictly to be used for medicinal purposes. Both the companies have termination rights in the event of a material breach. The agreement will assist Aurora in fulfilling growing global demand for GMP grade medicinal cannabis products.

The company recently released its quarterly business updates.

The stock surged by more than 19% and is trading at A$2.00 as of 19th March 2019 (AEST: 2:35 PM) compared to the previous closing of A$1.67. The stock has declined by more than 37% in the last six months with YTD return standing at negative 16.5%.


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