Cann Group announces placement with a heavily discounted issue price; stock slides ~12%

Cann Group announces placement with a heavily discounted issue price; stock slides ~12%

Summary

  • Medicinal cannabis manufacturer Cann Group announced capital raising via SPP and Placement with the issue price at a 51.2% discount to 14 July closing price.
  • The Group has not secured funding for construction of Mildura facility so far, due to the impacts of COVID-19 pandemic.
  • The Company is gaining robust commercial momentum and revenue for the June quarter was reported at A$49,000.
  • The Company is predicting revenue of A$15 million in FY21, bolstered by existing supply contracts.

The Australian cannabis industry has been affected by the recent happenings around the globe, just like other industries. However, the industry was in a much better position than some of the others, including the airline and hospitality industries.

Several ASX-listed pot stocks witnessed substantial traction amid COVID-19 pandemic as the MCIA (Medicinal Cannabis Industry Australia) stated that the medical cannabis industry was eligible for essential service status under the public health instructions, released by states as well as many territories.

Australia fears the second wave of COVID-19, as the number of cases has surged recently. The second wave of COVID-19 affects the hope of an economic revival after it plunged into recession in the first half of 2020. In Victoria, the lockdown orders were re-imposed last week due to the second wave of COVID-19.

HAVE YOU READ: Second Wave of Infection: NSW Under Spotlight with Surge in Coronavirus Cases 

In this article, we are highlighting one ASX-listed medicinal cannabis player, Cann Group Limited that has experienced a drop in its share price after announcing capital raising.

Let us delve deep and discuss Cann Group Limited:

Cann Group Limited (ASX:CAN)

Cann Group Limited is creating a topnotch business centred on breeding, cultivating, manufacturing, as well as supplying medicinal cannabis for sale and use in Australia and for approved overseas export markets. The Group has established research and cultivation facilities in Melbourne, Australia and its state-of-the-art cultivation facility is under development near Mildura, Victoria.

Cann Group Share Price Dwindle on Discounted Capital Raising

On 17 July 2020, Cann Group announced a placement and share purchase plan (SPP) to raise a total of up to A$24.3 million. The Company mentioned that the proceeds from this capital raising would be used to provide working capital to support the Company’s near-term growth opportunities.

Cann is looking to raise ~A$14.3 million by way of an institutional placement and issuing new shares at an offer price of A$0.40 per share, a nearly 51.2% discount to the closing price on 14 July 2020

On 17 July 2020, CAN stock last quoted at A$0.720, falling by 12.195%. With a market capitalisation of ~A$117.17 million, CAN stock has 142.89 million shares trading on ASX.

Cann Group disclosed that its Mildura facility expansion remains a critical component of its growth strategy.  All funding options for expansion of the Mildura continue to be pursued, including a bank debt facility.

Impact of COVID-19, Mildura Expansion Funding Still Uncertain

Due to COVID-19, the progress of potential funding options for Mildura reduced along with the practical timing of any construction, owing to the requirement of engaging European-based specialist contractors.

Cann Group has been in discussions with a Tier 1 Australian bank for obtaining a debt facility as part of the planned funding package for stage 1 of the Mildura expansion.

Because of the effects of the pandemic on the external funding environment, discussions with the bank have taken longer than expected. CAN is confident that the demonstration of an established revenue stream will bolster its position regarding potential external funding options for Mildura.

Highlights from June Quarter (ended 30 June 2020)

On 17 July 2020, Cann Group reported its activities for the quarter ended 30 June 2020. The highlights are:

  • In June quarter, Cann secured several important commercial supply agreements, including medicinal cannabis products along with dried flower material for sale in Australia and to export markets of Europe New Zealand and the UK.
  • In May, the Company had signed two new supply agreements, including the export of medicinal cannabis products as well as dried flower material for sale in the UK and European markets.
  • Cann Group also executed a supply agreement of 5-year with Zalm Therapeutics Ltd which is building a patient-centric therapeutic cannabis business focused on the supply of cannabinoid-based medicines to patients across New Zealand and other key global markets.
  • During the quarter, Cann’s first GMP manufactured products, dried cannabis flower and cannabis oil formulations from cannabis grown in Australia, completed initial shelf-life stability testing as well as been released to the market to fill specific customer orders.
  • The Company initiated the manufacturing of a new high CBD oil-based formulation which is a combination of Active Pharmaceutical Ingredient (API) from locally grown CBD dominant cultivar, supplemented with a CBD isolate. Moreover, the stability testing for the formulation has commenced and is projected to be available for sale in Q2 FY2021, for domestic supply & export.

Financial Highlights:

  • Cann Group’s revenue for the June quarter was reported to be A$49,000.
  • The Company notified that it had received research and development rebate of nearly A$937,000.
  • Net cash used in operating activities was reported at A$4.623 million.
  • Cann Group has nearly A$1.63 million cash and cash equivalents at the end of this quarter.

Cann Group Securing Robust Commercial Momentum

The Company secured commercial supply agreements that including medicinal cannabis products and dried flower material for sale in Australia and to export markets, including the UK and Europe.

Recently, the Group executed supply contracts that include an agreement revealed in early June with Astral Health Limited, a UK-based specialist importer as well as the distributor of medicinal cannabis formulations.

Also, in June, an agreement was executed and announced with Germany-based iuvo Therapeutics GmbH for the supply of cannabis material in oil and dried flower form for sale within Germany and other European countries.

The Company also has a five-year offtake agreement with Aurora Cannabis Inc in place, enabling Cann to supply GMP processed extracted resin, dry flower, and manufactured medicinal cannabis products to Aurora till 2024.

Notably, the Company is presently pursuing additional supply contracts with 3rd parties in Australia and overseas.

Cann Group’s Outlook-

A crucial priority for management during the upcoming quarter is to work closely with new offtake customers for finalisation of their specific product as well as volume requirements and related regulatory approvals. The Company expects initial shipments for overseas-based supply customers to take place from September 2020.

Cann is continuing to operate within the COVID-19 restrictions, ensuring that the health and wellbeing of its members are maintained.

The Group is anticipating revenues of A$15 million in FY2021, bolstered by existing supply contracts. It is confident that a proven track record of sustainable revenues will help both the business case for Mildura and help secure the support of financiers.

 


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