One Medicinal Cannabis Stock For Long-term

As the market players are aware, the outbreak of the COVID-19 pandemic has impacted several sectors as well as industries. However, some sectors managed to navigate the challenges well which were presented by the coronavirus pandemic. The industry in which this company operates has a huge market potential and it could be said that this company is well-placed to tap the opportunities as and when they arise. The stock of this company has increased by ~19.04% in 1 month. In the time frame of past 1 year, the stock rose by ~11.11%.

Cannasouth Limited

Summary

  • The liquidity position remained healthy with cash on hand of $9.2 million on 31 December 2020 (2019: $8.5 million).
  • The Group is embarking on market intelligence as well as validating the sales strategy for medicinal cannabis products and services across the product range starting from cannabis cultivation to finished product for sale across the local as well as global markets.
  • CBD’s mission revolves around becoming the sustainable as well as profitable vertically integrated medicinal cannabis business.

Cannasouth Limited (NZX: CBD) was formed to focus on the commercial development of the medicinally useful characteristics of cannabinoid compounds like THC, CBD, and other related chemical structures that are produced by the cannabis plant. Apart from its subsidiary Cannasouth Bioscience Ltd (CBL), the group has a stake in two joint ventures namely Cannasouth Cultivation Ltd (for flower production) and Midwest Pharmaceutics NZ Ltd (for medicines grade production as well as cannabinoid oil extraction services).

FY20 Results Performance (For the Year Ended 31 December 2020)

CBD has generated revenue and other income of $131,140 (unaudited) in FY20 as compared to $53,391 in FY19. However, the group recorded loss before tax of $3.5 Mn (FY19: $2.2 Mn) mainly due to the planned investment in establishing the group as a key participant in the emerging medicinal cannabis market in NZ.

The group’s cash on hand as of 31 December 2020 was $9.2 million (2019: $8.5 million).

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Financial Snapshot (Source: Company Report)

Product Registrations Delayed

CBD, on 14 May 2021, informed that the registration for its initial three imported products by the Medicinal Cannabis Agency has been delayed. The rigor of the Agency needed CBD to give technical information, which has since been lodged. Notably, the delay would be affecting the timing of the release of the company’s own brand products.

The company was likely to commence the first sales of these products in the first half of 2021, taking into consideration the successful registration within the three months’ timeline. CBD submitted the product assessment applications to the agency in the month of November 2020.

Bagged Approval for Supply Activity

The company, on 19 April 2021, declared that its owned subsidiary Cannasouth Bioscience Limited has got the approval for an additional activity under the commercial Medicinal Cannabis Licence by the Medicinal Cannabis Agency for the facilities that are based in Hamilton. It needs to be noted that the new supply activity is additional to the present cultivation as well as possession for the manufacture activities on the license.

Outlook

The NZ as well as global medicinal cannabis industry is complex and is also highly regulated. In order to compete in the sector as well as to produce compliant medicines, the companies operating in this space need to have expertise in the areas like R&D, formulation, Good Manufacturing Practices (or GMP), Quality Assurance (or QA), pharmaceutical development, regulatory affairs, as well as commercialisation of medicines. Notably, this happens to be the significant barrier to the entry. It needs to be noted that the global CBD market has been anticipated to reach $13.4 Bn (USD) by 2028. Also, international markets, mainly Australia and Germany, are growing at the rapid pace as well as offer large opportunities for the NZ companies which can produce products to the international pharmaceutical quality specifications.

There happens to be significant global demand for the medicinal cannabis flower, cannabis-based ingredients as well as medicines which meet the required regulatory and the quality requirements. With purpose-built facilities along with over 220 years of the combined international GMP pharmaceutical experience, the company is well placed to be the market leader in the medicinal cannabis industry in NZ as well as compete on the global basis.

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Stock Information

CBD’s industry-leading facilities along with a world-class team has better positioned the company to shift from the stage of the establishment to the commercialising revenue garnering stage of the business development.

It is emphasizing commissioning its state-of-the-art cultivation facility with JV partner Cannasouth Cultivation Limited. The facility will earn the major revenue stream from the sales of premium pharmaceutical cannabis flower.

The board remains positive on the demand outlook for cannabis medicines, and the existing health and well-being products market. Resultantly, it remains confident about the group’s outlook.

On June 4, 2021, the company’s stock price ended the trading session at NZ$0.500 per share, up by 2.04%.

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