The Althea share price has soared today following news that its wholly owned subsidiary will commence commeical operations in Canada.
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Althea Group Holdings Ltd (ASX: AGH) shares have today surged on a new license announcement. At the time of writing, the Althea share price is up 11.2% to 64.5 cents after reaching as high as 67 cents during intraday trading. This morning, Althea announced its wholly-owned subsidiary, Peak Processing Solutions, will commence operations following its cannabis licence approval in Canada.
What’s moving the Althea share price?
The Althea share price rocketed higher after Althea advised Peak Processing Solutions has reached a major milestone in receiving a successful grant from Health Canada. The Standard Processing Licence will allow the company to begin commercial operations for its Cannabis 2.0 products.
The 3,716 sqm facility in Tecumseh, Ontario will be one of the first large-scale independent processing facilities to manufacture and distribute cannabis products.
The processing house will specialise in cannabis-infused beverages, concentrates and topicals. These products will be produced by Peak on behalf of third parties and also supplied to parent company Althea. It is anticipated that this will greatly reduce Althea’s cost of goods sold.
Peak aims to achieve C$25 million in revenue within the first 18 months.
Manufacturing and distribution agreement
In addition to the obtaining the licence, Peak signed an agreement with Blum Beverage Company Inc.
Under the agreement, the Canadian non-alcoholic beverage company will be able to place orders for Peak to manufacture and distribute. The beverages will contain 5 mg of tetrahydrocannabinol (THC) on behalf of Blum.
Althea advised that the exact commercial terms of the partnership were not disclosed and remain confidential.
The new agreement with Blum co-exists with Peak’s previous binding production agreement with Collective Project Limited.
The company hopes that the new licence and inclusion on Health Canada’s list of licensed producers will help accelerate negotiations with various customers.
What did the CEO say?
Althea CEO, Josh Fegan, was pleased about the Canada licencing news, commenting:
This is a major milestone and will allow Peak to immediately commence production of cannabis-infused canned beverages for Collective Project and Blum, sign further customers who were waiting for the licence to be granted, and start supplying our own pharmaceutical operations with finished (Althea) products at a drastically lower cost than we currently pay to third party suppliers.
Addressable market opportunity
Peak believes that the market for its Cannabis 2.0 products is underserved. Retailers have suffered stock shortages since it was regulated for sale in January 2020.
Recent research by Deloitte estimates that the Cannabis 2.0 market is worth nearly C$2.7 billion annually. This is broken down by cannabis extract-based products, and beverage products accounting for C$1.6 billion and C$1.07 billion, respectively.
Furthermore, it is also estimated that one in four Canadians are either consuming or likely to consume Cannabis 2.0 products. This is due to the discrete and accessible offering which enables consumers to enjoy the product without the social stigma. This 25% market opportunity represents a strong growth from the current 11% that Canadians already consume.
About the Althea share price
The Althea share price has been on the mends of late, rising 84% in the past month. The Althea share price is down 25% since reaching its 52-week high of 85.5 cents.
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.