The first half of FY21 saw positive developments in the regulation of medicinal cannabis products both locally and internationally.
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The first half of FY21 (1H FY21) saw positive developments for ASX cannabis shares surrounding the regulation of medicinal cannabis products both locally and internationally. International markets were buoyed by the down-scheduling of cannabis by the United Nations Commission.
This is expected to result in stronger demand and open up new opportunities for ASX cannabis shares, particularly in the CBD space. The United States cannabis market also received a boost from the Biden election, with Democrats seen as far more proactive in legalising cannabis.
In Australia, the TGA down-scheduled low-dose CBD from being a prescription-only medicine to being a pharmacist-only medicine. This means Australian consumers will be able to buy CBD products over the counter at pharmacies. Demand for medicinal cannabis continues to grow in Australia.
Based on current growth rates, it is estimated more than 30,000 active patients are currently receiving medicinal cannabis products in Australia, up from just over 10,000 a year ago. So with this in mind, how did ASX cannabis shares perform in 1H FY21?
How have these 3 ASX cannabis shares performed?
Althea Group Holdings Ltd (ASX: AGH)
Althea was founded in Melbourne in 2017 and holds licences to import, cultivate, produce and supply medicinal cannabis. Currently operating in Australia, the United Kingdom, Germany, and Canada, the company has plans to expand into emerging markets throughout Asia and Europe.
Althea reported record revenue for the December quarter of $2.7 million, a 29% increase from the September quarter. Cash receipts were up 27% for the quarter and the number of healthcare providers that had prescribed Althea’s products increased by 32%. These increases have been reflected in the Althea share price, which has increased 62% over the past six months.
In the United Kingdom, Althea saw record revenues in December of $206,706 – a 90% month-on-month increase. The company’s UK clinics continue to add new patients at a healthy rate with follow up appointments generating good repeat business.
In Canada, subsidiary Peak Processing Solutions entered an agreement with a Canadian listed beverage company to produce three cannabis-infused beverages. An initial order is expected to be delivered in Q1 2021 representing more than CAD$100,000 in revenue for Peak. A licence agreement was also entered to produce branded topical products. Peak has now signed contracts with total forecast revenues of CAD$4.65 million over the next 12 months.
Althea finished 2020 with a healthy balance sheet thanks to a $6 million share placement. At 31 December 2021 cash on hand was $8.96 million. In January an additional $3.78 million was raised via an oversubscribed share purchase plan. Since the end of 1H FY21, Althea has also completed its first shipments of products to Germany and to UK-based distributor Grow Pharma. CEO Josh Fegan said, “Europe is fast becoming a global hub for medicinal cannabis….with operations in the UK and Germany, Althea is at the forefront of this next frontier.”
Ecofibre Ltd (ASX: EOF)
Ecofibre is a biotechnology company that produces and sells hemp-derived products in Australia and the US. The company produces Australian grown hemp food products through its Ananda Food brand and develops hemp-based textiles and composites through its Hemp Black business.
Ecofibre’s Ananda Health brand produces nutraceutical products. The December half was a difficult one for this ASX cannabis share, with revenue falling 49% to $14.7 million. This was reflected in the Ecofibre share price, which has fallen 41% over the past six months.
Nutraceuticals revenues fell during 1H FY21 with COVID-19 disruptions magnifying challenges in the highly competitive CBD industry. This was partially offset by revenue increases in the Ananda Food and Hemp Black brands. Ananda Food is now available in 1,250 Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) stores.
The food brand saw a 61% increase in revenues in 1H FY21 and is aiming to become the Australian hemp food processor of choice. Ecofibre is focused on reducing variable growing and manufacturing costs and utilising its expanded client base to work towards scale benefits.
Ananda Health is a leading US pharmacy brand for CBD but saw major COVID-related disruption to its independent pharmacy channel during 1H FY21. Ananda Health is a premium-priced product, however, many pharmacies are carrying cheaper brands as well as product formats that Ananda Health does not manufacture.
Ecofibre repriced a number of products in November, reducing prices by 15% to 25%. New product formulations are also in the pipeline. A decline in in-store traffic has resulted in the development of an e-commerce channel that will allow pharmacies to sell Ananda CBD online. This is expected to launch in mid-2021.
Cann Group Ltd (ASX: CAN)
Cann Group has established R&D and cultivation facilities in Australia and is pursuing a fully-integrated business model as a developer and supplier of cannabis and related products. In 1H FY21, Cann Group announced several important sales, with associated products expected to be shipped in Q3 FY21. This has been reflected in the Cann Group share price, which is up 57% over the past six months.
A shipment of 1,400 units of NOIDECS-branded medical cannabis products was made in December and will be used by Europe’s first and largest national medical cannabis registry. Iuvo Therapeutics, a leading European medicinal cannabis importer and distributor, has placed an initial 19,000 units order for Cann Group product which is expected to ship in the current quarter, pending regulatory clearances.
Locally, various products have been supplied to white label customers and compound pharmacists. According to Cann Group, customers are forecasting steady growth over the balance of FY21 as the Australian patient pool continues to grow.
Projected revenues remain heavily weighted to the second half of the financial year as Cann Group continues to work through regulatory clearances in Australia and overseas. The company recorded $99,000 in receipts from customers in the December quarter, but expects revenue to be boosted from orders anticipated to ship in the current quarter.
Cann Group secured a $50 million bank debt facility from National Australia Bank Ltd (ASX: NAB) during the December quarter, which will be used to construct its cannabis production site near Mildura. Site activities are scheduled to begin late this month. The final cost to complete the facility, which will have an initial capacity of 12,500kg, is expected to be $65 million. This will be funded via the debt facility as well as cash on the balance sheet.
What’s next for ASX cannabis shares?
Australian consumers are eagerly awaiting the launch of the first over-the-counter CBD products in Australian pharmacies. ASX cannabis shares are in a race to get these products through the regulatory process and onto the market, knowing that there will be a first-mover advantage for those entering the space early.
As the market for cannabis products continues to grow both locally and offshore, ASX investors are eagerly watching the development of this industry.
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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.