Investors see value opportunities in cannabis sector after price correction

THC Global recently completed the first farm-to-pharma processing of Australian medicinal cannabis.

THC Global Group Ltd - Investors see value opportunities in cannabis sector after price correction
Next Green Wave Holdings is expected to achieve both positive cash flow and profitability in 2020

The gradual legalisation of cannabis has led to a flurry of activity in recent years – much of it on share markets including Australia and Canada – as companies move to address the potentially massive markets for cannabis products.

After a big run-up in prices, cannabis stocks witnessed a significant correction in 2019.

Investors are now finding value opportunities after stock prices took such a dive.

They are treating cannabis companies like any other business, looking for solid fundamentals, high-quality products and profitability.

Market is wide open

Many of the cannabis industry’s titans are based in Canada, where they enjoy nation-wide legalisation and access to global investors.

In Canada’s first year of legal cannabis, sales were mostly limited to cannabis plants, its flower, and oils.

Now, Canada’s producers will also be able to sell edibles, beverages, vapes and topicals, such as lotions and balms.

Canada opened applications for these products in October 2019 with a 60-day notice period, so the first products are just hitting shelves now.

More US states legalising cannabis

On January 1, 2020, Illinois - the sixth most populous US state - followed Michigan to become the 12th state where recreational cannabis can legally be sold, in addition to the 33 states where its medical use is legal.

In the New York state legislature, lawmakers promised to push for legal recreational use this year, after legalisation efforts fell apart over disagreements about regulation policy in June.

Notable changes to weed’s legal status are expected in New Mexico, Vermont, Arizona, Florida and Montana, all states where legalisation is being advanced in the legislature or by ballot measure.

Cannabis plays

We will review four ASX-listed cannabis companies and one listed on the Canadian Securities Exchange.

THC Global Group

THC Global Group Ltd (ASX:THC) operates under a ‘Farm to Pharma’ pharmaceutical model, now holding all three key cannabis licences being a cannabis research licence, a medicinal cannabis licence (cultivation) and two manufacturing licences.

The company’s main facility, the Southport Manufacturing Facility, is the largest pharmaceutical bio-floral extraction facility in the Southern Hemisphere.

THC recently completed the first farm-to-pharma processing of Australian medicinal cannabis at this facility.

This represents a major milestone for the company signifying the start of production activities.

Zelira Therapeutics

Zelira Therapeutics Ltd (ASX:ZLD) is a global therapeutic medicinal cannabis company which owns a portfolio of proprietary revenue-generating products.

The company also has a pipeline of candidates undergoing clinical development that are positioned to enter global markets from 2020.

Zelira is currently undertaking:

  • Human clinical trial programs focused on insomnia, autism and opioid reduction with activities in Australia and the USA; and
  • Pre-clinical research examining the effect of cannabinoids in breast, brain and pancreatic cancer as well as research examining the potential for cannabinoids to treat diabetes-associated cognitive decline.

Last month, Zelira completed dosing of the last patient in its pioneering medicinal cannabis trial for insomnia.

No serious adverse events have been reported to date during the trial and the company expects to provide interim results by February 2020.

MMJ Group

MMJ Group Holdings Ltd (ASX:MMJ) is a global cannabis investment company that specialises in managing a portfolio of investments along the cannabis value-chain.

The company has a proven track record in acquiring and realising significant value from its cannabis and hemp-related investments.

MMJ’s investment Harvest One Cannabis Inc (CVE:HVT) recently reported a 142% increase in revenue year-over-year for its fiscal first quarter of 2020.

Harvest One took in a record $4.1 million in revenue during the three months ending September 30. Revenue increased by 34% from the previous quarter.

MMJ holds 26% of Harvest One which is one of the largest investments within the MMJ cannabis and hemp portfolio.

Medlab Clinical

Medlab Clinical Ltd (ASX:MDC) is an Australian-based medical life science company, developing therapeutic pathways for diagnosed chronic diseases.

It is advanced in developing therapies for pain management, depression and obesity as well as earning revenue from sale of nutritional products in Australia and the US.

Medlab is progressing its Ethics Observational Study for NanaBis, a highly purified proprietary blend of cannabis molecules cannabidiol (CBD) and tetrahydrocannabinol (THC).

The pain management medicine is delivered into the body using Medlab’s patented sub-micron delivery platform NanoCelle.

Medlab recently raised $5 million from institutional and sophisticated investors as it prepares for Phase 3 research of NanaBis.

Next Green Wave

Next Green Wave Holdings Inc (CNSX:NGW) is a fully integrated premium cannabis producer with eight legacy brands and over 45 products marketed through its WEARESDC brand house.

Based in Coalinga, California, the company owns and operates a 35,000 square feet state-of-the-art indoor cultivation facility and is expanding extraction and other operations on its cannabis zoned campus.

NGW has a seed library of over 120 cannabis strains which include multiple award-winning genetics and cultivars and is developing its nursery cloning operations with bio-tech leader Intrexon.

CEO Michael Jennings recently said that the company expected to achieve both positive cash flow and profitability in the first half of 2020.

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