Earlier today, the share price of Althea Group Holdings Ltd [ASX:AGH] was down 3.02%, trading at $1.14.
The Althea share price has been on a steady rise from a bottom in December:
There was a lot to digest after the Althea shares came out of a trading halt yesterday. The company announced an agreement to acquire a Canadian company (Peak Processing Solutions), progress made in cracking the UK medicinal market and a $30 million capital raise.
Althea share price rises initially, then falls
The Althea share price initially rose today on commencement of trading this morning, but shares subsequently fell to the $1.12–$1.16 range. The price is now sitting at $1.115.
Let’s look at what the company released yesterday.
The first document announced an agreement to acquire Peak Processing Solutions which will give them a foothold in the Canadian market.
As per the announcement, Peak specialises in, ‘extraction, toll processing, and contract manufacturing of cannabis-infused edibles, drinks, nutraceuticals and cosmetics products. In support of its strategy, Peak has applied for one of the industry’s first large-scale (infused) cannabis processor licences.’
The announcement continued:
‘Althea considers that Peak is well-positioned to become a leading contract manufacturer for consumer brands looking to launch recreational cannabis and cannabidiol (CBD) wellness products. In addition, expected developments in Peak’s operations (such as product delivery systems and EU-GMP certification) have the potential to enable its facilities to be utilised in the future as part of the Company’s medicinal cannabis products globally.’
So it appears from this information, we can conclude that Althea is aiming more at value-added products (particularly infused products) produced in Canada, more so than trying to compete directly with big companies like Canopy Growth Corporation [TSX:WEED] who have a much larger footprint.
The Peak acquisition will take place predominately through shares in Althea, with a total consideration of C$4.1 million in cash (less the amount of third-party debt) plus 25.85 million in shares.
Althea intends to finance the purchase of Peak through a $30 million capital raise which will take the form of placement at $1.00, and this is what the funds will be used for:
The company said that the capital raised from new and existing institutional shareholders was, ‘heavily oversubscribed.’
The company also announced that it has launched one of the first cannabis destination clinics in the upscale suburb of Belgravia, London.
It has a UK import licence and is looking to negotiate a 50/50 joint venture in Portugal.
What’s next for Althea?
Althea will be looking or progress across a number of fronts now.
These include its Australian patient scheme — ‘Althea Concierge,’ its push into the UK market under the TWENTY21 pilot for medicinal cannabis, further growth in Europe and further down the track, the buildout of the Peak Plant.
It now has 1334 patients in Australia as of the end of June, so it is continuing to build momentum in Australia.
It went through $2.6 million in cash for its operating activities and has $14.9 million in cash and cash equivalents available at the end of the quarter.
While it may seem that a significant amount of Althea’s growth has already been priced in, from another perspective (and as long as the good news continues to roll in), the Althea share price could have room to run.
It is often remarked about cannabis stocks that some companies won’t make it to their fifth birthday.
With a solid base to its operations, Althea may well make it to this milestone.
If it doesn’t, we suspect that it would be because of an acquisition bid from a larger company rather than a lack of funds, based on its current trajectory.
For Money Morning