At time of writing, the share price of Cann Group Limited [ASX:CAN] is down 1.36%, trading at $2.17.
The Cann Group share price has fluctuated throughout the last 12 months with a bottom occurring in March followed by a sharp spike on the announcement of an offtake agreement:
Cann Group got manufacturing licenses for their facilities in Melbourne today, but their main focus will be on the Canadian market. We look at their valuation.
Cann Group share price indicates manufacturing licence not a surprise
With limited news coming out of the company in the last month, you could hazard a guess that some investors may have seen the manufacturing license news coming.
Today’s trading started with shares going for as much as $2.34 before the share price settled in the $2.15–$2.20 range.
The company announced that the Office of Drug Control (ODC) had approved licenses for the company’s existing Northern and Southern facilities which allows the company to manufacture, pack, store transport and dispose of medicinal cannabis.
The company notes that, ‘Appropriate permits will be required in relation to the undertaking of specific activities under the licences.’
And that, ‘Cann Group now holds all cultivation, production and manufacture licences under the Narcotics Drugs Act, along with import and export licences under the Customs Act.’
The next major step is getting their Mildura cultivation facility up and running.
For now, Cann Group CEO Peter Crock says that IDT Australia Limited [ASX:IDT] will play an immediate role: ‘IDT, which has GMP approved facilities, offers us immediate access to proven expertise in pharmaceutical manufacturing while we continue to develop our own capabilities.’
But is the Cann Group share price cheap?
A lot depends on your investment horizon and willingness to wait out uncertainty in an evolving regulatory environment.
Cann Group has big things planned, with the 34,000 square metre Mildura operation to cost an estimated $130 million to construct and an expected production capacity of 50,000 kgs of dry flower.
But once up and running, the large majority of this flower will likely not be for the Australian market — which is still in its infancy.
Instead, it will be for export to Aurora Cannabis Inc. — a Canadian cannabis company which owns 22.9% of Cann.
Aurora has an offtake agreement in place for Cann’s flower which cover Cann’s full production capacity excluding domestic needs through until 2024.
Cann expects that once they are fully operational, they will generate annual revenue of $160–$200 million.
The Mildura facility is expected to be fully commissioned in the third quarter of CY2020, so investors might have to wait a while before serious revenue is generated by Cann Group.
If they actually pull in $160–$200 million a year their current market-cap of $311 million could be seen as a low valuation.
As of the end of March, they had $62.9 million, so a capital raise may be needed at some point if the $130 million Mildura is to be completed.
While all of this is a fair way down the track, if new shares are issued at discount, this could be an opportune moment to think about your position in Cann.
If you are interested in ASX-listed cannabis plays like Cann Group, our free report, which covers our ‘Top Four Pot Stocks’ is a great place to either begin your reading, or expand your knowledge. It can be downloaded here.
For Money Morning