The Creso Pharma Ltd [ASX:CPH] share price is up after Halucenex enters the deal to produce psychedelic extracts from psilocybin mushrooms.
Creso Pharma Ltd [ASX:CPH], the cannabis and hemp-derived product developer saw its shares jump just under 5% in early trade before settling at 2.5% at the time of writing.
Year-to-date, the Creso share price is up 13% and up 240% over the last 12 months.
Halucenex enters agreement with Advanced Extraction Systems
Creso’s target acquisition company, Halucenex Life Sciences, entered into an agreement with medical and recreational extraction firm Advanced Extraction Systems Inc (AESI) today.
Creso outlined that AESI specialises in the design, engineering, and fabrication of supercritical fluid CO2 extraction systems, with a focus on the medical and recreational cannabis and hemp industries.
Creso pointed out that AESI’s systems ‘exceed the safety and design requirements for pressure and electrical codes in Canada, the USA and Europe.’
The agreement entails Halucenex purchasing a custom-made CO2 supercritical extraction system to produce ‘consistent, high quality psychedelic extracts from psilocybin mushrooms.’
The extraction system costs $70,000 and will take about 6–8 weeks to install at Halucenex’s onsite laboratory.
With the help of the extraction system, Halucenex plans to produce botanical psychedelic extracts from psilocybin mushrooms to research and develop a variety of delivery methods, including ‘tinctures, lozenges, nasal sprays and capsules amongst others.’
Production can commence upon Halucenex receiving a Dealer’s Licence from Health Canada and Halucenex applying for a Licence Amendment to allow the production.
Creso’s acquisition target anticipates the receipt of the Dealer’s Licence ‘imminently’, with the Licence Amendment expected to be received within 45 days after the Dealer’s Licence is granted.
Halucenex’s ‘strong competitive advantage’
In its release, Creso noted that the concentrated psychedelic extracts produced by AESI’s extraction system provide Halucenex with a ‘strong competitive advantage.’
According to Creso, the extraction system is a ‘major development’ for Hallucenex as it provides the company with ‘increased security over the future supply of psilocybin.’
This, in turn, is expected to reduce Halucenex’s reliance on third parties for in-demand supply.
As we’ve covered last week, Creso itself noted in its last update that a ‘bottleneck is developing in the supply chain for synthetic psilocybin as more companies enter the research domain.’
Creso Share Price Outlook
According to Creso’s Non-Executive Chairman Adam Blumenthal, Halucenex’s agreement with AESI provides Halucenex and Creso with a ‘first mover advantage in terms of psychedelic product and delivery methods, which could in turn lead to a number of revenue generating and treatment outcome opportunities.’
Creso’s stock rising as much as 5% in early trade this morning may suggest that investors found Mr Blumenthal’s argument plausible.
But while Creso and Halucenex believe the new extraction system may give them a first-mover advantage as well as an ability to bypass supply bottlenecks, some investors may point out that the cost of this extraction system is not prohibitive for its competitors — totalling $70,000.
Some may be wondering what would happen if rivals decided to enter similar agreements with companies like AESI or even AESI itself.
Competition is heating up in this emerging sector and while Creso’s recent updates highlight its clear strategic intent, much remains to be played out for Creso and pot stocks in general.
While pot stocks are can be volatile, the wider cannabis and psychedelic trend is one worth following.
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For Money Morning