While Auscann Group Holdings Ltd (OTCMKTS:ACNNF) has been moving sideways in 2018, it is right time to look at the company again. The stock returns have not been outstanding, but the trading volume indicates that new share price spikes could be very near. Some days more than two million shares changed hands.
This price action can be seen in the chart below:
With the stock trading at the $1.25 candle, the upside is significant. If the share price crosses the $1.50 mark, it could easily run to the 52-week record of $1.75. On the downside, a close below $1.0 will be regarded. If that psychological resistance is lost, shorts will try to push back down to the low share price levels seen in 2017. Honestly, given the current growth seen in the cannabis industry and the company prospects to be assessed in this piece, the moves to the downside are not likely.
Before reviewing the most recent steps of ACNNF, let’s review what does the company do to enhance value to the shareholder.
AusCann, headquartered in Carabooda, Western Australia, was founded in September 2014. The company’s main goal is the production of high quality, economical and clinically validated cannabis medicines for the patients. ACNNF counts with the expertise in all the aspects of the medical cannabis value chain; beginning with cultivation and production through to manufacturing and distribution of products. It has built a strong team of experts and partners with international connections.
For those who know the main cannabis players, but don’t know ACNNF, bear in mind that Canopy Growth Corporation is its partner and shareholder. In addition, DayaCann, only licensed medicinal cannabis grower in Chile, is also a partner.
It may seem ambitious, but this company is meant to be very well positioned to become a leading supplier of Australian cannabinoid. That’s the idea that both the stock chart and the management are exhibiting. Have a look at the most recent video:
We encourage readers to revisit our previous article on this name titled “AUSCANN GROUP HLDG (OTCMKTS:ACNNF): Another Play On CANOPY GROWTH CORP (OTCMKTS:TWMJF)”. There is a lot of information in that piece, and reading it will help understand the past and the future price action.
The following developments created the most significant market reactions in January and February.
The work with CANOPY GROWTH CORP (OTCMKTS:TWMJF) continues
We previously noted that CANOPY owns 10.65% of the company, and they work together. It is an important aspect, as AusCann Group, since the development of CANOPY, could move ACNNF’s share price. In January, for instance, AusCann released that Canopy had signed an agreement with the Victorian State Government to further develop research and technical capabilities in the production of medical cannabis in Australia. As a result, the optimism was at its peak. Check the following words:
“We look forward to our work with the Victorian Government in the coming months and years. Along with our partnership with AusCann, we are excited to be working in Australia as it establishes itself as a leading cannabis jurisdiction,” said Mark Zekulin, President of Canopy Growth.
While the share price did not really spike as a result of this announcement, the direct involvement of CANOPY in Australia is very positive. In our opinion, market participants are quite cold minded and are only caring about cash flows and revenues on this name. We believe that we have an edge over them if we study announcements that many not note cash generation, but show company growth.
AusCann is working on its distribution network
Obviously, the company still has a lot to do, as the industry is quite young. However, the steps being taken by the management are going in the right direction. On January 22, 2018, the company released a Heads of Agreement with ASX listed Australian Pharmaceutical Industries Limited. According to the new agreement, the companies will form a wholesale agreement for the distribution of AusCann’s cannabinoid medicines throughout Australia.
ACNNF is really an early mover in the industry, which should help the company position itself for the future. This is our impression after revising what the contract means to ACNNF. Bear in mind the following words:
“Establishing a relationship with a leading wholesale distributor in the industry provides AusCann with an excellent partner for the distribution of our medications and is further evidence of the growing market and validity of what we’re doing in Australia. This relationship is in addition to our strategic partnership with Tasmanian Alkaloids, who we are working closely with to establish our growing and manufacturing operations. It further builds on our Australian supply chain and firmly positions AusCann as leaders in the local industry.” Elaine Darby, Managing Director, AusCann said.
The market celebrated the news in this case. The share price moved from $1.25 to the $1.50 mark. As a result, we will pay much more attention to announcements related to the expansion strategy of ACNNF and its relationship with distributors. We encourage readers to do the same or to subscribe to our email distribution list for further analysis.
Last reports released
On January 31, 2018, the company released its report for the three-month period ended 31 December 2017. In addition to the previous announcements, which used to prove the strong operational momentum, the company also noted the approval in Chile to plant its second crop at its 30-hectare Chilean facility. The following were the positive words from the management:
“This quarter proves that AusCann has the necessary partnerships, expertise and capabilities to be a leading producer and supplier of medical cannabinoid medications to the Australian market. We are delighted to be able to progress our cultivation and manufacturing activities in Tasmania, following the licence approval by the ODC and anticipate planting our first Australian crop in the coming months.” Managing Director of AusCann Elaine Darby
The market did not really react to what was announced in the last quarter. It seems that the market participants were waiting for the financial results for the half-year ended 31 December 2017, which were released on February 28, 2018. The most significant released in the new report were the amount of cash and the amount of money invested in R&D. This is what you need to know:
“The Company invested approximately $4.8 million in H1 FY18 on research and development, operating costs, joint venture expenses, consulting and legal fees and other associated expenses. Included in this investment were share-based payments valued according to accounting treatment at approximately $2.7 million. AusCann ended H1 FY18 with approximately $12.3 million in cash and is well-funded to maintain its operational momentum.“ Source
Currently trading with a market cap of $37 million, ACNNF is an exciting story among small caps. In our view, the company was largely benefited from the Federal Government decision to allow the export of medical cannabis. AusCann is very well positioned, as it has all the requisite partnerships and licenses in place to establish itself as a supplier of cannabinoid medicines to select international markets. If the company is able to capture a big market size of this new opportunity, we should see the share price run.
To sum up, be ready to assess future announcements from ACNNF. They may surprise.
Disclosure: We have no position in ACNNF and have not been compensated for this article.
Image courtesy of Rusty Blazenhoff via Flickr.