Cann Group has long spoken of the commercial opportunities its Mildura facility will provide. With the site now operational, the 2023 financial year is being flagged as another pivotal year for the business. Management is bullish.

Cann Group’s ability to manufacture GMP finished products at Mildura and its southern facility will present new commercial opportunities, improve margins and ultimately drive profitability, the company has insisted.

Posting a near-50% increase in revenue, but deepening year-end losses of A$26.5 million, Cann Group chief executive Peter Crock outlined a bright future where its considerable investments over recent years will finally pay off.

Yet he acknowledged progress to this point has been “turbulent”.

It’s a sentiment keenly felt by shareholders, who, it is reasonable to suggest, might use more robust language to describe the past two years. They witnessed the value of their investment fall again this week, this time by 7%, to $0.27 per share.

Almost a year to the day since shareholders were told they will be rewarded for their patience, they are once again being urged to keep the faith

“Being a start-up in a start-up industry is not easy and we still face challenging times ahead,” Crock told an investor briefing. “It’s been an incredibly turbulent process to where we have got to. But we should be proud of what we have achieved.”

Cann Group executives will be under pressure to realise the potential of the firm’s multi-million dollar Mildura facility

Despite the underwhelming numbers – Cann, after all, had predicted revenue would hit $15m in November of FY21 – the company painted a bullish picture, with its now-complete and operational Mildura facility the central pillar of its growth strategy.

“The ability to cultivate, process, test and release GMP product out of Mildura is what we have been striving for,” Crock said. “We are ready and focused on supplying sought-after GMP quality Australian product.”

He added regulatory reforms requiring imports to meet the same GMP standards as local product are already being felt and playing into the hands of the company.

“[It is] already causing supply chain pressures and has led to enquiries for cultivation of proprietary genetics through our facility,” he said. “Reliability and certainty of supply remains a major issue across the sector, both in Australia and export markets, and we are ready to respond to those requirements.”

But the company remained coy on when shareholders would see tangible benefits. Chief financial officer Deborah Ambrosini refused to be drawn on how close the company is to being cash-flow positive, while Crock chose his words carefully when asked by one shareholder whether shares would ever return to $0.38.

Commercial optimism

But with all licences in place at Mildura – providing Cann with the ability to manufacture finished products in-house – chief operating officer Shane Duncan said the firm was in a strong position, and particularly well-placed to take advantage of increasing demand for dried flower.

Illustrating that demand, Duncan told investors that all 17 of its current customers are looking for the product form.

“Most of our revenue has been driven by formulated oil products, but that will change over the next 12 months,” he said. “Between getting our licence in March and commencing manufacturing, dried flower represented 15% of our total revenue for the year.

“Just about every customer we talk to is looking for dried flower so the timing is terrific for us as we bring a large-scale dried flower GMP facility online.”

Ending its reliance on third-party manufacturing will also enable the company to retain margins, he said.

“This process where we can cultivate, dry and manufacture finished products really does help us drive margins and diminishes our reliance on contract manufacturers which just strip margin out of those sales,” Duncan explained.

“Up to that point (receiving GMP licences) we had been a cultivation company using contract manufacturers for these GMP activities. Now we can do it under our own steam. It’s an important step change in how we deliver margin and profitability.”

Satipharm progress

Cann Group reported a 54% lift in net revenue for its Satipharm range – the subject of its over-the-counter registration with the TGA – and flagged the release of new THC products in early 2023.

And while flower is currently in high demand, Crock said it was clear that mainstream medicine will seek more traditional product forms.

“Satipharm is going to be key in that space,” he said.

With Cann’s sleep disturbance trial underway – the study has been extended to sites in New Zealand to accelerate recruitment – Duncan said discussions with Haleon, formerly GSK Consumer Healthcare, are continuing over a future commercial deal.

“The great advantage that Haleon will bring to this relationship are the distribution agreements, the representatives calling on pharmacies, other retailers and doctors,” Duncan said. “They will have the ability to get off to a fast start once this product is registered, which is why we think this is a fantastic opportunity.”

Of the Satipharm high-THC product, Duncan said engineering and validation work was underway, with a view to launching in early 2023.

“With the registration program we are putting forward, the potential deal with GSK, and having THC in these capsules, we’ll see, probably for the first time, a truly differentiated medicinal cannabis product that covers the spectrum of high CBD, balanced formulations, and high THC.”

As ever, shareholders will be watching closely.

Steve has reported for a number of consumer and B2B titles over a journalism career spanning more than three decades. He is a regulator contributor to health journal, The Medical Republic, writing on...

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