All You Need to Know About AUSCANN GROUP HOLDINGS LTD
AusCann is an Australia based company that was founded in 2013 but listed on the ASX in 2017. AusCann develops, produces and distributes cannabis based medicines in Australia and other countries. AusCann claims to have developed an innovative formula based on cannabinoids in the form of a tablet, which they hope will be able to optimise the treatment of patients who are suffering from ailments that can be treated by cannabis based medicines.
In 2020, AusCann completed the construction of a new research and development facility. Not only was the construction completed but the company also moved its operations to this purpose built facility, which it believes will provide more opportunities to conduct in house research and development and host collaborations with other cannabinoid developers.
AusCann claims that the new facility has been built to the highest standards in order to meet industry standards. This facility is expected to play a pivotal role in the research and development of innovative new medicinal cannabis products. AusCann aims to differentiate their products based on the state of the art research facilities that they have got and expect to maintain.
The objective of AusCann is to provide high quality cannabinoid medicines. Their first product was launched in April 2020, this product targets patients suffering from chronic pain. The medicine has both THC and CBD in a one to one ratio. The medicine is a dry powder based medicine that is delivered through a hard shell based capsule.
The company claims to have reached out to almost 700 health care professionals working in pain, rehab and palliative care. It must be noted that the drug developed by AusCann is still in its clinical trial phase and the trials are supposed to end in October 2020.The drugs has been tested to be effective with very little side effects, clinical trials will establish the dosage and regimen of the drug.
In addition to this AusCann plans to carry out further testing of their hard shell capsules in 2021 for future products. The initial feedback suggests that the medicine has been well met. Generally cannabis based medicines are based in oil, tinctures or spray form. The medicine prepared by AusCann is a powder based medicine encapsulated in a tablet, which the doctors have found better in terms of its profile.
Let us now have a look at the financial fundamentals of AusCann group.
2020 is the first year in which AusCann group carried out any revenue generating activity, the total revenue generated in 2020 is AUD 3.2 million. The gross profit for the year was almost AUD 1 million. This makes the gross profit margin to be approximately 31%, which is fair for a company that has just launched its first product. The total income for the company is around AUD 1.7 million, this figure includes both the sales revenue and revenue earned through interest and other sources.
The total expenses for the company in 2019 was approximately AUD 9 million and in 2020 this figure dropped down to AUD 8.7 million. The reduction has come from reduction in consulting fees and joint venture expenses.
It is clear that the expenses of running the business are far more than the revenue that has been generated and for this reason the company posted net loss for the year. In 2019 there was no revenue at all and therefore the net loss was around AUD 7.6 million whereas in 2020 the figure for net loss has dropped down at AUD 7 million.
The company therefore is going in loss, which is not something to worry about for a company that was listed three years ago, launched its first product this year and is operating in an industry that is still in its early stages of development.
There is no EPS, instead the loss per share is around 2.24. Investors looking to invest in such companies know that profitability cannot be expected at such an early stage. Therefore this is not a sign of worry.
The total assets of AusCann group reduced from AUD 42 million in 2019 to around AUD 35 million in 2020. This reduction has been mainly because of a significant decrease in cash and cash equivalents.
Cash reserves were AUD 35.3 million in 2019 and have been reduced to AUD 19 million in 2020. Although this is a significant decrease in cash, it is not very alarming as this was the first year of commercial operations of the company and at this stage one can expect the expenditure to be quite high.
The cash flow position shows that the bulk of the cash generated by the company has been used to fund the operating activities. Almost AUD 12 million worth of cash reserves were used to pay suppliers and employees. Similarly around AUD 5.2 million were used to fund investing activities.
Total liabilities have reduced from AUD 1.9 million in 2020 to AUD 0.8 million in 2020. This reduction is mainly on account of the reduction in trade payables. The liquidity ratio therefore of the company is very good and even though there is no profitability but the liquidity position shows that the company is not under any immediate insolvency threat.
The net assets of the company have reduced from AUD 41.6 million to AUD 34.6 million, which shows that the overall balance sheet position has shrunk from the previous year. Due to the loss, the dividend has not been declared.
The financial fundamentals of AusCann group are looking good at the moment but investors need to consider a few factors before investing. The financial position of AusCann group displays the typical financial position that young companies have in the nascent medicinal cannabis industry. This is a young industry with even younger companies.
The supply chain network is being set up, infact even the products are in their early research and development phase and therefore for an industry with these factors it is common to have companies with carried forward losses and high leverage.
Companies like the AusCann group are ideal for long term investors who can hold their investment with patience. This sector is expected to go through growth and boom phases in the coming few years and therefore long term investors are investing in such companies, without being too worried out the year on year losses and lack of dividends. Logically however this sort of situation is not suitable for short term investors looking to make gains from daily price movements, as these companies have not much to offer to the short term investors.
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