A look inside Australia's cannabis industry

The Australian cannabis industry might be about to spark up after several years puffing along in the background, but not all companies are equal.

The devil lurks in the detail of licensing and approvals. 

Cannabis, also known as marijuana, is a plant with many different compounds. Its two main compounds are delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD), both of which interact with the endocannabinoid system in the body. This is a system that relays sensory messages about but not limited to pain, stress, and sleep.

The plant can also be used for its fibre product — hemp — which in the past was heavily used for ropes and woven cloth. The seeds of the plant are also spruiked as a new superfood, both as a processed ‘milk’, oil, or in their raw form. 

The industry was kickstarted in Australia after a few state governments, on the heels of several other states worldwide, sought to allow access to cannabis for medical and research uses. 

The medical uses for cannabis have been long suspected, however its legal status has made research difficult. In 1996 California became the first US state to legalise the medical use of cannabis, then in 2001, Canada adopted a national system for regulating the medical use. Much of the current international investment in the Australian cannabis industry is coming from Canada where the industry is far more mature. 

The current system is Australia is purely geared for medical use, however in some places in the world the recreational use of cannabis is allowed, allowed to a point, or unenforced. This is currently not the case in Australia, where the recreational use is still criminal and appears unlikely to change any time soon. As such, the recreational industry that has developed around cannabis production, as has happened in the United States, doesn’t appear on the horizon here. 

As of July 2019, authorities in Australia have granted approximately 11,500 approvals, under the Special Access Scheme, for the legal use of medicinal cannabis, with almost 10,500 of those authorisations being approved in the last 12 months alone.  

The Office of Drug Control has so far issued 69 licences to cultivate, produce or manufacture medicinal cannabis in Australia.

This includes:

• 24 licences for cultivation of cannabis for medicinal use;
• 16 for cultivation for research, and;
• 23 for manufacture of medicinal cannabis products.

Since the legalisation of research into cannabis products, there’s been an explosion in companies, many of which are listed on the ASX, who claim to be researching cannabis or positioning to grow and sell it. 

Get rich quick — for some

Graham Witcomb, senior analyst at Intelligent Investor, said he didn’t hold the high hopes many others do for the cannabis industry citing an impending glut in global stocks.

“All the Canadian exporters have so much coming online, they’re going to push it out internationally,” he said. 

“We don’t see any possibility of the growers doing well.”

He said this would be an issue for Australian growers that were investing now and put serious questions over all industry players.

“In the healthcare side of the industry there could be interesting applications that come out of it that could give their manufacturers a competitive advantage over the long term,” he said. 

“Our view is steer clear of anything in the industry.”

Witcomb said the best hopes for the industry lay in the processing and production of the end stage products.

“Agriculture is always low margin and crappy business — we consider that side of the cannabis industry just as bad as lettuce growing, whether you’re talking 5 or 20 years from now we don’t expect that’ll change,” he said. 

“In terms of distribution and retail, there are some economies of scale that may mean a big player emerges and does well out of it but it's very difficult to pick. In terms of healthcare, if I had to pick one side of the business I like I think some of the healthcare things are interesting but you’d have to assess it’s a much deeper analysis.”

Many mining companies, in the tail end of the mining boom saw cannabis as the next big thing. Queensland Bauxite has transformed itself to one of the bigger players in cannabis in Australia as the Cann Group. Whereas Cannindah resources also spruiked getting into cannabis — a move which appears to have fallen by the wayside after investigation by Eureka Report. 

Major Project status — the stamp of approval

But a move from the federal government, starting September 1, looks set to supercharge the industry, as major project status (MPS) will be announced for businesses that have been able to prove they’re serious about cannabis. 

A spokesperson for the Department of Industry, Innovation and Science told Eureka Report three applicants were being assessed for MPS by the Major Projects Facilitation Agency (MPFA). 

“The MPFA is currently assessing these applications and will make recommendations to Minister Andrews in the near future,” the spokesperson said.   

To date the MPFA has had nineteen enquiries about MPS for medicinal cannabis projects.

MPS could have huge implications for cannabis companies as it’ll put them at the head of the queue when it comes to the paperwork at government departments. In part, the reason for this is there’s so much paperwork and approvals at different departments. 

To qualify for MPS a project must have an estimated investment of $50 million or more, be of strategic significance to Australia and require Australian Government approval(s). The project proponent must have the financial resources to complete the approvals process and the project must have reasonable commercial viability.

Peter Crock, CEO of the Cann Group and chair of the MCIA, told Eureka Report the MPS announcement was “a real opportunity” but that it was important to first “create an industry that follows the requirement of the legislation”. 

“Some of the people thought they were going to make money getting a license and selling the license, under the legislation that's not possible. A lot of the licence applicants thought the license itself was the ticket to make money.”

But he said investors need to distinguish between those that have a license and a permit to understand “who's real in this sector”.  

“There are maybe 6 operators working under a permit, we got our first permit to cultivate in 2017.” 

“That's significant in showing we're a real operator, it's a question around some of the others in who's doing what where.”

So this means that MPS is a big deal for any Australian cannabis company looking to get serious and there are plenty of cannabis companies on the ASX. There’s also no limit on the numbers that can apply, at least according to the Department of Industry, but as of yet no names have been announced, despite the September 1 start date. 

There is already one major project listed from the Australian Cannabis industry, Asterion’s Medicinal Cannabis Project in Toowoomba Queensland. 

The project involves construction of a 40 hectare glasshouse to produce 20,000 plants per day at full capacity, with the plants to be processed into medicinal products, including single patient packs, cannabis oils, gels, salts and related products. 

To top off the offer of MPS, a recently completed review of the Narcotic Drugs Act 1967 recommended major congestion busting initiatives for medicinal cannabis cultivation, production and manufacturing that will apply to the whole sector.

Two proposed changes will simplify the administration of the medicinal cannabis scheme and remove impediments to developing the Australian medicinal cannabis industry, according to the Federal Health Department.

Changes to the Narcotic Drugs Regulation 2016 will reduce the regulatory burden on licence applicants, and reduce the time it takes to apply and what level of detail is required.

But the ASX is pretty crowded right now with cannabis claimants, but not all do what they say on the tin and some haven’t been very loud about proclaiming it either.

Many of these companies are highly valued, but whether they’ll be able to achieve their highly touted cannabis-fueled business boom is questionable. 

Just this week a new project in the Australian cannabis space was announced, with Cannatrek, a Melbourne based business, announcing plans to build “one of the world’s largest medical cannabis facilities in rural Victoria”.   

Cannatrek says it’ll be a $160 million project on 178 acres of land, including a 160,000m2 growing area, which Tommy Huppert, Cannatrek CEO, indicated to Eureka Report would be built in stages. 

Tommy Huppert said he expected the company’s announcement would see them selected for Major Project Status (MPS), when names are announced by the Department of Health on September 1, but that the business hoped to build on this MPS by seeking extra funds through an ASX listing. 

“We are looking to list on the ASX to fund phase 2, I think it's a matter of getting the timing correct and making sure you’re offering to the market a real business and not a speculative business,” he said. 

“MPS would assist companies like ourselves to fastrack commercialisation.”

The Australian cannabis industry is represented on a national scale by the Medical Cannabis Industry of Australia (MCIA) peak body, which is composed of several core and associate members. These are cannabis companies committed enough to the industry to have to have tipped in for a membership. These core members comprise of: 

• Althea Health and Wellbeing
• AusCann
• Cann Group 
• Cronos Australia
• MedReleaf
• THC Global Group
• LeafCann
• Cannatrek (not listed on the site yet)

Scitek Australia and PharmOut are associate members. 

As it currently stands, here’s just about every Cannabis company in the country, each of which Eureka Report contacted, though from almost all Eureka Report heard nothing. 

Affinity Energy and Health (ASX:AEB)

Formerly known as Algae.Tec Limited, Affinity Energy and Health focuses on developing  growing technology to produce commercial quantities of algae and medicinal cannabis for supply to four key markets:

• Medicinal cannabis 
• Algae-based nutraceuticals
• Animal feed and aquaculture markets 
• Biofuels

The share price of Affinity has crashed from a high in January last year at 0.051 to 0.009 and has been in a trading halt since February 1 2019. The website is currently under maintenance and there are few signs of life. In December last year it received a license to operate in Malta.

Althea Group Holdings (ASX:AGH)

In June Althea announced it had been granted a Hemp Cultivation license, while also achieving 1000 patients using its products up from 100 in October the year before. The company plans to reach 5000 patients as a short term goal with a major strategy aimed at “educat(ing) healthcare professionals about Althea medical cannabis in highly regulated market places” to grow its business. It paid the director and founder, Josh Fegen, $200,000 in cash, with an additional $492,534 and $19,000 in share based payments and post employment benefits respectively. 

As of 30 June the cost of goods sold was $312,000 leaving gross profit at $455,000. 

Total assets are largely cash and cash equivalents at $14,918,000, while trade and inventories account for $505,000 and $630,000 respectively. Property, plant and equipment accounts for $1,058,000 in assets, most of that being assets under construction $1,011,000, with the remainder computer equipment. The company is currently building a 4000m2 growing facility on Taylors Road in Skye, in Melbourne’s south east. 

AusCann Group (ASX:AC8)

There’s a new CEO at the AusCann Group, Ido Kanyon, replacing outgoing CEO Elaine Darby who left in December last year after 3 years and 9 months with the business. The share price of AusCann has crashed hard since a high of $1.74 in January 2018, suggesting not everyone’s wild about the company. 

The company bought a research and development facility in Perth, West Australia, in 2019, while recently it reported its first commercial shipment of medical cannabis concentrate from MediPharm Labs, in Canada to Australia. It also signed a new supply agreement with TasAlk, which AusCann says is in line with its plan to “de-risk supply chain and secure high-quality pharmaceutical suppliers across the product value chain”. 

AusCann will report in September this year and a clearer picture of how healthy its finances are will be due then. 

Bod Australia (ASX:BDA)

Bod Australia is a global health and wellbeing business, which has gone into cannabis is through an oil product, Medicabilis, which in June July was reportedly distributed 220 times, up from only 55 in January and May. The company recently signed an agreement to distribute Medicabilis in the UK, via medicine manufacturer PCCA, in what could be a big expansion opportunity for the business. 

Asterion 

A good example of Canadian money making a big play in Australia, Asterion is wholly owned by Asterion Cannabis, headquartered in Vancouver. It’s privately held and all the money appears to be coming from non-brokered private placements. Despite that, several Australian businesses will be heavily involved in the huge Toowoomba growing facility which holds MPS. It also appears to be difficult to find out much more about the company. The current CEO, Stephen Van Deventer, played a big role in Aurora Cannabis and hempco, Aurora representing one of Canada’s earlier Cannabis successes.

Botanix Pharmaceuticals (ASX:BOT)

Formerly Bone Pharmaceuticals, Botanix is a medical dermatology company that’s focusing on using cannabis to develop cannabis-based topical treatments for skin conditions. The company recently published some promising results about a atopic dermatitis cream, around the same time as it signed an agreement with the University of Queensland Institute for Molecular Bioscience to investigate using cannabinoid products as an antimicrobial to treat diseases like golden staph. 

BPH Energy (ASX:BPH)

BPH, a mining-technology-healthcare company, has been making noises about getting into the cannabis space, reiterating this in their latest annual report. But with only a passing mention it’s unclear at this stage what they intend to do. 

Cannindah Resources (ASX:CAE)

Cannidah signed an agreement late in 2018 to distribute Annabis Hemp products exclusively to Australia. But when contacted recently by Eureka Report it was indicated by Cannidah that they had decided instead to focus on gold — what that means for its cannabis business is unclear but it doesn’t look good.

Cann Global (ASX:CGB)

Another former mining company now cannabis company, Cann Global - formerly Queensland Bauxite - has a 100% shareholding of Medical Cannabis Ltd and Medcan Australia. The company recently relisted on the ASX in what was a painful experience, the share price falling steeply after a year off the market in a trading halt. But Cann Global is spending up big to position itself in the cannabis market with subsidiaries Medical Cannabis Limited (MCL), T12 Holdings (hemp food and nutritional products), VitaHemp (T12's retail division), VitaSeeds (growing and cultivation of MCL's hemp products), Hemp Hulling Co (the manufacturing division for MCL's hemp products), and Medical Cannabis Research Group now members of the stable. 

Cann Group (ASX:CAN)

Operating since 2014, Cann has been cultivating since 2017. Cann represents one of the bigger players in the Australian market with several important research and cultivation deals on the books. Listed in 2017, Cann Group is now licensed to import and export products and has signed an agreement with Aurora to supply GMP processed products until 2024. 

CannPal Animal Therapeutics (ASX:CP1)

These guys are in an interesting space given their work skirts around many of the controls currently in place in Australia around cannabis research. By not gearing towards humans, CannPal doesn’t have to get all the approvals. On discussion with Eureka Report it was revealed that the business does intend to focus on humans at a later stage, once initial research into its pain relief products is completed. 

Creso Pharma (ASX:CPH)

Creso is set to be acquired by a Canadian cannabis company Pharmacielo to the tune of approximately $122 million, subject to approvals, that will see shareholders granted 0.0185 PharmaCielo shares for each listed option held.

Creso has or intends to offer product lines across the cannabis industry, in both growing, processing, and producing the final product. 

Elixinol Global (ASX:EXL)

Elixinol, like some of the other players, has a stable of products rather than just doing one, including a hemp food product business Nunyara. Unlike most of these companies, Elixinol is based in the USA in Colorado, home of legal weed, and has an already proven track record in supplying bulk and retail CBD products.  

Elixinol is aware of how slow approvals are - they point this out in their annual report lamenting the speed at which the office of drug control is moving. 

eSense-Lab (ASX: ESE)

eSense represents one of the scattered Israeli-owned cannabis companies on the ASX, with a business model aimed at trepenes — the naturally occurring chemicals synthesised by cannabis plants. The idea then being to take these chemicals, synthesise them or use as is to produce plant-based commercial and medical products. 

EVE Investments (ASX:EVE)

Meluka honey is EVE’s main game, but even they’re planning on incorporating cannabis into their business model. This year EVE started collaborating with THC Global Group, who are developing a diversified global cannabis business around medical cannabis and the manufacturing of hydroponics equipment, materials and nutrients in a bid not just to mine the gold but to sell the miners the shovels to do it. THC is leasing a 15 acre organic farm for their growing operations. 

Ecofibre (ASX:EOF)

This Brisbane based company owns a series of companies in the cannabis and hemp space. It produces a variety of hemp foods and medical items. The chairman, Barry Lambert, one of the richest men in Australia, has been a staunch advocate of cannabis since his grand daughter was diagnosed with epilepsy — currently being treated with a THC product. 

IDT Australia (ASX:IDT)

IDT has a long track record in pharmaceuticals, going back to 1975, with a big plant of 10 buildings in Boronia in Melbourne. It got its license to manufacture medical cannabis at the start of this year and appears reasonably well placed to capitalise on its history of medical manufacturing to push into cannabis.  

Impression Health (ASX:IHL)

Impression has four clinical trials underway aiming to create four products to treat sleep apnoea, concussion, TMJ Dysfunction and gum diseases all through the power of cannabis. 

Jayex Healthcare (ASX:JHL)

Jayex doesn’t fit in the growing or processing space, rather its dispensing system for patients, having signed a deal in New Zealand with MediCann NZ to supply five BluePoint kiosks for approximately $500,000. Its main line of business is in tools for managing patient experiences and engagement from a single platform and its cannabis offerings can only be viewed from the Australian view on its website. 

Lifespot Health (ASX:LSH)

This digital health company is aiming to make it big with its cannabis vaporisation technology, owned through its business Seng Vital.  

Medlab Clinical (ASX:MDC)

Medilab Clinical is another of the clinically focused businesses in the cannabis space in Australia, with its NanaBis and NanaBidal cancer pain management products at the core of its cannabis business approach. It successfully completed phase 1 of the NanaBidal trial in August 2019. 

MGC Pharmaceuticals (ASX:MXC)

MGC is a European-based medical cannabis company listed on the ASX, but with many of its founders coming from the Israei medical cannabis industry. The company has a broad reach, with a production company upcoming in Malta, and a manufacturing license for Slovenia. 

MMJ Group Holdings (ASX:MMJ)

MMJ at one point was gunning to be a cannabis company, but has instead made the switch to being purely an investor in the cannabis industry with a large number of investments across the sector. 

Rhinomed (ASX:RNO)

Headquartered in Richmond, Melbourne, Rhinomed is an airway technology company that’s making a play for cannabis as a nasally administered product. In October it signed a deal with Colombia Care, a major American medical cannabis company, to license its products for 12 years. 

Roots Sustainable Agriculture Technologies (ASX:ROO)

Roots is unsurprisingly aimed at the growing of the plant products, such as cannabis, in low water or challenging climate environments. It signed a deal in mid-2018 assist cannabis growing in Washington state, with results showing a strong performance. The company has recently been making noise about joining the ‘plant meat’ craze, beginning tests of technology to grow a key ingredient. 

Roto-Gro International (ASX:RGI)

Revenues for Roto-gro are on the up, going around and around like its machines which aim to increase cultivation of cannabis and plant products through spinning hydroponic systems which are its proprietary technology. 

StemCell United (ASX:SCU)

Founded in Singapore, in 2014, StemCell United unlike many cannabis companies is getting into the market via China, acquiring 51% of Yunnan Hua Fang Industrial Hemp (HFIH). Hua Fang Industrial Hemp holds an import-export licence and has the capacity to plant process and sell hemp and cannabis products. 

Suda Pharmaceuticals (ASX:SUD)

Suda is another company that’s taking what many smoke, eat, or otherwise imbibe and turning it into a spray product. 

THC Global Group (ASX:THC)

Formerly a hydroponics company, THC Global Group holds the full suite of licenses for cannabis in Australia and boasts the largest bio-pharma extraction facility in the Southern Hemisphere. Its Canadian hydroponics company is also noted to have achieved its maiden profit this year. Like several other companies in this space, THC Global Group is aiming for a “farm to pharma” business model of growing, processing, and manufacturing. Its CEO Ken Chateris, is reportedly a biotech veteran.

TPI / Palla has made the call that it’s not going with cannabis, with CEO Jarrod Ritchie telling Stockhead he was one of the “naysayers” of the cannabis industry. Instead, the business will now focus on poppies and opiates. 

YPB Group (ASX:YPB)

YPB, unlike most in the cannabis space, isn’t growing, processing, or producing. Rather than anti-counterfeiting company will be joining up with Canadian cannabis company Namaste to add authenticity markers to its products. A reason for this is the move by Amazon to mandate anti-counterfeiting markings on all the products sold through its platforms. 

Zelda Therapeutics (ASX:ZLD)

Zelda just recently announced the 100th participant in its autism research, being undertaken in the United States, which aims to determine the efficacy of cannabis products to treat autism in children. It’s also working with Suda Pharmaceuticals to use their nasal spray technology to treat epilepsy, nausea and Multiple Sclerosis. 

David Ross recently completed an internship at Eureka Report while studying his Master of Journalism at The University of Melbourne.