Cann Group Limited (CAN.AX) Earnings Call Transcript & Summary

Thank you for standing by. And welcome to the Cann Group October 2021 Shareholder Update Webinar. [Operator Instructions] Presenting on behalf of Cann Group today, we have the CEO, Peter Crock; and the COO, Shane Duncan. The presentation today will last for approximately 10 minutes and we will allow for approximately 10 minutes for the Q&A session thereafter. I'll now hand it over to Peter. Please, go ahead.

Very good. Thanks, Matt, and welcome, everyone. I'd like to start by acknowledging the traditional custodians of the various lands we are all on this morning. As you know, we've got the share purchase plan running at the moment. So this presentation is being released to the ASX and I'd like to draw your attention to the disclaimer and the risk section as part of that process to find them online. I might start off by saying it's been a big week and as Shane and me as lifelong Melbourne supporters, it's been -- I think we're still on cloud 9, with -- wake up every minute of coverage over the long weekend, last weekend. And yes, we, as I said, still on a high. But one of the things that I did pick up Max Gawn and number of the boys mentioned of the great Neale Daniher and the quote that they have in the room before the game that said when it's all said and done, more is said than done. What we're here today to do is to give you an update on how we take this opportunity to provide an update on what we have done, the progress we've made and done even since the last time I spoke to you. The time line here is the same one that I did use last time I spoke to you on the webinar. This version has a few more of the milestones that have turned green, which is what we wanted to talk to you about today as we face off. A picture tells a thousand words, and that's why we had to put a number of images into to show where we're up to and the tangible progress we've made, particularly in Mildura, but across various parts of the business. The laboratory in Mildura is now operational and in fact, licensed from of the Victorian Department of Health and as an analytical testing lab. And this week, we received the first medicinal cannabis material on site, which is now being used for method development and validation work that turned away, all part of the process of this becoming a TGA GMP certified laboratory. Having that capability is going to be really important in terms of streamlining our production time lines, in particular and taking cost out of that process as well. The construction of our GMP manufacturing area is complete in Mildura and the first of our older scale equipment is in place, which [indiscernible] certain critical care unit and also one of the formulation vessels for our Satipharm product. The Office of Drug Control site inspection process is underway and as part of our permit process. And once that permit is issued or once it's been placed, we will start resin extraction and then progress with TGA inspection as the GMP process. We continue to make really good progress in the cultivation area with concrete work continuing, installation of our air handling units and the controlled environment climate control systems are in place as well as installation of supplementary lighting systems. We're still driving to have financing this facility by the end of the year in parallel with what we're doing with manufacturing facilities coming online there in the same time frame. Now I'm going to hand over to Shane just to talk through a couple of other important projects that run in parallel and other parts of the business. Shane?

Thanks, Peter, and good day, everyone. We announced earlier this year as part of the capital raise that we were converting part of our Southern facility into a GMP suite to enable us to pack off herbal dry flower product, so the product patient-ready product that we could release to our customers. And as part of this progress that we've made, we're pleased to announce that the construction of that facility is now complete and the TGA inspection is scheduled for this month. So we've made good progress on that. We're a little ahead of schedule on that project. And we have customers we're now receiving forecasts. And in fact, we have also received our first order. It's a product that will come out of this facility and we're on track to have the license in place and be able to release product in December and then continue to supply products to our customers throughout 2022. Incidentally, we've made great progress on the registration of our Satipharm product, our S3 project. We've now appointed a clinical research organization, we've finalized the trial design, we selected an indication, and we're in the final stages of preparing for the clinical trial in terms of manufacturing of the clinical trial products and also the selection of sites. So as I said, we've made really good progress on this. In parallel, we continue to grow the Satipharm 50 milligram product on the SAS scheme in Australia. We just received another order of product from the Swiss manufacturer and we've now starting that distribution and supporting that product. So that product since Cann has taken over the Satipharm business, we're steadily growing that SAS product and we'll continue to do so throughout the rest of this year and early into next year. But that's all for me. I'll hand back to Peter to wrap up the presentation and lead to the Q&A.

Thanks, Shane. And we -- yes, we continue to make really good progress in delivering our integrated cultivation, production and manufacturing facility, which is providing us the scale that we believe is going to put us in a globally cost competitive position. Our Satipharm technology platform is key to us delivering medicine that look and feel like doctors normally prescribe. It will be key to us making a difference in patients' lives here in Australia and overseas. We continue to see increasing interest in Australia, as Shane just said, we expect to see strong revenue growth this year and going forward. So thanks for your interest today. And please, just a quick update that we were looking to give. I know we've got a number of questions that have already come through. So Matt, I'll get back or hand back to you and see if you can step us through those questions, please.

All right. Thanks, Peter, and Shane. We'll jump into Q&A segment, as Peter has mentioned. [Operator Instructions] But first off, we'll start with some questions that came through vial our email. So the first one is, there's been several questions around revenue production and forecast as Mildura comes online. Can you provide an update on that front?

Yes, sure. Thanks, Matt. We're not going to provide revenue guidance this year. But what we can say is that we've grown our customer base significantly over this year. And what part of that having those customers on a contract that is receiving both orders and forecast from them. So we're seeing steady growth in demand from those customers and regular orders from them now as they start getting their individual businesses going. So we're looking to significantly grow our revenue this year and at the moment, we're on track to do that.

Thanks, Shane. The next question is, how likely is that the Cann Group gets the first Schedule 3 by the CBD registration?

Yes, that's another good question. While most of these registration programs, it's a race, we've always maintained a position that we will be the first advanced delivery capture products that will be registered under the S3. And when we say an advanced delivery products, we're talking about a non-oil-based product. So we're very confident that we'll achieve that objective of being that first advanced delivery capture-based product.

Thank you. Next question is, if possible, can you give a breakdown of capital commitments and how these will be paid forward with current liquidity?

Yes. Thanks, Matt. So in terms of the Mildura project, as you know, we've got a construction loan in place with the National Australia Bank that was structured in such a way that we used Cann liquidity in the first part of that process. And then as we complete the project in total, we will be drawing down and have already started drawing down as we announced recently. So that process is well in place and tracking through and then the liquidity that we're -- the capital raise that we've just done in the placement and the SAP is going to be used around the project where we've integrated the manufacturing capability and GMP facilities into Mildura. So that's in match for that process there as well as the Southern facility project, which Shane gave an update on as well.

Thanks, Peter. The next question is, is there a contingency if you don't get the SPP fully subscribed? What does that look like? And will you end up using more debt?

The debt facility that we have is absolutely focused around the construction project. So we're obviously in constant contact with the bank as we work through that process. In terms of the SPP, there's no doubt the Australia process of getting material out to shareholders and that's the reason we extended debt process. It became apparent to us that there have been delays there, but we're confident and the SPP is tracking well. Of course, we'll have contingencies around how that closes out, but progressing well and we're confident.

Thanks, again, Peter. The next question is on, sorry with the wording here. I would also like to know after the Mildura facility is operational, what your forecasted operational costs will be?

Thanks, Matt. Look, I think that's a really good question. And we've been very I think very open about this all the way through is that operating at scale is critically important to be globally competitive. So the conservation side of things, we see that cost of producing a gram of dry flower cutting in half once we get Mildura operational and so that's really important for lowering the cost of the raw material input into the manufacturing. And secondly, by bringing in-house packaging of flower and our extraction and manufacturing is that we forecast around a AUD 23 million saving in our operational costs through moving that -- those processes away from using outsourced -- outsourced contract manufacturers. So the facility will make a step change into the cost of producing every product that we make and really, really drive our margins up quite significantly.

Thanks, Shane. The next question is, I've rolled into one. There's 2 parts to it. So of the 12,500 kilo dry flower production capacity that Stage 1 at Mildura can accommodate, can you confirm if this is per annum or per harvest and how many harvests are expected per annum? And do you have the customers fresh demand to sell that supply of dry flower?

Yes. So the 12,500 kilos is the annual capacity of the facility. And we do have the customers to take that capacity and we work in parallel with the customers around their forecasted demand and their timing of doing it. So we're scaling up the manufacturing or the production capacity and the manufacturing capacity around those forecasts. So we're very confident that the customer base, the very broad customer base that we've made. We've expanded our customer numbers quite significantly this year. So we're very confident that as they grow their businesses, that will match the capacity that we're bringing online, which was always our plan to be scaled completion of the Mildura project is that we were scaling it around what we saw as being the forecasted demand over the next 12 to 18 months.

Thanks, Shane. Next question is, is the company now in a position to fund current plan and be self-sufficient without the need for further capital raising?

Thanks, Matt. Yes, in terms of the future and where we're tracking, obviously, it's a dynamic environment. We're in a really interesting period of, I think, industry consolidation opportunities and other things. So we would never rule out the requirement for or an application for future capital raising. But this work we've done around the placement and the SPP is really important in terms of us delivering and having a proven capability in this space, which is, I think, going or is tracking interest in terms of setting up at this scale and being ready to operate. It's definitely opened new channels of discussion around various parts of the industry. So exciting times ahead and we're looking to remain nimble and be ready to look at opportunities as they come up.

Thanks, Peter. This one is a relatively broad question. But do you feel that as COVID takes up less of the mainstream media attention that will allow more some additional cannabis to be talked about and will be a positive for the industry moving forward?

Yes, I think it will, Matt. And just slipping my hat on as Chair of the MCIA, we are seeing a lot more interest now in the space noise coming out of it. The TGA have taken steps recently around advertising, compliance and other areas that will rule out some of the noise we see in the space about operators that have been opportunistic and overstepping the line in terms of advertising and doing other things. So as additional cannabis is an unregistered product is difficult, none of the key players can talk about it, you are not allowed to advertise what you're doing. But as a whole sector, the industry association is really garnishing good support over across the whole industry and we are starting to see the dialogue change to people recognizing that this is a real application and a role to play here in Australian medicine as well as around the world. So yes, I do somewhere I think it will change and we'll see it coming more to the fore.

Thanks, Peter. One for you Shane, would be, are there any current key risks that may delay the S3 approval process?

That's a good question. It's -- I don't think so. We've managed to select -- selection of our contract research organization has really been focused on mitigating the risks associated with executing this program in a timely fashion. So there's a number of strategies that we're using there, which COVID was probably the biggest risk in terms of face-to-face consultations that we've managed to use it, we'll be using a telehealth solution to be able to provide on -- do the ongoing monitoring bit of the trial. So I don't think -- that was probably the biggest risk, which we now we believe we've now mitigated. So the other risk in any trial is patient recruitment. And what we do now is there's incredibly strong interest in people wanting to participate in the CBD study. There's number of people around Australia who are very curious about getting access to cannabis products and particularly CBD products legally. So we think that that's probably the other risk that there is such significant interest in the community around CBD that we think that we're not really worried about the recruitment side of things.

Thanks, Shane. One, you back roughly just earlier, but is there anything we can say in terms of what size order we're typically receiving the product?

Yes. We've disclosed, the large end of an order is something like what we sent to Germany last year around 20,000 bottles of oil. Typically, the smallest order would be 1,000, so it's literally a range from 1,000 bottles to 20,000 and tonne.

Great. I imagine one for you, Peter, when will the TGA bring in new standards for imported products?

Yes, that's a good question. That process is underway. So they've made it clear, John Skerritt, when he recently updated, I can't remember which conference or virtual conference, but the presentation was released by the TGA, where they are reviewing TGO 93, Therapeutic Goods Order 93 to change that to have a requirement that -- so that's the order that's used to measure imports need to comply with that. And they're currently doing a regulatory impact statement. We're looking at introducing GMP requirement as part of that to the imported product. So that process is underway. It's not exactly clear how quickly that will come through, but we've been actively working through the system with the regulator at the moment.

Great. Thanks for that, Peter. We'll leave the Q&A there for now. If anyone has anything further, feel free to reach out to anyone on the team or email them and we'll come back to you that way. But for the time being, Peter, I'll hand it back to you for closing comments.

Thanks, Matt, and thanks, everyone, for your interest today. I know we have a big registration, so terrific to be able to get in front of you and give you an update. I hope you found the update useful. We've got exciting, interesting and challenging times ahead, but we're really pleased with the progress we've delivered on and the foundation we've set to play a big role in the world of medicinal cannabis. So thanks again, and stay safe and see you soon. Thanks, everyone.