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

Welcome, everyone, to another Port Jackson Securities' webinar. I'm joined by CEO, Peter Crock, from Cann Group Limited. Unfortunately, Shane is unable to join us today. He had a bit of transportation issues. But Peter, thank you for joining us today on this lovely day, and we're very excited to get to hearing a bit more about the company [ and what you've been up to ].

Certainly. Thanks, Lachlan, and good afternoon, and welcome, everyone. This is our first time on the Port Jackson Securities webinar platform. So really look forward to giving you an update today for those who are aware of Cann and an overview of the industry and for those who are new to this space.

Absolutely. Beautiful. Just before we jump into the presentation, overall, ladies and gentlemen, as always, we'll do the Q&A at the very end. If you could just submit your questions, we do have a few coming through via e-mail, and we'll try and get through as many as possible as we are limited by time. [Operator Instructions] But Peter, we'll get into it.

Yes, terrific. Thanks, Lachlan. And I'd like to start by acknowledging the traditional owners from where I'm presenting today the Wurundjeri people at the Kulin Nation but also make mention of the Latji Latji people in Mildura, where our facility is based, to the elders past and present. So as Lachlan said, I'm Peter Crock, CEO of Cann Group Limited. Normally, I'd be tag-teaming with our Chief Operating Officer, Shane Duncan, but with the vagaries of travel and COVID and everything else, I believe, he's still in the air at the moment. So anyway, I'll run it through today, and we'll obviously field questions from you at the end of the day as well. To get started, I thought I would actually lead in with a bit of a background to the industry position and growth. Medicinal cannabis only started in 2016. But interestingly, in Australia and around the world, there is a large user base of cannabis and medicinal cannabis. And that really was what led to the government taking a position where they were going to -- or have introduced medicinal cannabis under the Special Access Scheme as a nonregistered medicine. We've seen that process grow since the inception in 2016 when they [ offset ] drug control and the process came into effect, strong growth in patients where they were getting prescribed by the Special Access Scheme but also seeing record growth in authorized prescribers which is showing in the number of doctors getting involved in prescribing and how that number has grown and the number of patients coming through that pathway. So it really is an exciting opportunity, both here in Australia and around the world in terms of medicinal cannabis and cannabinoid having a role to play in medicine, and we're seeing that growth continue. In terms of the industry trends for Australia and where it's come from under the Special Access Scheme, and that's a key way we track stats on product use and patient views, interestingly, we're seeing a real shift in -- well, not a shift but an increasing demand in what has traditionally been oil-based products truly to now a flower-based product. But probably I would like to a step back in terms of understanding medicinal cannabis. And you will have heard of CBD and THC, but the CBD cannabidiol in Australia and around the world is largely seen as the sort of key entry point into medicinal cannabis. CBD is the non-psychoactive component but still has clinical applications. And the interest in that space has really been a key driver. In Australia, all of the products that are currently being prescribed are either Schedule 4 or Schedule 8, Schedule 4 being CBD and Schedule 8 being anything containing other cannabinoids but primarily THC. There is a registration pathway that's opened up. We'll talk about that more in later slides. But at the moment, there are no registered S3 products. The pathway is open, but it still needs to go through that registration pathway. So we'll talk about that as it goes. But what is interesting, though, is the growth and focus on medicinal cannabis, as I say, largely driven by CBD but other products as well. I think in terms of going forward, I'll step back into Cann Group and where we're up to and what we're aiming to do. And Cann, we're the first to be licensed in Australia for medicinal cannabis and have had a really key focus on ensuring that we've got our base capabilities in place, and it's really pleasing to be able to update shareholders on where we're up to and where we're going. We now have the capability in place right through from cultivation, processing, extraction, manufacturing, packing, testing and releasing under GMP, all key parts of what we've done. And for Cann, what is exciting that this is -- that the integrated capability that we've got is a real value driver. And there are parts -- or parts of this really add to that process. So in terms of things like in-house analytical testing, which is now in our facility in Mildura, a GMP approved capability, gives us the flexibility and efficiency to show that we can take products all the way through from cultivation through to differentiated and value-added products as well. In terms of our underlying strategy and what we've been striving to do and how we're now showing that we're executing against that strategy, it was always to start off with and have a capability and capacity that started from genetics but right through the whole production cycle, through to value-added, differentiated, patent-protected products that see us in the pharmaceutical development sphere, as well as taking it from genetics all the way through to differentiated products. And agriculture is no different in this industry as well in terms of having a capability that allows us to have a globally competitive cost position, it has really been a key thing. And now getting that in place and then being able to focus on growing revenue and capturing margin is a key element of our strategy. And as I've mentioned already, the idea of a differentiated and IP-protected product is really key to playing a key role in this space. And for those who have heard me talk before, our objective from day 1 was not to be a commodity cannabis producer but take it through to these value-added and key products coming through. So anyway, as I said, we're kicking off and executing against this strategy, so I'll now take you through some of the steps that show where we're after and what we're doing. In terms of our Mildura facility, we're absolutely proud of what we've done, and we've put in place what we're calling our flagship facility. It's a world-class, advanced, highly technical, protected cropping system, which includes full climate control automation systems that are going to be key to allowing us to optimize what we're doing in the facility both with workforce but also maximizing cultivation capability out of the facility. The robots and [ table ] systems that we've got in the cultivation facility is fully integrated into our production processing, which is a key part of that efficiency but also in terms of the big data and the science aspect of what we're doing, really exciting to be at the leading-edge of that. And then we've also integrated this though through into our manufacturing capability and having that now TGA approved. So we've got our TGA license for the facility and taking that through. As is standard in any of these things, we've started with small-scale capability, which is underpinning the gaining of the license, and now we're ready to step that up. But importantly, that GMP license also takes us right through to the processing, packing and product release of dried flower for patient supply as well. So in terms of where to next and what are our next steps, clearly, we're focused on optimizing cultivation processes and expanding the output of this facility and focus very much on high-quality flower out of the facility right through to the differentiated products that we've talked about, in particular, our Satipharm product. Cultivation, you don't turn on a facility from 0 to 100. Something like this, we're working through a stepwise process, which is seeing us increase our workforce, bringing them up to -- skilling them up and executing against our plan to get this facility running at full efficiency and optimizing production out of the facility. And from a manufacturing perspective, and a big part of today's discussion, will be around what we're doing next with the scaling up of our Satipharm capsule production system and in particular, getting that ready for our S3 registration, which I'll take you through in more detail. So in terms of the Satipharm CBD registration and to explain that a little bit further, as I said at the start, all of the product that's being prescribed in Australia under the Special Access Scheme at the moment is either an S4 or S8, S4 being a high-dose CBD and S8 being any other cannabinoid ratios above that. In February last year, in fact, the TGA announced that they were going to allow for the introduction of a low-dose CBD, so less than 150 milligrams a day product that would be allowed to be sold over the counter in pharmacies. It caused a great deal of excitement and showed that Australia were following the global opportunity, which has seen used widely around the world. But the key thing here in Australia is that as an S3 registered product, it actually has to go through a TGA registration process, which includes clinical trial work and bringing a dossier in that will be reviewed by the TGA and, when registered, will allow to be used or sold in pharmacy. Now the important thing around sales over the counter, it still requires interaction with the pharmacist and a health care professional advising patients, but it takes it away from requiring a doctor's prescription. The important part of the low dose and being used, it's 4 applications that don't require -- or that are not chronic. So that's -- it's going to be 4 effectively where it can be used to self-medication, and that's the key difference where you can go to a pharmacy and buy it there. The important part around the S3 registration for us here in Australia, though, is it really provides a platform, and it is an exciting global opportunity for us, in that a TGA-registered product is gold standard and well recognized around the world. And whilst there are other markets that are already active with CBD, what is clear is that all of the inconsistency and some of the way CBD is being sold in other markets is problematic. Being able to leverage a registered product in Australia is going to open pathways into those key markets, which is really [ timely ]. In terms of how we get there, I mentioned the S3 registration requires clinical trial data to support it. And that has been a key focus for us this year, and it's something that we've got the market up to date with. And we are really pleased with where we've gone to in terms of the trial. Only last week, we announced the final participants who had completed the study. As I mentioned, it's been focused on low-dose CBD. So in terms of how and where our CBD Satipharm product is being prescribed at the moment, one of the key feedback, ones that we've got from physicians and patients who have been using the product for various indications and it's been prescribed for widely, improvement in sleep has been a key and common theme. And that led us to choosing sleep disturbance as the focus for this clinical trial. So we've got, as I said, the final patients going through. We have got over 200, and we were aiming for 212 patients, we've gone in excess of that. As part of the first wave or analysis of the data that's gone through, we've been able to show -- whilst the study is still blinded and the data set is still locked, we've been able to show that the trial is sufficiently powered. So we know that we don't require to recruit any further patients. And the process now is going through analysis, and we expect the full trial report to be ready next year -- early next year, sorry. And the registration dossier, which, obviously, can only be finalized once we've got that trial result in, but the dossier and all supporting data going around it is in process now, we're expecting that to be ready in the first quarter next year. So one of the key -- well, one of the other key things that we've announced in relation to this trial of the Satipharm low-dose CBD product is that we've actually secured and have a nonbinding term sheet in place with Haleon. That's the consumer health care spinout from GlaxoSmithKlein. It spun out to, I think, a $44 billion company Haleon when they set up in the consumer health care space earlier this year. We're really excited that we're working with them and have the nonbinding term sheet in place focused on the Satipharm CBD product that we're taking through the S3 registration. It's a really exciting opportunity for us. It's something of a feather in our cap in terms of working with the likes of Haleon, which is really a vote of confidence in our technology platform and the process we're working through. And whilst it's focused on Australia and New Zealand in the first instance, obviously, a key test market globally, Haleon do have first right of negotiation for other jurisdictions outside of Australia. So we're working closely with them and really exciting that, that process is working through. In terms of where else with what we're producing out of Cann Group and Mildura, the Satipharm platform is, I referred to it, IP protected. We have the global marketing rights and co-own the patent, which was only -- or still a long patent life in terms of the Satipharm product. We see it moving, and we will work once we've got the S3 required and completed this year, we'll be moving into an extended product range and development pathway for other cannabinoid combinations into the Satipharm product and knowing that we can take them into the Special Access Scheme. It's going to be exciting to have that product available for doctors to prescribe and take the medicine into an area that looks and feels more like medicines are normally prescribed. At the same time, in terms of what we're bringing out of Mildura with our capability in producing medicinal cannabis, it starts with the genetics, and we've got a world-class accelerated breeding program that's already delivering, and we've got a number of strains that have now come into commercial production. But that's going to continue, and we've got a lot happening. I realize, Lachlan, I'm probably talking too much on this. So I'll step on now...

[ Probably Peter, it's basically necessary ], it's quite important to ask questions at the end. So we'll need you to...

And Lachlan, as I said, it's a really exciting time, and we're really well placed in terms of what we've now got. So we've kicked off and got our operation out of Mildura. Our focus on both things of the spectrum in terms of differentiated products coming through into high-quality and sought-after dried flower that's GMP packed and released, and that's important, not just for Australia but for international markets as well. And as I've said, our capability in-house that's fully integrated, including analytical testing, releasing products, all of those are key things. An important one just to touch on is what's happening in the overall industry, and those who are watching this space will be aware that the TGA has made a change, and it comes into effect in July this year, in relation to imports that historically, under the Special Access Scheme, have been allowed to come in. And the imports, there was very limited quality requirements because they were coming in as unregistered products. The TGA recognized and now are taking steps to ensure that imports have equivalent GMPs, equivalent quality standards to our Australia's GMP, good manufacturing practice, requirements. And whilst that's still playing out, it is clear that it's important for people to trust and understand what and how their product is coming to them and what it looks like from a quality perspective. And it really puts us in a strong position as an Australian industry to be able to leverage that and move it forward. So from a Cann perspective, we're really pleased that we have some really positive sales momentum. We're seeing now that with our capacity coming online in Mildura, we're in a position to be able to service and are already receiving orders further down the pipeline and in larger quantities that we're focused on delivering. We've always had Australian patients as our initial and key focus, front and center, but it is important being able to operate on the scale that we can service and move into key international markets as well. So really exciting in terms of what we're doing there and in terms of what's already coming through from our development program in genetics into products that are landing in market now. So in terms of being able to show what we've achieved against our strategic objectives, it is really pleasing to be able to report on Mildura now being up and running. The capability that brings and the capacity that's ahead of us that we can grow into is really important. And in terms of market demand, we know certainly supply is a key area that we're focused on. We've still got a way to go in that area, but we're making great headway. And having that coming online and people being able to trust that we've got a high-quality GMP product coming through that pathway is really important. And that's important not just for expanding our domestic customer base and growing patient numbers in Australia, as I've said, it's key for our international markets. And being able to leverage Australia's quality, reputation and TGA-registered product is a key part of that as well and does open up or reinforces the role we can play in international markets. The registered products in the S3 process is really important. What I think Haleon brings to what we're doing around our objectives there is super exciting. And then the innovative pipeline beyond that is the future, and the role for cannabinoids in medicine is going to be significant, and being able to deliver against that is a key aspect of what we're looking today.

Absolutely.

I was just going to touch, Lachlan, for the existing shareholders on the call, and I think from what you're saying there's quite a few of them, the share purchase plan. It's open at the moment. And we actually extended it into next week on feedback from shareholders who we've got a large number of them that are still based on mail as opposed to electronic registration. So for any of you that have received your SPP forms in the mail, I would suggest or recommend that you do register electronically as well because it definitely does make the process more timely. But anyway, we've had terrific support from existing shareholders through the share purchase plan. And this is really focused on what we've delivered on and where we're up to and the next steps for us around the key focus of being able to move to commercial scale around the encapsulation and packaging for the Satipharm S3 product in particular. And that's where, working with Haleon, we know we need to move from the thousands of capsules per batch, which we're working on at the moment and has allowed us to service the Special Access Scheme demand and requirements and get the registration process and package underway, into the millions of capsules. And that comes with a significant investment that this SPP will contribute towards that. So that is a key focus, showing and being able to sign off with Haleon that we can produce at commercial scale to meet their requirements but then also from there, going to the broader scope of broadening the range of Satipharm products. And then there's also a focus that high-quality GMP product, dried flower product that is, is absolutely in demand. So we're also looking at how we can increase capacity around the packing and releasing of dried flower on that process. So the SPP, as I said, has been extended through until next Wednesday. And for those -- if you are having any difficulties with paperwork or lodging electronic submissions, please let us know. We'll help with direct contact and we can your paperwork by e-mail or directly. So really, summary, if you give me a minute or do you need to jump straight into questions here.

We might do a summary at the very end for everyone. But overall, we might start to jump into questions just because of time limitations. [Operator Instructions] But we'll get into a few of the e-mail ones that came through. Obviously, the Mildura facility has been going for 6 months now. We know that there's obviously been a bit of issues with the weather at the moment. But has there been any teething issues? And how is that being rectified at the moment?

Good question, Lachlan. And as I said, you don't turn on a facility like this and expect to go from 0 to 100 straight off the bat. We're taking a careful, staged approach to filling capacity in the facility. As a protected cropping environment, though, what it does highlight is the benefit that this brings in terms of this weather and the seasons that we've seen. I can report we're far enough away from the Murray River not to have any flooding issues in Mildura. Mind you, the residents in Mildura still probably got 2 weeks before they reach peak flood levels there, an incredible amount of water coming through from New South Wales down the Murray, and it's a really tough time for a lot of farmers throughout Australia. But it does reinforce and, in terms of our ability with our high-tech protected cropping environment, removes key risks like that in production and for us to be able to produce high-quality medicinal cannabis efficiently. Yes, it comes with challenges around pests and diseases, any agriculture does. We've got a really keen focus on that, working with our team, building the team. We've got new positions that are being filled at the moment focused in those areas of integrated pest and disease management but leveraging capability that we've developed with the likes of La Trobe University with the New South Wales DPI, [ CSEP ], that we're partnering have all been -- we've done a lot of leg work preparing to ensure we can tackle any of those issues and work through them, which we will do. It also speaks to our breeding program. We're developing strains that are resistant to [ decay ] and other fungal diseases is a key focus in that program and managing that similarly with integrated pest management of this and use some beneficial insects and other things. So lots happening. That's probably a bit of my agtech...

That probably relates into the other question, which is talking about more operation costs in comparison to outside, more outdoor traditionally. How's it been managed at the moment? Has there been a significant change in cost? Has it been much, much benefit towards at the moment?

Yes. No, good question. I'm sorry, I was quite into my agtech side, getting excited about the answer, so it's straighten me up. No, from a production facility, it is state-of-the-art. The difference between this and the outdoor goes you'll get 1, maybe 2, crops a year outdoor and at the full vagaries of the season. So this allows us to crop and produce product consistently throughout the year. So that's where protected cropping is absolutely important in food security around the world and in terms of medicine and supply of plant-based medicine, really an important base. And we've set up on a scale and with technology that will allow us to be globally competitive. And the benefits of what we bring in this high-tech environment, we're going to go from strength to strength as we improve with yield and other aspects that we can dial up and focus on in a facility like this.

Yes. Yes, absolutely. And this will probably wrap up the questions to do with facilities. But overall, you did have that report -- we've just got a question come through -- a few questions, actually -- with regards to just the status of the sale of the other facility.

Yes. So we've looked at focusing our attention in Mildura now that it's online. Absolutely, it's our key focus. So streamlining operations and putting all of our effort into what we're doing in Mildura is the key next logical step for us. The Southern facility through that is now -- we can, as I said, streamline operations. And we're looking at selling that Southern facility. So that process is underway at the moment. And we're focusing in streamlining all of our operations into Mildura, which brings efficiencies, and that [ readout ] as well.

Yes. Excellent. Excellent. Well, we might talk a bit more about the trial at the moment. Obviously, Phase III has been going through, as you said, we had more patients do the trial than what was expected in the 212, now 257. Just wondering why was that the number? More or less, why didn't we have more participants? And furthermore, I know you stated that early 2023 is when we can expect to see those results. But with those results at the moment, how long does it take to process? Should we be expecting early January or mid-March? When should we be expecting it overall?

Yes. Look, the statisticians are doing their thing now in terms of they'd take it through to the next step as a database lock where they go through and filter and make sure the cost of running an S3 trial is not insignificant. And so that's why there's not an open-ended number of patients that go into the trial. But based on our focus around the sleep disturbance, we looked at a trial design and the measures that we're using to track improvement in sleep is where we designed. And it's a double-blinded placebo trial with a number of dose levels in it. All of that's completely blinded, and that dictates the number of patients. So the 212 is the target that was chosen that we expected to be able to show a significant difference between the treatments. The early analysis that's done to confirm that it's sufficiently powered looks at the standard deviation across all patients, so it doesn't unblind it because that would compromise the analysis process. And that came back to say that we did, in fact, have a small enough standard deviation to show a significant result. We don't know what that result is, and that's where the next stage is, to go through that analysis. And that plan is into early next year. So I haven't pinned down a time as to where it lands, but it is tracking, and we're working through to have that complete. So as I said, the next key milestone is the database lock, it's the terminology that statisticians use. And then the full trial result lands into next year. And that is obviously pivotal to how we position and finalize the registration submission.

Yes. Okay. So this is more to wrap up a few of those questions all into one. All things going well, I think you touched on it a bit in your presentation, but what was the commercialization plan for the S3 products? And is that one of your financial targets that we're setting or with feasibility studies that we're seeing in place at the moment?

Yes. So the commercialization pathway clearly is around the Haleon project that we're working with them. So we're really excited to know that their presence in pharmacy around Australia and around the world is a $44 billion company that distributes Panadol, amongst other things. They know and are going to be a terrific partner to work with in terms of how to enter and work in that whole pharmacy. So that's really exciting for us to partner with them. And the work that we're engaged with them, it's terrific to see the professionalism and what they bring to that. So for them to be selecting our platform is, as I said, a great vote of confidence in where we're up to and what we're doing. So really pleased and excited about where that goes. And as we said, with the SPP, the injection of funds that we're using to move to commercial scale for Haleon, absolutely, that's based on analytics we've worked through with them in terms of what the volume requirements are and how we're going to respond to that. So we're really, really excited to get all of those pieces together and move forward now to the next step.

Absolutely, absolutely. Is there going to be further studies being done with CBD overall? Or are we going to be working with this product for the near future and then we'll see in the long term?

Yes. No, good question, and I'm sure there will be other indications that go on from here. But obviously, as a key and early step, we've chosen this one and really focused, with a laser focus, to make sure we can deliver against it and get a registered product through. That doesn't preclude us from having it available for other indications to go into other clinical trial work or to be available for prescription as an S4 where it might be a higher dose than 150 milligrams a day.

Okay. And with, obviously, other medicines on the market at the moment, what's going to be the differentiation? And sort of with sleep disturbance at the moment, what's going to be setting it apart?

Yes. Look, I think it's a really interesting area in terms of the number of people or patients that sleep is a key issue for them. So in terms of taking CBD into a form where it's a known dose, it's not just taking a number of drops under the tongue and, as I said, it looks and feels more like a medicine that doctors normally prescribe, for people that have confidence that they've got a registered product that's come through and meets all of the TGA requirements really does step us into the mainstream in terms of playing in the medicinal cannabis space with something that looks and feels like a real pharmaceutical. So that's the most exciting part of what we're doing and delivering against that. And we do know there's a high level of interest in CBD. We're in Australia as well, but a lot of it's being sourced through unknown pathways and Internet-based. And bringing it into a mainstream product you can go into and talk to your pharmacist about is going to be terrific, and it's definitely something that I think will really step the whole industry forward as well moving into that space.

Absolutely. Absolutely. We'll leave this as the final question. Obviously, Cannatrek made a deal with Chemist Warehouse in 2021 to supply over-the-counter CBD products. Has Cann Group been involving themselves in similar deals at this point in time? Or is that sort of discussions for later this year?

Yes. So as I said, it just reinforces the importance of the S3 registration. So there are no products being supplied in pharmacy as yet because no product is yet registered. So in terms of where we go and clearly, with the Haleon connection, all of those pharmacy pathways will be in focus for us and working with Haleon on how we address that. But I think the key thing is in focusing on getting a product through registration, it is key, but also having a product available. And medicinal cannabis is being prescribed through pharmacies, and we're seeing a lot of interest and activity around it. People being clear on how to get access to medicinal cannabis via a prescriber in a [ medical ] but then picking it up from their pharmacies. So we're already seeing a lot of activity and support from the pharmacy network around how to get medicinal cannabis out there. As unregistered medicine, we're not allowed to advertise. And so the key message is talk to your GP, to your doctor. But then into the future where we do have it available through pharmacy as an S3 will be a really important next step as well.

Absolutely. Absolutely. But ladies and gentlemen, we will have to start to wrap it up there. I think we'll have Peter say some few final comments with regards to Cann Group. Peter, is there anything more that you'd like to say to the shareholders today?

Yes. Look, I think, Lachlan, just reinforcing how pleased we are to be able to report on where we're up to and how exciting the future looks in terms of the next steps for us. So we've shown and we've delivered a state-of-the-art facility in Mildura, and we will see that key to maximizing the value creation that we will bring. We're focused on our operations there and streamlining to ensure we maximize efficiency out of that facility. The GSK Haleon term sheet and process we're working through with them is a really strong endorsement of our strategy and our technology platform where we're working with. Clearly, the clinical study next year is a pivotal step for us, and we're going to be excited to report on that as soon as we can. So focused on that. And with the SPP taking us now to the next step, to commercial scale-up for that Satipharm process but also for high-quality flower out of Mildura being able to deliver those. So I think showing that we've delivered on our key strategic elements and all of those foundational pieces are now in place, we're now ready to take the next exciting step forward. And it's been terrific, the shareholder support to date. And being able to report and show what we've created with their support to date is really terrific. And the next step is exciting. And the role for cannabinoids in medicine, we plan to feature as a key leader in that space in exciting times ahead. Thanks for the opportunity from you, Lachlan, and Port Jackson to bring shareholders up to date. The SPP is still open until next Wednesday. And if anyone needs help, just put a call through to us. Those details are available. And this presentation has been released to the ASX as well. So yes, thanks, Lachlan.

Thank you so much, Peter, for joining us today. And ladies and gentlemen, as always, thank you for attending the webinar. We look forward to hearing more about the trial and, obviously, the great future to see with the Cann Group leading through to 2023. So we'll end it there, ladies and gentlemen. Thank you very much for turning up today. That's been another Port Jackson Securities presentation, and we'll see you to the next one. Thank you. Bye.

Thanks, Lachlan.