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Hydroponics Company Ltd: THE INVESTMENT CASE

The Hydroponics Company growing vertically integrated business in medicinal cannabis industry

Establishing a vertically integrated business model provides THC with the ability to optimise efficiencies in the manufacturing process.
Picture of growing facility
THC is at the forefront of developing a leading, diversified worldwide cannabis business

The Hydroponics Company Ltd (ASX:THC), has made substantial progress in the last month in the growing, manufacturing and distribution areas of its business.

THC is at the forefront of developing a leading, diversified worldwide cannabis business.

In achieving this goal, management is focused on the development and delivery of medicinal cannabis.

It is also looking to generate revenues from the manufacture and distribution of hydroponics equipment, materials and nutrients.

This strategy creates multiple revenue streams, and also optimises the company’s core business of manufacturing and distributing medicinal cannabis on a global scale.

Vertically integrated business model

THC sets itself apart from several other players looking to target the high-growth medicinal cannabis industry.

The company has made substantial progress in developing a vertically integrated business, providing it with the ability to optimise efficiencies in the manufacturing process.

THC has surrounded itself with highly experienced personnel, including Dr Michael Harrison, who has been appointed manager of the group’s newly acquired manufacturing facility.

READ: The Hydroponics Company retains manager and team from acquired biomanufacturing facility

Further to that though, THC is in a good position to manage its supply chain through the establishment of business units that take the product to the distributor’s doorstep.

Quality control keeps customers and optimises margins

Whether it be a manufacturer of auto-parts or apple pies, run the ruler across the companies that have quality manufacturing and supply chain management and you will find that they are the ones generating superior margins.

It also provides the company with the ability to closely monitor all facets of the business from product quality through to client satisfaction, providing closer relationships with end users.

Expanding manufacturing capacity

Two developments that have occurred in the last fortnight have strengthened the company’s ability to enhance and progress its vertically integrated model.

The first of these was the acquisition of production facilities of international pharmaceutical company, LEO Pharma.

READ: The Hydroponics Company acquires world-class biomanufacturing facility, shares up

In completing this transaction, the company also acquired the freehold land and buildings housing the facilities, ensuring that it wouldn’t be interrupted by developments such as lease changes.

Xu refers to acquisition as a game changer

In discussing the significance of the $2.5 million acquisition, THC chairman Steven Xu said: “This is a game-changing investment undertaken by THC providing it with large-scale, state-of-the-art biomanufacturing capabilities required to lead Australia’s medicinal cannabis industry.

“The addition of this acquisition is a major component of our roll-out strategy that will generate substantial growth for the company.”

These facilities represent one of the largest pharmaceutical botanicals extraction and refinement plants in the Southern Hemisphere.

The acquisition will enable the company to become a globally significant manufacturer of medicinal cannabis products for the Australian domestic and future export markets.

Includes technological equipment

The facility provides THC with a fully functioning biomanufacturing plant.

Focusing closely on its operational strengths, the facilities enable the extraction technology to fractionate and crystalise during the manufacturing process.

They also include a high-quality purification system that will enable Australia to produce a broad range of high-quality, pure cannabinoids as Active Pharmaceutical Ingredients.

With the Federal Government making legislative changes permitting the export of Australian manufactured medicinal cannabis products, this is an important development.

Management noted that it will improve the viability of domestic producers while securing supply for Australian patients.

This development resulted in THC’s share price increasing from 61 cents on the day prior to the announcement to an intraday high of 72 cents, a gain of 18%.

Secures additional site for cannabis growth

Consistent with establishing a vertically integrated model, it was only a week after the manufacturing plant acquisition that THC substantially expanded its growing capacity.

The company entered into a binding term sheet for the exclusive leasing rights of organic certified land in northern New South Wales.

THC proposes to use this land for the growing of medicinal cannabis subject to necessary statutory and regulatory approvals.

READ: The Hydroponics Company to lease land for growing medicinal cannabis

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