THC Global Group Ltd (ASX:THC) recently secured a licence to manufacture therapeutic goods at its Southport Facility, completing all licences required to commence the manufacture of medicinal cannabis.
MST Access has initiated coverage on THC with a 12 month forward base case valuation of 81 cents.
Following is an extract from MST’s research report:
FY2020 – Transitioning to growth
With the first bottling of its medicinal cannabis oil in early December at its Southport Therapeutic Goods Administration (TGA) approved good manufacturing practice (GMP) pharmaceuticals biomanufacturing facility, THC Global (THC) has validated its locally grown “biomass to bottle” processing capability. THC is now able to accept feedstock from any licensed permitted cultivator, or its own cultivation operations, to produce cannabinoid oil to sell domestically or export globally.
All licensed up and ready to go
The TGA has granted THC a license for the commercial manufacture of therapeutic goods (GMP License) at the Southport facility. By the end of 1Q CY2020 we forecast THC will have met all the required product validation tests on the cannabidiol (CBD) oil being produced at Southport and will have received the final TGA approval allowing THC to sell that product into the market.
By mid CY2020 we forecast THC will receive its Office of Drug Control (ODC) license to cultivate at Eden Farms. We forecast limited production in CY2020 from Eden Farms with the site ramping up to 66,000 m2by the end of CY2024.
Flexible business model
THC has the potential to cultivate cannabis in over 100,000m2 of hydroponic greenhouse facilities in Australia at its Bundy, Eden Farms and Ballina sites; i.e. “farm to pharma”.
Alternatively, it may look to source lower cost cannabis biomass and imported crude cannabis oil from other licensed permitted cultivators to put through its TGA GMP approved site. This follows on from the decision by the ODC to allow appropriately licensed and permitted organisations to import cannabis material, including extracts, for use in manufacture. This would allow THC to utilise the capacity at its Southport facility while cultivation at Eden Farms ramps up.
Given the Southport facility has clearance from the TGA as a GMP site, THC is capable of exporting lower cost cannabinoid product to globally approved markets that have reciprocal agreements with Australia.
Valuation
Our 12 month forward base case valuation is $0.81 on an adjusted diluted basis. We have THC ramping up its hydroponic cultivation to ~67,200 m2 by the end of CY2024 in line with how fast we believe THC can grow product sales.
Clearly if THC can ramp up production and sales faster than we are forecasting there is upside in our valuation. If THC was cultivating and selling 67,200 m2 of hydroponic greenhouse cannabis by the end of CY2022, our valuation lifts to $0.94.
