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Creso Pharma set to benefit as regulatory shifts on cannabis and broadened global footprint underpin growth

In the quarter to December 2020, there were a number of significant shifts in the regulatory environment, which have the capacity to unlock a number of near-term and medium-term openings.

Creso Pharma Ltd - Creso Pharma set to benefit as regulatory shifts on cannabis and broadened global footprint underpin growth
Creso achieved a number of major milestones in international markets, which were underpinned by pleasing regulatory shifts

Creso Pharma Ltd (ASX:CPH) (FRA:1X8), which saw rapid growth in its December quarter with a number of major milestones in the international markets, is set to benefit from the changing global attitudes to cannabis. 

In the quarter to December 2020, there were a number of significant shifts in the regulatory environment, which have the capacity to unlock a number of near-term and medium-term openings. 

The company is being positioned to capitalise on such opportunities as they develop. 

Quarter of rapid growth

Non-executive chairman Adam Blumenthal said: “The quarter was a period of rapid growth for the company.

“Creso achieved a number of major milestones in international markets, which were underpinned by pleasing regulatory shifts.

“Pleasingly, Creso continued to expand its global footprint. Through the company’s animal health business, we entered into the Latin American market and Mernova continued to gain traction in Canada, progressing agreements and purchase orders to unlock a number of new provinces.

“The company also furthered its presence in the Australian and New Zealand markets, securing an agreement with Martin & Pleasance to drive growth.

“Strong sales were achieved over the period, stemming from a scale-up of Mernova’s operations and the receipt of a number of new orders.

“While the uptick in customer receipts is very pleasing, we are now focused on continuing this rapid growth.

Accelerating strategic initiatives

“The company has a number of purchase orders on and across all business divisions, which we expect to complete in the coming months allowing further sales to be recognised.

“Board and management will continue to monitor regulatory shifts in key markets. Recent developments in the US have the potential to positively impact Creso Pharma and we are very well placed and funded to capitalise on these opportunities.

“We remain in a strong position underpinned by growing sales revenue and burgeoning market opportunities, and we look forward to accelerating our strategic initiatives to deliver returns for our valued shareholders.”

Nutraceuticals

Subsequent to the quarter-end, the company successfully delivered its leading cannaQIX® products  Lupin International’s subsidiary (NYSE:LUPIN), Pharma Dynamics South Africa, which will distribute Creso Pharma’s hemp-based products across South Africa.

There are plans to extend the distribution to Namibia, Botswana, Zimbabwe, Swaziland, Lesotho, Angola, Mozambique, and Uganda.

Creso Pharma anticipates additional opportunities will materialise in Africa through its established regional partner and will actively pursue those opportunities in the near-term.

Animal Health

Its anibidiol® became the first approved CBD hemp-based complementary pet feed in Latin America after it secured regulatory approval from the Ministry of Agriculture and Animal Feed in Uruguay through its commercial partner Adler Laboratories, Uruguay.

The approval represents a strategic milestone, unlocking a large opportunity with over 24 million pets across Uruguay, Argentina, Paraguay and Bolivia and further Latin American countries.

Demand for the products remains high and these additional POs served as further confirmation of the success of the anibidiol® product line in the rapidly growing European animal health market.

Global regulatory changes

Some of the global regulatory changes include:

➢Court of Justice of the EU ruling which unlocks major potential for CBD in Europe after it ruled that member states must not prohibit the marketing of lawfully produced CBD and that CBD is not considered a narcotic.

This landmark ruling, which allows CBD to be freely sold in the European Union, provides opportunities for Creso Pharma, which already has commercial agreements in place in the Iberian markets.

➢The United Nations Commission on Narcotic removed cannabis from Schedule IV of the 1961 drug convention treaty, which classifies cannabis as a dangerous and addictive drug, and moved it to Schedule I, which is the least restrictive drug classification.

This landmark decision also recognised the potential medical properties of cannabis, which will benefit Creso Pharma’s existing global distribution network and footprint.

➢Potential cannabis reform in the US with Democratic majority

With the growing push in the US to act on cannabis reform, and post-quarter end, the Democratic Party winning the balance of power in the US Senate, there is an increased likelihood of the decriminalisation of cannabis and the passing of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act.

The company has an established global distribution network, and its Mernova facility is only 220 miles from the US border, an ideal location to cater to the Canadian and US markets.

Creso is currently exploring several US market opportunities in anticipation of the legislation’s imminent approval.

TGA reschedules CBD

In December, the Therapeutic Goods Administration (TGA) announced a final decision to down-schedule low dose cannabidiol (CBD) preparations from Schedule 4 (Prescription Medicine) to Schedule 3 (Pharmacist Only Medicine).

This decision allows for low-dose CBD containing products, up to a maximum of 150 mg/day, for use in adults that have been approved by the TGA, to be supplied over-the-counter by a pharmacist, without a prescription.

cannaQIX 50®, Creso’s proprietary buccally formulated cannabidiol (“CBD”) lozenge is available in Australia by prescription, under the ‘LozaCan’ brand.

Creso is exploring the requirements to sell this product, as well as its other GMP-manufactured ranges, more broadly to Australian consumers.

The TGA decision has also allowed Creso Pharma to expedite its heads of agreement with Martin & Pleasance Pty Ltd to bring Creso Pharma’s suite of CBD-based products to the Australian market.

Well-funded for near-term growth

Creso generated A$709,000 in receipts from customers – up 740% increase on the previous quarter - and highlights the growing sales pipeline it has built over the last three months.

Out of the purchase orders received during the quarter, only partial amounts were captured in the quarter’s cash receipts, with the remainder to be recorded in the first and second quarters of 2021 cash receipts.

Further, the company expects ongoing substantial growth in customer receipts during the current period and beyond, as more purchase orders are secured and delivered across all business divisions.

The company also extinguished all convertible note structures during the period, leading to a streamlined and optimised balance sheet.

Coupled with a strong cash balance of $6 million at the end of the quarter, Creso is very well funded to pursue a number of near-term growth objectives.

Expansion into new markets

Its wholly-owned subsidiary Mernova Medicinal Inc. delivered several important milestones, in the quarter.

It entered Canada’s largest recreational cannabis market and received a Notice to Produce from the Province of Ontario, for its HPG13, Lemon Haze and Mimosa strains.

Mernova also secured a supply agreement with the Ontario Cannabis Retail Corporation (OCRC), operating as the Ontario Cannabis Store (OCS), formally recognising Mernova as a supplier.

It also secured a purchase order from Truro Cannabis Company, and Yukon Liquor Corporation.

Additional purchase orders were also successfully delivered to the Nova Scotia Liquor Corporation.

It also secured a maiden PO from Cannabis NB, the government-owned retail cannabis monopoly in the Atlantic Canadian Province of New Brunswick, marking Mernova’s entry into the province. 

Expand into hash market

Mernova also made the strategic decision to expand its current operations and target the Canadian hash market, following a comprehensive review of the significant market opportunities in Canada, and positive feedback on its current product range.

Hash, which can now be legally produced and sold in Canada, has grown in popularity in the legal market across Canada, as part of the new wave of cannabis-derived products.

In the US, hash use is increasing due to an overall rise in global interest in cannabis, increased availability due to legalisation in many states, and demand among older consumers familiar with the cannabis concentrate.

Mernova is working to capitalise on this growing demand and to further diversify its product lines, and has received considerable interest in its soon-to-be-launched hash products.

It will progress production of premium hash from its state-of-the-art facility with the launch of the new products in the first quarter of 2021.

Quick facts: Creso Pharma Ltd

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