Cann Group discounts shares again to raise $20m

Cann Group discounts shares again to raise $20m

Construction at Cann Group's (ASX: CAN) state-of-the-art facility in Mildura.

With construction of its state-of-the-art cultivation facility now underway in Mildura, medicinal cannabis company Cann Group (ASX: CAN) is rattling the tin again to bolster production capacity as market opportunities grow in Europe and Australia.

After a $40.2 million capital raise in August that included a significantly oversubscribed share purchase plan (SPP), Cann's cash balance had been ground down to just $3.15 million at the end of the June quarter.

In late 2020 the Melbourne-based company may have secured a $50 million loan from National Australia Bank (ASX: NAB) to fund the Mildura greenhouse, but the group led by CEO Peter Crock is eager to lift its reserves and is offering heavily-discounted shares to drive a $20 million capital raise.

The August raise attracted much interest in part due to its massive 51.2 per cent discount, and Cann Group is employing a similar strategy this time with a steep 27.6 per cent discount at $0.275 per share.

Half of the new funds will come from institutional investor commitments including more than $1 million from directors, while the remainder is expected to be sourced from an SPP that is yet to be confirmed. 

New investments are expected to expediate and strengthen extraction, laboratory and manufacturing capabilities, helping to de-risk Cann's supply chain and lowering its cost of goods sold (COGS) by reducing reliance on third-party manufacturers and service suppliers.

Cann is forecasting a 60 per cent COGS reduction for the proprietary Gelpell capsules acquired through the Satipharm deal, which are said to improve the efficacy of ingesting cannabinoids. By ramping up extraction processes too, it expects to save as much as $23 million per year.

Related story: Australia's top 20 cannabis companies

Funds will also go towards fast-tracking the preparation of Satipharm's application to register its flagship low-dose CBD-only capsules with the Therapeutic Goods Administration (TGA) as a Schedule 3 medicine.

If successful, that would allow pharmacists to provide an over-the-counter (OTC) cannabis product to treat anxiety, depression and stress.

"With the commissioning of a number of important components of the Mildura facility to be underway over the balance of this calendar year, we are confident in our ability to secure and supply additional geographic markets and market segments over the next 12 months," says Peter Crock.

"The Mildura facility provides the Company with a platform for sustainable and profitable growth as we scale up with improved supply chain security and a reduced reliance on third parties.

"We expect that the funding we are seeking via this capital raising will be sufficient to support our operations and expansion as we build our revenue base and move towards sustainable profitability."

Despite a bullish $5.9 million acquisition of Europe-based Satipharm and a huge uptick in shipments to 30,000 units in the June quarter out of an annual total of 34,000, a cyber breach that saw Cann Group lose $3.6 million has weighed heavy on the CAN share price, losing more than half its value since February highs and almost two-thirds following today's discounted capital raise announcement.

Despite this issue and other challenges, Crock is optimistic about Cann Group's path ahead and recent achievements.

"While the past 12 months presented significant challenges in terms of COVID-related delays - particularly on the regulatory front - the Company has generated in excess of $4.2 million in revenues," Crock says.

Cann Group was the first company to bag a cannabis research licence from the Federal Government back in 2017. The company dropped three places to fifth in this year's Cannabis Top 20 list for ASX companies.

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