Cann Group doubles sales as Mildura cannabis crop set to triple

Former Astra Zeneca executive Peter Koetsier had big shoes to fill at the start of this year at Cann Group (ASX: CAN) when he took over the position left by longstanding CEO Peter Crock.

Seven months on, the share price may be down 39 per cent but that hasn't dampened the new leader's excitement.

"This is an incredibly exciting time as we realise the dream of the enormous facility and achieve what it was designed to do," he told an investor call yesterday.

"Since the first commercial crop was produced in Mildura one year ago, the team has used experience, adjustments and innovation to hit the kind of metrics that have given us all the confidence now is the time to pick.

"The first big step in scale-up happened – the team planted our biggest crop so far, and as that is harvested and processed from mid July, it will set the new level in annualised production of eight tonnes; a big step from the three tonnes we did last financial year."

He explained annualised production at the facility would then move to 10 tonnes in the second half of FY24, and rise to 12.5 tonnes in FY25.

"We're transitioning from capital expenditure to operational expenditure. In fact, we're planning to decrease our capex by around 80 per cent this year compared to the last few years as we dramatically increase the annual yield of high-quality consistent product," he said.

"Put simply, scaling up means more sales and lower costs."

However, the group still requires more capital to achieve its ambitions, and yesterday also announced an $11.7 million capital raise at 12 cents per share (cps), representing a 14 per cent discount to the previous trading price.

A third of the proceeds ($3.5 million) will go towards enhanced automation for Cann Group's manufacturing facilities, while the remainder will be split between accelerated staffing levels ($2.8 million), research and development for THC-containing capsules ($2.3 million), lab and quality control enhancements ($1.3 million), working capital ($1.1 million), and other costs.

In terms of market demand, Koetsier highlighted estimates from the Penington Institute that the retail medicinal cannabis prescription market in Australia stood at $200-250 million in 2022.

"Importantly, this market grew a huge 41 per cent between the first half of 2022 and the second half, which on an annualised basis is nearly a doubling," he said.

"If this level of growth were to continue for the next two years '23 and '24, the market would approach $1 billion, and even if the market slows to half the rate that we saw in 2022, we're still going to see a doubling in the market by the time we get to '24, and all of this without factoring the potential near-term legislative changes that are appearing in some states.

"Looking at the market in more detail, the biggest segment in the market is inhalable flower, which means the quality of flower needs to be high. At present, only about 20 per cent of brands in the market are actually Australian-grown product - that means 80 per cent of brands selling in Australia are made from overseas-grown flower."

The executive highlights regulatory changes that may tip that ratio in favour of domestically-grown cannabis flowers, with Therapeutic Goods Administration (TGA) amendments coming into effect to hold imported product to the same high standards as local manufacturing.

"This is good news for patients clearly, but it's also leveled the playing field," he says.

"All of this means every month, local Australian companies are announcing plans to add capacity to build facilities to meet this growing demand.

"Cann is in a unique position in Australia because not only is our Mildura facility capable of amongst the biggest volumes of any facility in Australia planned, but importantly we're also scaling to that level right now."