Leading cannabis producer and researcher Cann Group (ASX: CAN) has acquired a $10.75 million property in Mildura, Victoria to construct a greenhouse for the cultivation of cannabis.
The company will grow, cultivate, and produce medicinal cannabis at the Mildura site to service both the Australian and international medicinal cannabis market.
The build at Mildura will mean plans for a similar project in Tullamarine near Melbourne Airport are now on hold. The company is considering what to do with the land at Tullamarine as the build there has been hampered by delays for various approvals.
The Mildura facility is expected to produce up to 50,000 kilograms of dry flower per year and should be up and running by the second half of 2020. Once operational the expanded production capacity will generate annual revenues of approximately $160 million to $200 million.
Cann Group will fund the $130 million construction of the Mildura site with a mix of debt and equity.
CEO Peter Crock says by moving the build to Mildura the company can remain on schedule to becoming a large-scale cultivator of medicinal grade cannabis.
"This puts us on the same build start timing as was originally envisaged for Tullamarine and is consistent with our strategy to develop a 'hub and node' model of regional cultivation facilities and a central manufacturing hub," says Crock.
"The Mildura site offers other important advantages, including a lower total build cost and lower ongoing operating costs, due to the dryer climate and higher sunlight hours resulting in reduced power use."
The company has also announced that it has entered into a five-year agreement with Canada-based Aurora Cannabis for the offtake of medicinal cannabis produced by Cann at its existing and planned expansion facilities.
This agreement will see Cann supply dry flower, extracted resin and manufactured medicinal products to Aurora until 2024. Aurora holds a 22.9 per cent equity interest in Cann.
"Securing offtake with Aurora is a key milestone for the company that is expected to both underpin the anticipated value generated with our expansion program and mitigate the risk associated with that investment," says Crock.
"We remain firmly committed to satisfying the domestic market as a priority and the agreement with Aurora should enable us to meet this commitment."
"Setting up at scale is an important focus of Cann Group and developing export pathways such as this are vital to enabling us to achieve that scale."
Shares in Cann Group are up 10.78 per cent to $1.85 per share at 10.51am AEDT.
Business News Australia
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