The business of medical cannabis

A raft of new Federal legislation that initially legalised the use of medical cannabis and recently approved the importation of the product to fill a supply gap will benefit a number of ASX listed companies that have been active in growing and distributing the product in overseas regions.

Only a limited amount of medicinal cannabis is currently being produced in Australia, and with the new legislation coming into effect immediately it is anticipated that demand will substantially outstrip supply.

Investors have already picked up on the story with some stocks surging in anticipation of positive news and others just recently rerating sharply, particularly those that are equipped to immediately export into the Australian market.

It should be noted that share trading patterns should not be used as the basis for an investment and past performance may or may not be replicated. Those considering the two stocks mentioned in this article should seek independent financial advice.

One such company is MGC Pharmaceuticals (ASX: MXC).

MXC is a European based specialist medical cannabis group. The company’s founders were prominent figures in the Israeli medical cannabis industry and the core business strategy is to develop and supply high quality phytocannabinoids resin extract for the growing demand in cosmetic and medical markets in Europe, North America and Australasia.

While the company’s share price movement following the announcement of changes in legislation was substantial, MXC’s run began at the start of February with news that MXC had completed the acquisition of Czech based medical cannabis company Panax Pharma, immediately enabling it to conduct medical cannabis breeding research.

In mid-February the company commenced a clinical study to assess the efficacy of a medical cannabis formulation in children and adolescents with treatment resistant epilepsy. Results from the study will be instrumental in the company’s development of its own proprietary pharmaceutical grade product for epilepsy treatment.

This is a substantial market given that in Europe alone there are close to 1 million children and young people with epilepsy, and a further 2 million people aged between 20 and 64 suffering from the condition which is either uncontrolled or inadequately controlled by prescription pharmaceuticals.

On the distribution front, MGC Derma is in advanced discussions with cosmetic distributors, retailers and e-tailers in the UK and Europe with former Revlon Director, Malcolm Kemp looking to commence sales into these markets at some stage in 2017.

The company received its first major sales order and commencement of revenues from its Czech Republic distribution deal for its MGC Derma cannabidiol-based cosmetic products with Czech Medical Herbs s.r.o. (CMH).

The sales order was expected to generate revenues of $65,000, part of the entire distribution agreement valued at circa $500,000 in annual gross sales.

Having experience with supply chain management, including adherence to proper distribution protocols should provide MXC with an added advantage in terms of being accepted into new markets such as Australia.

CRESO PHARMA

Creso Pharma (ASX: CPH) is another company with a unique take on the market that is currently keeping investors happy.

On February 14, Creso announced it had achieved solid progress with the first fully plant-based cannabidiol nutraceutical product which assists in the management of anxiety and stress.

From a broader perspective, the anxiety and stress management industry is an important one for CPH as 2015 data indicates the market was valued at US$3.5 billion.

CPH develops cannabis and hemp derived therapeutic grade cannabidiol nutraceuticals and medical cannabis products with wide patient reach for human and animal health.

The group has registrations in Switzerland for its products and worldwide rights for a number of unique and proprietary delivery technologies which enhance the bioavailability and absorption of cannabinoids.

CPH is already generating revenues via its subsidiary, Hemp-Industries. CPH is targeting Switzerland, Europe, the Middle East, the Gulf region and Latin America with its commercialisation partners. It is estimated that this market will be worth US$39.7 billion by 2021.

It seems the public perception surrounding cannabis is shifting as people become educated on the benefits the plant heralds in the medical space, let alone all the other benefits it offers in other industries, such as the use of hemp, biofuels and food.

Clinical trials around the world are providing strong evidence that cannabis helps patients dealing with chronic pain, epilepsy and cancer with little to no side effects.

It is any wonder then, that commercial opportunities are opening up for companies who can find their own market niche.



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