Research update DanCann, Q3 2021: Brighter outlook than ever before
7 Dec 2021
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DanCann has seen a high level of busi-ness activity in recent months. A strengthened cash position with good cost control has given the Company breathing space. The acquisition of the CannGros will generate the Company’s first revenue in the current quarter. Regu-latory progress in both Germany and Denmark has been announced. Further-more, the Company’s partner Tetra Bio-Pharma has presented robust initial data from two Phase II studies in cancer pain. DanCann is facing a commercial break-through with several activities expected to drive growth. We are adjusting the fair value per share upwards to DKK 9.5 (8.5) in a conservative view, while our bull-case moves to DKK 15.5 and DKK 4.9 in bear-case.
A Nordic player in medical cannabis
DanCann was founded in 2018 by the current CEO, Jeppe Krog Rasmussen. The Company’s strategy is to provide medical cannabis to the European market. It intends to do this by (i) importing and distributing medical cannabis products, (ii) cultivating and exporting cannabis raw material, and (iii) identifying and developing cannabis products as part of combination medicines.
Good cost control despite high activity
No revenues were reported for the second quarter, in line with our forecasts. The EBITDA result amounted to DKK -3.4 million. The completion of the latest financing round explains the cash flow totalling at DKK 7.1 million. The financial performance in the quarter was broadly in line with our expectations across the board.
In early October, DanCann announced the acquisition of the Danish Company CannGros, a market-leading distributor of medical cannabis, as part of the pilot programme in Denmark. The acquisition adds significant value: (i) Revenues under solid growth with good profitability will be included already from the fourth quarter of 2021. (ii) DanCann gets the necessary expertise and approval for critical regulatory processes, such as a li-cense from DMA to import and distribute medical cannabis. (iii) Significant synergies exist in future product development and distribution of already contracted products from DanCann’s established partnerships.
Regulatory progress across the board
The start of the fourth quarter has been active. The Company’s partner Tetra Bio-Pharma has made significant clinical progress with robust initial data from two Phase II studies in cancer pain. At the same time, the Danish pilot programme has been made permanent regarding the production of cannabis materials. Furthermore, the coalition government in Germany has decided to legalise cannabis also for recreational use. Over-all, we assess that, for the time being, the underlying market for medical cannabis is prospering.
We adjust the fair value per share upwards
As in previous updates, our sales forecast is risk-adjusted with probabilities. We have consolidated the expected revenues and costs from CannGros and increased the probability to 75 per cent based on improved regulatory and market conditions. That results in slightly higher expected revenues. The following 12 months will be, in our opinion, the most interesting in the Company’s history with increased activity in commercialisation and market entry. Overall we estimate a fair value of DKK 9.5 (8.5) per share for the next 6-12 months. This could be seen as a bit conservative. One should know that our assumptions will be adjusted when up-coming milestones are reached and affect our valuation.
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