Initial coverage DanCann Pharma: Interesting case with many triggers

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Initial Coverage DanCann Pharma April 23, 2021

Equity research analysis DanCann Pharma

DanCann Pharma is an early-stage company with the intention to establish itself on the medical cannabis market in the Nordics and Europe. The underlying market is growing but the regulatory environment is ununified. Nevertheless, analysts see a bright future. An application has been filed for the needed licenses and approvals. A positive outcome is a trigger. We calculate a motivated value per share of DKK 6.5 for the upcoming 6-12 months. Risk is high.

Early-stage company with clear value trigger

DanCann Pharma A/S (DanCann or the company) is an early-stage company with a business model on different pillars. The first pillar is to import and distribute medical cannabis products in the Nordics and in Europe. In the context of this report, medical cannabis refers to cannabinoid-based products, prescription or OTC, used to treat or control medical conditions. The second pillar is to cultivate, process, and export cannabis bulk and APIs. Over time, R&D-activities will intensify to build a portfolio of IP-protected medical cannabis products with a focus on combination drugs. Thus, the business model covers the full value chain.

Investments have been taken in the first production facility. But to realize on its business model, DanCann needs to be licensed by the Danish authority, DMA. Also, facilities and processes need to meet a minimum of EU GMP-standards. An application to the DMA was filed in December 2020. A positive answer is a clear trigger that adds value to the company.

Growing market with ununified regulations an opportunity

Looking across the Atlantic, medical cannabis companies has in recent years started to accelerate its sales significantly. Eased regulatory environment, launch of new products, awareness as well as clinical evidence, and an in general favourable stance to medical cannabis has been key. Europe is lagging. Nevertheless, analysts expect an accelerated growth in Europe during the upcoming years motivated by similar drivers.

Getting through the regulatory framework and having the right licenses and approvals is a hurdle – for large, as well as smaller players. Can DanCann get through this in near future, it is a great opportunity to establish the company as a key player on core markets before competition heats up. However, DanCann is already well positioned in the starting pits – The company has two distribution agreement and an LOI signed for a third, giving them an interesting product portfolio for the Nordic as well as the German market.

Potential great upside to a large risk

The risks and uncertainties are many – this also implies that there are many potential value triggers along the way. To capture the different layers of uncertainty, we have risk adjusted assumed revenues, costs, and this profitability. By combining a multiple valuation with a DCF-model, we calculate a motivated value of DKK 6.5 for the upcoming 6-12 months.

Carlsquare do not take position in the discussion whether medical cannabis should be made legal or not. The research report is based on information from sources that Carlsquare find as trustworthy.

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