The Pot Seat: Althea’s Josh Fegan says they can absolutely sell home grown ganja in 2020
Food & Agriculture
Food & Agriculture
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Althea has an ambitious timeframe for its Australian fit-out: build a Melbourne cultivation and drug manufacturing enterprise by the end of the year and be growing enough marijuana to start commercial sales after June 2020.
CEO Josh Fegan says this is totally doable, if the planning process goes their way.
They have an inside line on the pharmaceutical equipment they need and the pre-fabbed glasshouses thanks to big brother Aphria, one of the 10 largest cannabis companies in the world. They’re also working with one of the premier pot and pharmaceutical consultants in Australia, Pharmout.
But there are a number of hurdles this horse has to jump to meet its timeline.
The area where they want to build the growing, manufacturing and R&D facility is a green wedge zone in Skye, southwestern Melbourne. One public objection has been lodged against the application on green zone, according to the Frankston City Council, which will delay the approval process.
The company is actively considering an expansion of the 4080m2 site to increase cultivation from 3000kg a year in order to feed the needs of a new UK arm, but Mr Fegan says they’re still considering just how big and how much more costly.
While Mr Fegan said during the interview that “what we have currently is not going to service what we want to do”, he later said they were committed to the existing facility proposed in the prospectus.
And if everything is built by the end of this year and they secure the all-important Office of Drug Control permit to grow, that would give them about six months in early 2020 to build their ‘mother’ stock up to supply commercial quantities of marijuana for drug making later that year.
For comparison, THC Global (ASX:THC) started growing out its ‘mother’ in late December and thinks it will have commercial supplies by 2020.
A close ally with a blocking stake
But Althea has an ace in its pocket that few other pot stocks in Australia have: its 25 per cent shareholder Aphria.
Aphria is both a blessing and a curse.
It’s a blessing because Aphria supplies all of the product they need to feed the Australian and UK markets, so if their Melbourne construction timeline slips it won’t affect their rapidly growing market share.
Aphria is supplying all of the startup genetics, the greenhouse IP and the cultivation support, and is a fairly hands-off shareholder in terms of strategy, says Mr Fegan.
It’s a curse because Althea is effectively shut out of any market where its big brother is already active, such as the already-buoyant Germany.
“The problem for us, so to speak, was Aphria are already there,” Mr Fegan told Stockhead. “Will they invite Althea to be part of their business there? Perhaps, particularly if they see early results in the UK.”
They may sell part of the UK business to Aphria once it has permission to trade in that country, which Mr Fegan expects to occur this year.
Mr Fegan describes the two companies’ relationship as one where Aphria supplies the goods, but Althea provides the entry point into highly-regulated medical markets.
“They have little understanding of what it takes to position medicinal cannabis in a highly regulated marketplace, and [it’s the same with] the other big ones,” he said.
“They can produce a good product… [but] can they communicate and position their products well with doctors? Probably not.
“Have they had to before? No. It’s a whole new ball game for them.
“Althea was built essentially to complement what Aphria does really well. But you’ll only see us in highly regulated emerging marketplaces, because we’ll go where the hard work needs to be done.”
Obviously a takeover target
This very close relationship — Mr Fegan has direct access to the Aphria president and has the Canadian company’s VP of commercial strategy on his board — has fueled rumours of a future takeover.
It’s a rumour Mr Fegan shied away from confirming or denying, but one he clearly wants investors to remember.
“What I get concerned about, in terms of our future, is if we remain so undervalued perhaps they look at [us] saying ‘they own 100 per cent of our UK business — maybe that will change soon — that’s our vehicle in the UK and we already own 25 per cent of them in Australia, so consolidate, right’? It makes sense.”
At the same time, Aphria is contending with its own — very current and hostile — takeover bid.
It’s rejected an all-scrip offer from Green Growth Brands that “significantly undervalued” the company.
Mr Fegan is unconcerned about a third wheel chiming in on the close relationship, saying their supply deal with Aphria is potentially so large (it depends on how many patients they can secure) there is “no way” a new owner would disrupt it.
As of last week Althea supplied 328 Australians with $300-350 of cannabis products a month, and patient numbers are growing by four to five a day.
Mr Fegan expects the UK market to lift off faster due to more streamlined rules and a larger population.