Special report: Shares in cannabis player MGC Pharmaceuticals are a bargain compared to what the business is actually worth, says a researcher.

Edison Investment Research has put a price tag of $140 million on the medical cannabis biopharma company (ASX:MCX).

That works out at 11c a share, or about 66 per cent higher than where the stock is now.

Edison’s view is based on flowers and resin sales from the cannabis-growing operations — about 60 per cent of the valuation — and the “upside” comes from the budding pharmaceuticals business.

Pharmaceuticals as a way into cannabis dominance

With Latin America dominating the volume cannabis cultivation market, marijuana players are beginning to diverge into lifestyle products, such as Coke’s apparent plan for cannabis-infused wellness drinks and pharmaceuticals.

The latter is harder to break into because of the higher regulatory hurdles it takes to get a drug approved, but is potentially much more lucrative for that very reason: formulations are protected by patent and by the cost of making new effective alternative drugs.

MGC’s current pharmaceutical products are CannEpil, an orally-administered medical cannabis treatment for drug-resistant (or refractory) epilepsy, and CogniCann, a treatment to improve quality of life in dementia patients.

A number of prescribing specialist neurologists have recently received formal authorisation to prescribe CannEpil in Australia under the Authorised Prescriber Scheme.

“CannEpil’s formulation is supported by the results of a retrospective study of 74 patients with refractory epilepsy, which reported that 51 per cent of children with refractory epilepsy experienced at least a 50 per cent reduction in seizures when they were treated with a cannabis oil containing the same 20:1 CBD/THC ratio as CannEpil,” Edison noted.

MGC’s second pharmaceutical candidate CogniCann is targeting the estimated 50 million people worldwide who have Dementia, a number that is expected to triple to 152 million by 2050.

A clinical trial in July 2018 of a synthetic cannabinoid drug found that THC can reduce agitation in Dementia sufferers and improve quality of life, cognition and overall neuropsychiatric symptoms.

MGC plans to conduct Phase 2 studies of both medications, as a first step towards gaining approval as registered pharmaceutical products in Europe and Australia.

It also recently signed a binding term sheet to sell its MGC Derma cosmetics business to Canadian cannabis investment company, Cannaglobal, for up to$C15m ($16m), freeing up MGC to focus entirely on its pharmaceutical business.

Growing to meet medical cannabis demand

MGC has operations in central and southern Europe, focusing on supplying cannabis-based active pharmaceutical ingredients (API) and finished medicines in Australia and Europe.

It has established licensed growing operations in the Czech Republic and Slovenia, a fully GMP certified resin extraction plant in Slovenia, and approval from the Maltese government to build a medical cannabis cultivation and production facility.

Edison notes the company has already harvested 400kg of medicinal cannabis biomass from its Prague 1100 sq m outdoor greenhouse space in 2017, and a second crop is expected to be harvested in this current quarter.

Edison says the global marijuana market was worth about $US11.4 billion in 2015 and is forecast to hit $US55 billion by 2025 as more territories legalise medical cannabis.

It reckons MGC can grab a sizeable chunk of the European market.

“We estimate the underlying demand for medical cannabis in [the eight European countries with more liberal medical marijuana laws] to be equivalent to 14,000kg of resin per year,” the Edison report said.

“We model MGC’s API production in 2023 to be equivalent to 500kg of resin, which is approximately 3 per cent of estimated underlying demand in these eight countries.”



MGC Pharmaceuticals is a Stockhead advertiser.

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