Strong interest for Compass Cannabis’ $2m cap raise kick-off
Health & Biotech
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Special Report: Compass Cannabis launches its equity crowdfunded cap raise today on the back of strong interest from professional and retail investors.
A Canadian company will be the first cannabis business to venture back into Australian capital markets in many months, at a moment when the industry is growing rapidly.
Compass Cannabis operates clinics, with two in NSW and five in Canada, and has a partnership with Medipharm Labs to supply white labelled products in Australia and with Medigrowth in New Zealand.
It launched a public equity crowdfunding offer today via Birchal and is looking to raise up to $2m.
Compass Cannabis president Dave Martyn says the company was originally expecting the amount raised to top out around $1.25m — equity crowdfunds can’t exceed the set upper limit so many companies ask for more than they anticipate receiving — but the expression of interest process run over the last month indicates Compass Cannabis will pull in considerably more.
“We’ve far exceeded the top end of what we expected to raise, based on the 800 or so expressions of interest we received,” he told Stockhead.
“The range and quality of investors was positive as well. We have a nice mix of investors from fund managers right through to people who had a spare $200 they wanted to put in.”
Birchal co-founder Matt Vitale says the Compass Cannabis campaign has been one of their strongest performers at the expression of interest stage.
“We think the credentials of the founding team and their direct approach has helped to cut through the noise. We’re thrilled to be working with Compass,” he told Stockhead.
“We’ve really enjoyed working with Dave Martyn and the Compass team on this offer. Particularly because of their experience and track record during the growth phase of the Canadian cannabis industry, but also because their business model is simple and effective.”
Equity crowdfunded capital was the right fit for Compass Cannabis’ first raise in Australia, because of its ability to align the business with retail investors and new customers, Martyn says.
Importantly, Compass Cannabis is entering Australia just as investor interest in medicinal marijuana is beginning to rise again.
The market for cannabis capital raises dried up in 2018 and 2019 as investors, wearied by the prolonged downturn that followed the initial spike in interest in 2016 and 2017, refused to double down.
Interest for cannabis investments began to pick up however late last year and February saw Little Green Pharma (ASX:LGP) and Emerald Clinics (ASX:EMD) list on the ASX, and Lesotho hopeful TetraMed raise equity crowdfunded capital.
New Zealand hopeful Greenfern Industries is also hoping to raise equity crowdfunded capital.
Vitale says he’s seen a lot of enthusiasm among Australian investors for medicinal cannabis companies over the past couple of years, in the listed space, as well as crowd sourced funding.
Compass has been in Australia since 2018 and operating clinics since 2019. Cofounder and company advisor Teresa Towpik was at the forefront of advancing medicinal cannabis prescriptions to Australians.
Martyn believes, based on patient access growth and import data, that Australia is the next Canada in terms of the pace of industry growth and favourable policy settings.
This year prescription numbers are expected to touch 70,000 across more than 30,000 patients, up from just 457 patients in 2017.
Compass Cannabis has form in growing a clinic business: it built a patient base of 13,000 in Canada before adult marijuana use was legalised, and then successfully converted many of these into recreational cannabis retail locations throughout 2019. It sold that retail arm in March for $14m.
It generates revenue in Australia via cannabis-focus consults in its clinic network, partnerships with medical specialists, and product sales. In New Zealand the company is anticipating the introduction of legalised recreational use of cannabis after the September referendum.
The company plans to use money raised in Australia to be much more aggressive around marketing, particularly to people in regional locations who aren’t near city-based clinic networks and to those who are worried about COVID-19 infections, and to fund its complementary telehealth system.