The current crop of ASX-listed cannabis stocks could be about the get a new competitor.

Medicinal cannabis company Cannatrek is eyeing off a listing in early 2020, as it looks to establish market position as a commercial-scale crop cultivator.

The company turned heads recently when it received planning approval to build a 160,000sqm glasshouse production facility in Shepparton, about two hours north of Melbourne.

Speaking with Stockhead, Cannatrek CEO Tommy Huppert and corporate advisor Brett Schwarz said the company’s value proposition stemmed from its patient approach and strong network.

Having obtained the full spectrum of regulatory licences — from import/export to cultivation — the pair said Cannatrek’s “seed-to-patient” supply chain left it well-positioned to capitalise on future growth in medicinal cannabis.

Cannatrek is now conducting a $10m pre-IPO round via the OnMarket platform, ahead of an ASX listing where it will look to raise another $40-50m to fund expansion plans.

 

Global opportunity

Huppert said the the approval for the Shepparton site marked a “key inflection point” for Cannatrek’s value proposition.

While the company is generating revenue via its import licence, medicinal cannabis production is the main game.

“Cultivation is our core business, and being a cultivator under permit in a highly regulated industry — we knew there’d be delays in the process,” Huppert said.

Working with regulators, doctors and other producers — both locally and abroad — was a five-year process, he said.

“We believe we’re now the first company in Australia to have a full suite of licences. The import solution is ok but its only a stop-gap; we knew we had to have a commercial-scale production site.”

The company now receives about 10 scripts a day and demand is “growing exponentially, we just can’t get enough stock”, Huppert said.

While it’s been a long time coming, Huppert said the extended time-frame would work out as a net-positive for the sector.

“I think it’s a credit to our regulator. It’s taken a long time to get patient access here, but it’s also set Australia up to be a powerhouse global producer of high-level therapeutic products,” he said.

“It’s also a huge barrier to entry, if you consider how much work it takes to develop a fully integrated seed-to-patient model.”

With the rise of Asia’s middle class, the concept of Brand Australia has formed a core part of the export strategy for many local companies.

Huppert said that will apply to medicinal cannabis too, as companies such as Cannatrek look to leverage Australia’s reputation as a best-in-class producer.

“If this model at Shepparton works as a custom built glass house for cannabis, we’ll need probably half a dozen satellites to produce for other overseas markets,” Huppert said.

“I don’t believe countries like Malaysia, Singapore, Korea, will actually be cultivating, so that gives us a unique value proposition to grow into a global market.”

 

Getting the timing right

With licensing, infrastructure and supply chains in place, the firm is now eyeing off public markets to help foster its next stage of growth.

But in this space, getting the timing of an IPO right is “critical”, Schwarz said. In Cannatrek’s case, that meant not going too early.

“The business model Tommy built was about getting the first commercial site up and running, having a scale harvest and generating revenue from that harvest,” he said.

“In that sense we’ve kept our power dry, and held off looking at an IPO until we’ve actually got genuine revenue. And I think we’ve gotten a positive response from the investment community because of that.”

Schwarz said Cannatrek had also benefited from its structure as an unlisted public company, with three years of audited accounts and established governance structures in place.

The company has so far raised capital from an Australian network of family offices and high net-worth (HNW) individuals. It’s also in discussions with “some big partners globally who are taking a serious look at us”, Schwarz said.

“We’ve had a good response. It’s quite a unique proposition and market that’s new to many investors, so there’s a education process involved.

“People want to do their due diligence which is a good thing, and we’re very engaged with that. We’ll be looking to close this round in the next few weeks so we can move onto growing this business to the next level.”

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