IPO Watch: CDA wants to become a pot stock — maybe
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Medical cannabis clinic owner CDA Health is lining up a potential cannabis IPO for 2020.
Operations director Guy Headley says they either want to list, merge with a cultivator and list together, or continue going it alone.
Ideally it’d be bringing 5000-10,000 patients via its clinic with it — currently it has almost 1000 patients on the books.
The company owns subsidiaries CDA Clinics and Burleigh Heads, which gained a name around ASX gossip forums as the import partner for Cann Global (ASX:CGB), as well as a hemp and a New Zealand business.
But first it’s going the equity crowdfunding route to raise anywhere between $500,000 to $2m.
CDA has an ambitious plan for the money, if it reaches the $500,000 minimum it requires.
Currently the sum committed on the PledgeMe site is $303,757.
It wantsto spend most of it on working capital, but if it hits the maximum it plans to spend up to $300,000 building a medical cannabis manufacturing facility which it’d hope to start by the end of this year.
Hitting the maximum is feat managed by only four of the around 60 campaigns launched by April this year.
Headley says CDA has been quoted $250,000 to build a 40 square meter manufacturing facility, not including equipment, and knows it takes up to 18 months to get a licence to start building such a factory.
To put that in perspective, THC Global (ASX:THC) bought a 1112 sq m manufacturing facility south of Brisbane in a fire sale for $2.25m in April last year, including equipment.
CDA has not applied for manufacturing or cultivation licences yet, the latter being a plan for 2020.
Headley says CDA chose to do its own manufacturing and growing, rather than contracting both out, because it had had bad experiences with several companies, including one growing and making product in Australia.
He said doctors had put in orders based on what CDA Clinics had said was available, only for the latter to discover its supplier didn’t in fact have the goods ready.
CDA currently makes most of its money from the clinic, which generated a $21,000 profit between July 2018 and April 2019.
Headley expects Burleigh Heads, the import/export arm of the business, to become the revenue engine once Australian companies have something to sell.
CDA wants to be a clinic, an import-exporter, a hemp products seller, and a collector of data.
It’s a model that is being replicated in the Australian cannabis sector by a number of competitors.
Emerald Clinics is focused on collecting data from patients and selling it.
Althea (ASX:AGH) wants to be the biggest clinic and product seller in the country.
A range of companies from Elixinol Global (ASX:EXL) to Cann Global, aka Queensland Bauxite, are already in hemp here.
And there are 18 other importers listed on the Office of Drug Control website.
Most are companies already participating in the industry, such as Cann Group (ASX:CAN) and Bod Australia (ASX:BDA), but a number are also established and independent pharmaceutical wholesalers.
Headley says CDA’s unique proposition is that its clinics will, eventually, be backed by an Amazon-like online marketplace which stocks a range of brands rather than just those made by a partner.
It has around 50 doctors who are affiliates of the CDA clinic model now and a number requesting to sign up on the back of the crowdfunding campaign marketing.
CDA is still very much a family business: medical director Dr Ben Jansen and marketing director Jessimine Jansen are brother and sister, managing director Matua Jansen is their cousin, and Headley is engaged to Jessimine.
But this has not perturbed any of the prospective investors who’ve approached them, both Australian sophisticates or international corporates looking for an in for the Australia market, Headley says.
They’d had lengthy conversations over the last year with both but chose equity crowdfunding because they didn’t want to cede control over strategy.
“We decided as a family that this was important to us,” he said. “Our intention is to stay independent and that’s what the crowdfund gives us.”
Both corporate and individual investors didn’t understand what it took to be successful in Australia, he said, wanting to set profit targets over a short period of time which would require a high volume of patients paying higher prices.