Nothing Small About Medicinal Cannabis Company Little Green Pharma

BY TIM BOREHAM

LITTLE GREEN PHARMA’S DANISH FORAY WINS DEEP POCKETED LOCAL SUPPORT.

The history of corporate acquisitions shows they fail just as much as they succeed. But in the case of the ASX-listed medicinal cannabis play Little Green Pharma, its recent Danish pick-up falls into the ‘no brainer’ category.

Big-hitting investors agree, including Australia’s richest woman Gina Rinehart.

A cultivator and manufacturer of medical grade cannabis oils and flowers, the Perth-based Little Green Pharma always knew that its future lay in exporting its product, notably to receptive European markets.

To do this, Little Green Pharma intended to expand its existing facility in an undisclosed location in Western Australia’s southwest, at a cost of around $8 million.

Thanks to a Danish employee, management became aware that Canadian cannabis giant Canopy Growth Corporation intended to close its facility, which is state-of-theart but only running at 25 per cent capacity.

“If this ordering profile continues, this would represent an annualised run rate of $10 million by the end of the year with that client alone.”

Canopy Growth had been pivoting to the booming Canadian and US recreational cannabis markets, using the Danish plant as a source of internal supply rather than a maker of finished medicinal product.

Little Green Pharma swooped and acquired the operation (in the Odense region) for $C20 million (A$21m), with half payable now and half due in 12 months.

For Little Green Pharma Managing Director Fleta Solomon, the deal shows that it’s not just Princess Mary who found her perfect match in Denmark.

“It was the easiest decision and the most incredible opportunity,” she says. “It fits like a glove; you couldn’t get a better match.”

The company-transforming purchase was accompanied by a $27 million placement, cornerstoned by Rinehart’s Hancock Prospecting to the tune of $15m.

An existing Little Green Pharma holder along with Pratt family’s Thorney Investments, Hancock Prospecting now accounts for more than 11 per cent of the register but has not sought board representation.

Solomon says while the company’s cannabis oils and flowers have treated many patients locally, the company had a “laser focus” on growing commercial sales in overseas markets. “This Danish purchase offers rapid market penetration,” she says. “We could have expanded our own facility over two years or we could have bought an existing facility with existing licensing, permitting and staff ready to go.”

The existing Danish facility has capacity of more than 20 tonnes of raw material (biomass), which easily eclipses Little Green Pharma’s WA capacity of three tonnes.

Solomon says expanding the WA facility to equivalent capacity would have cost around $2.7 million per tonne – and taken at least two years.

The Danish capacity is costing $1 million per tonne. The purchase price also compares with the $100 million (in Capex and Opex) Canopy Growth spent on the facility and the likely replacement cost of around $70m.

Little Green Pharma has built its local profile with its range of oils and flowers that conform to Good Manufacturing Practice (GMP). Attaining this status is not a tick-the-box exercise, but a prolonged and exacting process.

Because of this, Little Green Pharma is one of only a handful of so-called ASX-listed ‘pot stocks’ with meaningful export revenues.

But the truth about cannabis oils and flowers is that they are generic assets and difficult to protect. Thus, they are always prone to emerging competition.

As well as striving to provide reliable assured product, Little Green Pharma is working on technology based on more effective delivery of the active ingredients, such as the psychoactive component tetrahydrocannabinol (THC).

“The research front is really important,” Solomon says. “This is the long term game plan and it’s what the investors really want to see.”

Little Green Pharma’s efforts include a collaboration with Curtin University’s licensed laboratories, focusing on alternative drug delivery using less medication for a better result.

“In the case of pain, there’s the need for a slow-release mechanism so patients don’t have to get up at night,” Solomon says.

"The idea is that in the future, we ideally have a patent-protected registered product ahead of applying to the Therapeutic Goods Administration (TGA) for approval."

Meanwhile, Little Green Pharma is supporting a recently launched study into the quality of life of patients with chronic conditions receiving medicinal cannabis.

Called the QUality of life Evaluation STudy (QUEST Initiative), the University of Sydney-conducted study is one of the world’s biggest of its ilk. Under the terms of the collaboration, Little Green Pharma supports the recruitment of doctor prescribers and exclusively provides the medicine at a cost of $150 per bottle.

Since its inception in 2018, Little Green Pharma has sold more than 60,000 units, generally 50 millilitre bottles with varying THC levels and cannabidiol (CBD) formulations.

Locally, Little Green Pharma products have been used by 12,000 patients, a large per cent of what’s a fledgling market governed by rigorous access rules. In the March 2021 quarter, Little Green Pharma generated $2.46 million of revenue, flat on the previous quarter. However Australian revenue gained 29 per cent to $2.33m.

Since then, German distribution partner DEMECAN has ordered cannabis flower worth about $5.7 million of revenue.

“If this ordering profile continues, this would represent an annualised run rate of $10 million by the end of the year with that client alone,” Solomon says.

When the Danish purchase is bedded down Little Green Pharma expects to derive revenue not only from its branded products, but also ‘white labelled’ finished product and raw biomass (bulk flower) for other parties.

The company plans to scale Danish plant capacity to up to 50 per cent in the near future, depending on market demand.

“We are pretty confident about getting to where we need to be for the facility to be making money, but of course this will depend on the product mix being sold,” Solomon says.

Ahead of listing in February last year Little Green Pharma raised $10 million and then passed the hat for $27 million in February this year – an offer with bids over $100m.

The latest raising – also for $27 million - was struck at 60 cents per share, a modest 7.7 per cent discount to the pre-placement price of 65c.

Despite Little Green Pharma’s shares on issue surging more than three-fold as a result of the raisings, the stock has gained around 70 per cent since listing.

“We have had nothing but fantastic feedback and the market really believes in where we are heading,” Solomon says.