21 November 2019
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Come off the grass

Tim Boreham
7 March 2019

It’s one thing to cultivate the stuff in view of supplying the medical market which, locally, is in its infancy. But refining the healing herb isn’t exactly like canning baked beans: specialist facilities are required and unsurprisingly they will be heavily regulated.

For THC Global (THC, 55 cents), the solution fell into its lap after Danish drug giant LEO Pharma decided a manufacturing facility at Southport on the Gold Coast was surplus to needs.

THC paid a knock-down $2.5m for the land and the plant – an asset on THC’s books at $16m but with a replacement value north of $35m.

The facility was used to extract material from a different plant -- euphorbia peplus, or radium weed –to make a cancer drug. But a plant is a plant, which meant the facility was virtually purpose built for cannabis.

“You won’t get another one like this in Australia, no chance,’’ says THC CEO Ken Charteris.

Grown at a separate THC facility in Bundaberg, the cannabis will be fed into 400 kilogram vats, in which the desired cannabinoids and turpenes will be extracted with an ethanol-based process.

The only catch is that because THC is yet to receive a manufacturing permit, there’s not an ounce of the stuff in the factory at present. Charteris describes the permit as “forthcoming” and says that as the facility was a drug factory in the first place, it should meet all the quality standards.

While THC awaits the paperwork, the Federal Office of Drug Control has been swamped with applications from parties wanting to grow and research medical cannabis, or import the material (the law was changed last year to allow this).

But many of the happy holders have discovered they’re no Willy Wonka ticket to prosperity. That’s because obtaining a licence is much easier than obtaining the specific permit to grow and handle the dope at a specific facility.

Without a permitted site to send the harvested plants, the growers are legally obliged to destroy the crop.

 “They all have aspirations of building an extraction plant and making little Aussie bottles of cannabis … but it’s far more sophisticated than that,” Charteris says.

 “There’s a big myth that if you are a (licensed) cannabis farmer you are worth a stack of money. But you have to build up expensive infrastructure and a lot of these holders are small companies.”

The gist, of course is that with a generous capacity of 12,000 kg of cannabinoid material a year, the unique Southport factory could become the contract refiner for other people’s ganga.

“We are all friends,” Charteris says, implying that talks about offtake deals have already taken place.

The dearth of refining capacity aside, the sector faces the dilemma of reconciling the boundless potential of the local medical cannabis with the current reality.

At present, there are few approved cannabis drugs and experimental versions are only available to patients under the Therapeutic Goods Administration’s special access scheme (doctor awareness is also low).

 Initially known as The Hydroponics Company, THC listed in May 2017 focused on providing the growing paraphernalia rather cultivating the weed itself.

But after a board coup in March last year, the company 'did a 180' and adopted its current farm-to-pharma strategy of both growing and refining medical dope.

As with most of the pot stocks, THC has a Canadian link via its subsidiary Vertical Canna, which has a cultivation project in Nova Scotia. Canada legalised medical dope way back in 2001 and then allowed recreational usage last year – a reform that has created a pot shortage in the country.

Charteris expects THC initially will export most of its product from the facility, on the proviso Australian needs are met first. 

This is a large scale production pharma plant that now is really the next generation,” he says. “We are probably five years ahead of anyone else.”

tim@independentresearch.com.au

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

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