Cannasouth eyes move into animal products to take the edge off

Cannasouth chief executive Mark Lucas. Photo / Alan Gibson

Listed biopharmaceutical research and development company Cannasouth is considering a move into animal products as part of its diversification into value-added markets for its cannabinoid products.

The company, which raised an additional $6 million from its 3000 direct shareholders under its share purchase plan last month, said it is focused on developing its "next generation" of product, including a move into animal health, toll extraction and ingredient sales and exports.

Chief executive Mark Lucas said the Hamilton-based company was aiming to tap into what was a rapidly evolving international market for animal products infused with cannabidiol, or CBD, which has been known to help with animal anxiety.

Global research company Cannabyte suggests the US market alone could reach US$125 million by next year, making it one of the fastest growing parts of the cannabinoid market.

Lucas said the Cannasouth team had some experience in this sector of the market, and the product could be a refined version of that intended for medicinal use.

Transition

Lucas said Cannasouth will continue its strategy to transition from cultivation and research into commercial application and sales, following the April 1 launch of the medicinal cannabis scheme this year.

Speaking to shareholders at the group's online AGM today, he said the company will also build a growers' network "to further support increases in demand and ensure we have a robust and efficient supply chain."

He said the company was "well advanced" with its cultivation development programme, including completing construction of its Waikato hybrid greenhouse, which was close to being commissioned.

Last month, Cannasouth completed an exclusive supply agreement with MediPharm labs in Australia for the importation of selected dosages into New Zealand. They will be sold as Cannasouth branded 'white label' products.

Lucas said 60 per cent-owned Hastings company Midwest Pharmaceutics, which had been labelled as an 'essential' business under covid restrictions, will focus this year on developing its cannabis production capability and health and wellness product production and contract manufacturing.

"Our first phase is bringing in white label products to develop sales channels and drive initial revenue streams, with the next stage producing own products, but that will take time to meet the rigorous standards of the scheme."

Price points

He said Cannasouth Cultivation was also focused on reducing the cost of production. "So, when comparing to other indoor growing strategies, we will be able to produce the same or better quality flower at significantly lower production price points. This is going to be increasingly important as the sector develops and becomes more competitive over time."

Lucas said that while a 'yes' vote in the September referendum on the Cannabis Legislation and Control Bill will "not fundamentally change the medicinal cannabis scheme," there is the possibility that some patients will use recreational cannabis for medicinal purposes.

"But that will have happened anyway," he said.

"To that end we have not supported the yes vote. Our position rather is that this is an important debate but we, like any business, will take on board the likely impacts and opportunities of the result and have a business plan prepared for that eventuality."

Chair Tony Ho said it was "too early" to provide financial forecasts, but reinforced that there was no intention to declare dividends during the firm's establishment and growth phase.

Cannasouth shares rose 2 per cent to 52 cents, trimming their loss so far this year to 13 per cent.