Cann Global to lower production costs and establish a medical cannabis production operation in South East Asia

Cann Global (ASX: CGB) has decided to expand its medical cannabis business in Asia by incorporating a dedicated subsidiary that works with the APAC and Asian markets.

The new company – Cann Global Asia – has been set up by the ASX-listed medical cannabis developer to focus on undertaking “legal broad-acre industrial cannabinoid (CBD) hemp cultivation and processing” as well as indoor cannabis cultivation in Southeast Asia.

The venture is being developed for Cann Global to become “the first Australian company to have a full ‘seed to product’ Cannabis business established in Laos,” according to its managing director Sholom Feldman.

According to Cann Global, the newly formed company will be split in terms of ownership, with 55% being owned the parent company and 45% owned by Cann Global’s “management partners” David Evans and Christopher Waldron – two veteran industry figures with almost 40 years in combined business development experience obtained across Asia and Australia.

Mr Evans was a key figure in introducing Cann Global to the cannabis industry in 2015 after brokering the initial investment and acquisition of Medical Cannabis (MCL).

Given the rapid growth in legal cannabis cultivation across Asia, the new company will offer access to a low-cost environment and larger production schedules of CBD hemp biomass, refined oil and CBD isolate.

Another option already being sought by Cann Global is the possibility of conducting an entirely new ASX listing for the created company, although this step would require “direct larger institutional investment and financing”.

Asian agreement

In order to boost its Asian expansion plans, Cann Global signed a deed of agreement with local company Sun Agriculture Promotion Industry and Commercial (SUN) in Laos, to use its hemp licences to cultivate and process CBD hemp in the country.

SUN has been issued two licences by the country’s cannabis industry regulator which enables it to legally cultivate, purchase, process, retail and export hemp products in Laos.

The minimum licence period is 10 years with Cann Global responsible for cultivation and processing while SUN tasked with exporting finished produce on Cann Global’s behalf.

Permission for Cann Global to use SUN’s licences has already been granted with the duo expected to commence cannabis production sometime in November 2019.

However, before their agreement is fully ratified, Cann Global said it would conduct a due diligence process including checks of all necessary approvals and technical details.

Once operational and productive, Cann Global will pay SUN 10% of gross profit from the products that are sold locally or exported overseas.

Efficient growing techniques

According to Cann Global, its newly formed company will use three different cultivation practices in Laos.

The first method will utilise proven local cultivation techniques to properly manage and maintain soil agronomic practices in order to keep high nutrient levels in the ground.

The second method will leverage “auto-flowering seeds” to potentially grow up to five outdoor crops per year using a combination of greenhouses and outdoor broad-acre plots.

And finally, the third method, Cann Global Asia will use greenhouses to produce high quality germinated flowers with “perforated polyethylene sleeve covers” to produce multiple crops, up to five times per year.

The company has confirmed that all of the forthcoming growing and processing will be organic in order to create a fresh natural product that suits potential customers best.

Once approved and fully operational, Cann Global Asia is expected to become one of the first Australian legal producers of CBD hemp products in South East Asia with the region forecast to generate a significant market for CBD hemp products.

For Cann Global, it means immediate access to distribution channels in Asia and further afield.

Cann Global said it has interested parties in Thailand and Cambodia that will offtake its produce and is “awaiting first production runs” from SUN’s facilities.

“For the past three years, David [Evans] and Chris [Waldron] have been involved in establishing business relationships, opening dialogue with governments and preparing operations centres in Laos, Cambodia and Thailand, as legislation for the legalisation of hemp, CBD and THC cannabis have been passing through each country’s legislative approval process,” said Mr Feldman.

Added extraction

In addition to expanded production, Cann Global has also confirmed it intends to establish and operate an extraction and manufacturing plant in Laos.

Under the terms of a deed of agreement, SUN will provide a range of added services including licences, permits, physical security, compliance officers, an independent laboratory and delivery services related to the extraction plant.

As part of its remit in the partnership, Cann Global said it will use a proprietary extractor in the form of an automated, continuous flow system.

This step could generate strong economies of scale and from operational data and statistics, Cann Global intends that the extraction plant will have the potential for a fully loaded operational cost that is significantly lower than the cost of the major competing technologies of cold ethanol extraction and CO₂ supercritical extraction.

“I believe that South East Asia will become one of the world’s prime growing areas for Cannabis and hemp,” said Mr Waldron.

“The ideal growing conditions combined with state-of-the-art extraction and manufacturing technology allows for high-quality products to be profitably produced even when the expected dramatic price falls occur for wholesale and retail products,” he added.