The rapid growth of Australia’s crop of so-called “pot stocks” continues with today’s announcement by Cann Group (ASX: CAN) that it has signed a heads of agreement with Melbourne-based company Australia Pacific Airports Melbourne Pty Ltd (APAM), to secure the site of Cann’s proposed stage three medicinal cannabis cultivation and manufacturing facility.
The news means that Cann Group has secured Australia’s largest medicinal cannabis operation, to be built in Victoria.
Cann Group is currently growing a business focused on breeding, cultivating and manufacturing medicinal cannabis for sale and use within Australia and internationally.
The company has established research and cultivation facilities in Melbourne and is striving to provide access to medicinal cannabis for Australian patients.
Under the lease arrangement with APAM, it is proposed that APAM will fund and undertake the primary build of the 37,000 square-metre facility, representing a multi-million dollar contribution to the project.
Both parties have agreed that Cann Group will be permitted to operate cultivation, manufacturing, warehousing and distribution of medicinal cannabis, and therefore, will be responsible for obtaining all necessary government approvals.
From October 2016, the Australian Office of Drug Control (ODC) began processing licence applications for the cultivation, production and manufacturing of medicinal cannabis as per the Narcotic Drugs Amendment Act 2016.
Australia’s medical cannabis market is being regulated by the Therapeutic Goods Administration (TGA) although various import permits and licenses are being issued by the Office of Drug Control.
Companies undertaking what’s known as “downstream processing” such as extraction and purification of cannabis will need a manufacturing licence from the Australian Office of Drug Control and the TGA as well as a poisons license from the appropriate state or territory.
However, with momentum towards legalisation of medical cannabis now building up speed in Australia, companies such as Cann Group (as well as many others) do not expect regulatory approvals to be a huge burden.
Other countries such as Canada and the US are already on the verge of fully legalising recreational cannabis while European counterparts Germany and the Netherlands have also led the charge into legalising medicinal cannabis for their citizens.
The facility’s design has been handed over to Aurora Larssen Projects (ALPS), a specialist greenhouse engineering consultancy providing technical consulting to the greenhouse industry worldwide.
Cann Group said that upon completion of construction, it will be required to complete “fit-out and technology deployment” including the installation of cultivation equipment and other costly infrastructure to facilitate the production of high-grade cannabis to supply the emergent medicinal cannabis industry in Australia.
At the current time, specific details relating to final cost “remain subject to final design”, but Cann Group said it is ready to invest a total of A$100 million in capital expenditure for the entire project including facility construction, infrastructure procurement and employing around 170 staff to run the facility.
The company said it intends to use a combination of debt and equity to fund the new expansion project.
“This site is ideally suited to our needs and the heads of agreement represents an important step that allows us to proceed with final design,” said Peter Crock, chief executive officer of Cann Group.
“APAM’s contribution to the construction of these facilities will enable Cann Group to invest additional capital in increased cultivation capacity; expanded development and production capabilities, while also allowing for further future expansion.
“As per our ongoing strategy, the facility provides Cann Group with the necessary scale to compete on the global stage in the medicinal cannabis sector,” Mr Crock said.
Today’s news pushed Cann Group’s shares up 5.7% this morning to reach A$2.95 per share – within touching distance of their all-time high of A$3.50 in April this year.