The Hydroponics Company flying high with newly-acquired facility and substantial revenue growth

The Hydroponics Company ASX THC LEO Pharma assets
Asset acquired by The Hydroponics Company.

Burgeoning medical cannabis producer The Hydroponics Company (ASX: THC) is back trading on the ASX after coming out of its trading halt imposed last week.

The reason for the halt was a “material acquisition” of one of the largest pharmaceutical botanicals extraction and refinement plants in the southern hemisphere for $2.55 million from LEO Pharma, a major pharmaceutical company.

The acquisition has been dubbed a “game changer” by current Hydroponics Company CEO Steven Xu given the boost to the company’s operational capabilities, accompanied by rapidly changing Australian legislation led by health minister Greg Hunt.

“This is a game-changing investment undertaken by THC, providing it with large-scale, state-of-the-art biomanufacturing capabilities required to lead Australia’s medicinal cannabis industry. The addition of this acquisition is a major component of our roll-out strategy that will generate substantial growth for the company,” said Mr Xu.

LEO Pharma made its decision to sell its state-of-the-art growing facility at Southport due to “changing global production plans” according to a spokesperson, but the company added that it remains focused on supplying skin-care products from alternative production facilities.

THC acquired facility LEO Pharma
Facilities acquired by The Hydroponics Company.

The newly-acquired facility provides The Hydroponics Company with a fully functioning biomanufacturing plant with “extraction technology to fractionate and crystallise during the manufacturing process”, and a high-quality purification system that will enable it to become one of only a few companies in Australia able to produce a broad range of high quality, pure cannabinoids as active pharmaceutical ingredients (API).

In parallel to its primetime acquisition, The Hydroponics Company said it had recorded $1.07 million in revenues in Q1 2018 compared to $821,000 in Q4 2017 — a 30% increase in its quarterly revenue growth and passing $1 million for the first time, making it one of only a handful of ASX-listed cannabis companies that is currently generating substantial revenues.

Acquiring a stake in a medicinal cannabis future

The acquisition included the freehold land and buildings housing the operational assets and is expected to fast-forward The Hydroponics Company’s ambitions of becoming a paddock-to-plate vertically integrated supplier of medicinal cannabis products for the Australian domestic and export markets.

The emerging medical cannabis producer hopes to grow a range of high-margin strains including both tetrahydrocannabinol (THC) and cannabidiol (CBD), to produce a broad range of high-grade pure cannabinoids as active pharmaceutical ingredients (API).

Such extracts are currently considered high-margin in the rapidly evolving medical cannabis industry and commanding prices in excess of US$30,000 per kilogram according to research obtained from Research and Markets.

According to the World Health Organisation (WHO), active pharmaceutical ingredients were fetching around US$1,000/kg merely 8 years ago.

The rampant growth in both non-psychoactive medicinal cannabis products such as cosmetics and food supplements, as well as psychoactive ingredients used in more substantial medications that treat illnesses such as epilepsy has helped the entire cannabis and hemp markets rediscover their long-lost commercial potential.

Currently, researchers estimate that the global API market is growing at a CAGR of around 6.6% and will reach approximately US$238.8 billion by 2025.

Countries that have been first to legalise medicinal cannabis (the US and Canada) are expected to reap the most commercial benefits by handing their domestic companies with legalised first-mover advantages — moves which Australian legislators are gradually following with Australian companies such as The Hydroponics Company hope to capitalise on in the coming years.