Grundanalys DanCann

Initial coverage DanCann Pharma: Interesting case with many triggers

23 apr 2021

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Initial Coverage DanCann Pharma April 23, 2021


Equity research analysis DanCann Pharma

DanCann Pharma is an early-stage company with the intention to establish itself on the medical cannabis market in the Nordics and Europe. The underlying market is growing but the regulatory environment is ununified. Nevertheless, analysts see a bright future. An application has been filed for the needed licenses and approvals. A positive outcome is a trigger. We calculate a motivated value per share of DKK 6.5 for the upcoming 6-12 months. Risk is high.

Early-stage company with clear value trigger

DanCann Pharma A/S (DanCann or the company) is an early-stage company with a business model on different pillars. The first pillar is to import and distribute medical cannabis products in the Nordics and in Europe. In the context of this report, medical cannabis refers to cannabinoid-based products, prescription or OTC, used to treat or control medical conditions. The second pillar is to cultivate, process, and export cannabis bulk and APIs. Over time, R&D-activities will intensify to build a portfolio of IP-protected medical cannabis products with a focus on combination drugs. Thus, the business model covers the full value chain.

Investments have been taken in the first production facility. But to realize on its business model, DanCann needs to be licensed by the Danish authority, DMA. Also, facilities and processes need to meet a minimum of EU GMP-standards. An application to the DMA was filed in December 2020. A positive answer is a clear trigger that adds value to the company.

Growing market with ununified regulations an opportunity

Looking across the Atlantic, medical cannabis companies has in recent years started to accelerate its sales significantly. Eased regulatory environment, launch of new products, awareness as well as clinical evidence, and an in general favourable stance to medical cannabis has been key. Europe is lagging. Nevertheless, analysts expect an accelerated growth in Europe during the upcoming years motivated by similar drivers.

Getting through the regulatory framework and having the right licenses and approvals is a hurdle – for large, as well as smaller players. Can DanCann get through this in near future, it is a great opportunity to establish the company as a key player on core markets before competition heats up. However, DanCann is already well positioned in the starting pits – The company has two distribution agreement and an LOI signed for a third, giving them an interesting product portfolio for the Nordic as well as the German market.

Potential great upside to a large risk

The risks and uncertainties are many – this also implies that there are many potential value triggers along the way. To capture the different layers of uncertainty, we have risk adjusted assumed revenues, costs, and this profitability. By combining a multiple valuation with a DCF-model, we calculate a motivated value of DKK 6.5 for the upcoming 6-12 months.

Carlsquare do not take position in the discussion whether medical cannabis should be made legal or not. The research report is based on information from sources that Carlsquare find as trustworthy.


Disclaimer

Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, conducts business with regard to Corporate Finance and Equity Research in which areas it, among other things, publishes information about companies including analyzes. The information has been compiled from sources that Carlsquare considers to be reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be regarded as a recommendation or invitation to invest in any financial instrument, option or the like. Opinions and conclusions expressed in the analysis are intended only for the recipient.

The content may not be copied, reproduced or distributed to another person without the written approval of Carlsquare. Carlsquare shall not be held responsible for any direct or indirect damage caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments provide opportunities for value increases and profits. All such investments are also subject to risks. Risks vary between different types of financial instruments and combinations of these. Historical returns should not be considered as an indication of future returns.

The analysis is not directed to U.S. persons (as defined in Regulation S of the United States Securities Act and interpreted in the United States Investment Company Act 1940) nor may it be disseminated to such persons. The analysis is also not directed to such natural and legal persons where the distribution of the analysis to such persons would result in or entail a risk of a violation of Swedish or foreign law or constitution.

The analysis is a so-called Commissioned Research Report where the analysed Company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for a usual fixed remuneration.

Carlsquare may or may not have a financial interest in the subject of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.

The analysts Jonatan Andersson, Markus Augustsson and Ulf Boberg do not own and are not allowed to own shares in the company analysed.

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