ASX cannabis stocks are speculative. Australia has no clear cannabis leader. Because of the bearish storm that brought most of the industry down in 2019. Today we analyse whether Creso Pharma’s decrease provides market entry for investors?
Creso Pharma (CPH) is an Australian cannabis company with operations in Israel, Australia, Colombia, Canada, and Switzerland. CPH undertakes R&D in Switzerland. CPH’s product portfolio covers:
- Canna QIX 50 (Sold in New Zealand, Brazil and Australia)
- Medicinal CBD Oil (Sold in New Zealand)
- CannaQIX 10 (Sold in Switzerland, England, Netherlands and Germany)
- Canna QIX 25 (Launching in Germany Q1 2020)
- Canna QIX NITE (Launching gin Q3 2020)
- Cann APEAL (Launching in Q3 2020)
- Canna APEAL NITE (Launching in Q4 2020)
- Animal Health
- Anibidol 2.5 (Sold in Switzerland and Liechtenstein)
- Anibidiol 8 (Sold in Switzerland and Liechtenstein)
- Anibidiol 80 (Launching Q4 2020)
- Anibidiol OIL 500g (Launching Q1 2020 in Switzerland)
- Anibidiol EQUI (Launching Q2 2020 in Switzerland)
- Cannaqix Oral Care CBD (Launching Q3 2020)
- Cannadol (Launching Q1 2020 in Germany)
Why the stock decreased by 90% over 2019
The recent trading halt, termination of acquisition deal and concerning financials triggered a fall in CPH’s share price.
Creso Pharma requested a trading halt throughout November to raise extra debt and equity from investors.
On the 11th November CPH rejected the deal that PharmCielo Ltd would acquire Creso Pharma for approximately 91 million. Despite the deal collapsing, CPH had to service $3.9 million loan debt to PharmCielo Ltd.
Overall, investors responded negatively to CPH’s trading halt. The 43.90% decrease in stock since the halt reflected the decrease in confidence.
Revenues for CPH as of June 2019 were 1.32 million, which is 214% higher than June 2018. Creso’s substantial revenue growth is due to its extensive cannabis products.
Moreover, CPH’s earnings improved from -19.13million to -15.30million (June 2018-2019). Indicating a movement towards profitability.
Despite the extensive product range and positive financials, investors must understand the fundamental negatives (risks) of CPH. Why? Because YIG believes in providing a balanced perspective so investors are not lured into speculative companies.
CPH is not profitable. Unprofitability results in CPH having a Return on Equity of -89.9% and Return on Assets of -58.5%.
Despite the 214% revenue growth, the revenue of 1.32 million is not meaningful. Thus, investors should not soley base their investment on CPH’s revenue.
Moreover, CPH’s cash flow is -9.21 million (June 2019). Which is a 14% increase in negative cash flow from June 2018.
Should Investors Buy for 2020?
The 90% plunge over 2019 is a disappointing result. Current investors are frustrated while other investors left to minimise their loss.
CPH holds an extensive product pipeline across therapeutics, nutraceuticals, animal health, and cosmetics. CPH aims to commercialise 9 new products throughout 2020. If successful, Creso would experience significant revenue growth with the possibility of profitability.
However, considering recent ASX announcements CPH stock is likely to level off decline for the upcoming months.However, Come Q2 2020 the company could become an attractive investment.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Associate of YIG, Patrick McLoughlin