Althea navigates shifts in cannabis market by restructuring its operations and aiming for positive EBITDA by FY25
Althea’s subsidiary, Peak, eyes growth in its recreational cannabis business
Peak is set to capitalise on the lucrative US cannabis beverage market
Special Report: Althea’s cost-saving measures have set the stage for positive EBITDA by FY25. The expansion of its recreational cannabis business, as well as its move into the booming US cannabis beverage market, could also ensure the company’s long-term sustainability.
The cannabis market is currently experiencing a significant upswing following the recent decision by the US Drug Enforcement Administration (DEA) to potentially reclassify marijuana into a less dangerous drug under US Federal Law.
The regulatory adjustments are expected to lead to improved conditions and tax reforms, and potentially lead to massive new avenues within the cannabis industry.
The dynamic shift sets the stage for a more conducive environment for companies like Althea Group (ASX: AGH).
Althea operates three distinct strategic business units: Peak Processing Solutions (Peak), Althea, and MyAccess Clinics.
Canadian-based Peak focuses on developing, manufacturing, and launching recreational cannabis products in partnership with consumer-packaged goods companies.
MyAccess Clinics is one of Europe’s leading medicinal cannabis clinics, specialising in the distribution of medicinal cannabis products; while Althea itself is also involved in the global sales and distribution of medicinal cannabis.
Combined, the companies operate in some of the world’s largest federally regulated cannabis markets, including Canada, Australia, the United Kingdom, and Germany.
Restructuring paves the way for positive EBITDA outlook
Amidst evolving market dynamics and regulatory shifts, Althea has recently undertaken a comprehensive restructuring program aimed at optimising its cost base and enhancing operational efficiency.
This strategic initiative, highlighted in the company’s recent guidance, underscores its commitment to achieving long term sustainability.
By streamlining operations, reducing overhead costs, and implementing strategic product pricing, Althea believes it can deliver positive EBITDA results by fiscal year 2025.
The restructuring program has already yielded tangible results, with significant improvements in operating cash flows and margin expansion.
The company reduced staff costs by $1.8 million and has identified $0.7 million in operational overhead cost savings. It now expects to save approximately $2.5 million annually starting from May 2024.
Additionally, Althea anticipates a decrease of around $1 million in manufacturing costs for its pharmaceutical division in FY25 due to supply chain optimisations.
On the back of these savings, Althea’s board has provided guidance for FY25, expecting revenue to range between $50 million and $60 million, with positive EBITDA projected to be between $4 million and $7 million.
Expansion of recreational cannabis business
Despite facing challenges in the recreational cannabis segment during FY24, Althea remains optimistic about growth trajectory in the years ahead.
Peak’s primary market, Canada, is nearing the end of a major consolidation phase. The Canadian recreational cannabis market, valued at CAD$6.4 billion in 2023, continues to grow strongly.
Despite the market’s large value, many licensed cannabis producers are reassessing their strategies, leading to a retreat and leaving brands with proven sales searching for new manufacturing partners. This shift presents a significant opportunity for Peak, a wholly-owned subsidiary of Althea. With diminished competition, Peak is well-positioned to partner with established brands seeking a dependable supplier in Canada.
The company sees this consolidation as a key driver for increasing market share and revenue growth in its recreational cannabis business unit in the second half of fiscal year 2024 and beyond, supported by a strong pipeline of upcoming product launches.
Huge opportunity for cannabis beverages in the USA
One of the most exciting growth opportunities for Peak lies in the launch of cannabis-infused beverages in the lucrative U.S. market.
The company plans to follow the successful model it’s used in Canada, using its proprietary Envision emulsion technology to produce cannabis-infused drinks for the US market.
In Canada, Peak has already grabbed a 40% share of the market, and now it plans to do the same in the US, where hemp-derived THC cannabis drinks are expected to become a $19 billion market by 2028.
To tackle this market, the company is looking to first expand into Florida in CY24. With a population of 22 million people and not a lot of competition, Florida could be an ideal place to launch Peak’ cannabis drinks.
Peak is planning to introduce five high-quality cannabis-infused drinks to the US market in July 2024 via its joint venture with NASDAQ-listed Flora Growth Corp., with six more drinks from other commercial partners coming later in the year.
Peak’s cannabis beverages will hit liquor store shelves, courtesy of established alcohol distributors. Simultaneously, the company will push for nationwide direct-to-consumer sales via online platforms.
Combining Peak’s manufacturing expertise, proprietary cannabis ingredients, and strategic commercial partnerships, the company believes it can secure a robust position in the U.S. cannabis beverage market, driving long-term revenue growth.
Medicinal cannabis segment also booming for Althea
Meanwhile, Althea’s pharmaceutical cannabis segment has reported robust sales growth and an expansion of its client base.
In the fiscal year spanning Q1 to Q3 of FY24, Althea reported $14 million in customer receipts, marking a notable 32% increase over the previous period.
With over 60,000 patients benefiting from Althea’s medicinal cannabis products, the company has now solidified its position as one of the leading suppliers of cannabis-based medicines globally.
Althea has also recently made history as the world’s first and only supplier of EU-GMP certified THC-based softgel capsules.
These innovative capsules offer patients a fixed-dose oral formulation, ensuring a gradual onset and extended duration of effect. The softgels come in various formulations, including CBD-dominant, balanced, and THC-dominant options.
Priced attractively and boasting strong margins, these capsules are poised to revolutionise the cannabis extracts market, potentially surpassing traditional bottled oils, says Althea.
And finally MyAccess Clinics, Althea’s wholly-owned subsidiary in Europe, has emerged as a pivotal player in connecting European patients with Althea’s products.
MyAccess Clinics has witnessed a significant uptick in patient consultations, having served over 10,000 individuals in the UK alone.
Furthermore, MyAccess Clinics achieved its most successful financial year to date, generating over $1.2 million in sales.
After launching its services in Ireland, MyAccess Clinics now plans to launch its services in Germany in the second half of 2024.
This article was developed in collaboration with Althea Group, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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