After reading through the announcement I see it as a step in the right direction. Not only is this a commercial supply agreement to provide medicinal cannabis products to a network of pharmacies (15 a initially expanding to 50 within 9 months and 250 within 2 years) but also a research and very important clinical/commercial data collection agreement. Yes, I am aware that there is no minimum order volume under the agreement but for anyone that has visited the country and has spent some time there, you will find that the rate or progress and adoption of what is "new" exceeds most western countries.
Unlike in Australia, CBD was legally available in Poland without prescription in most pharmacies and online even before the medical cannabis bill was passed in July 2017 and went into effect in November 2017. The Medicinal Cannabis bill in Poland authorises 90% of Poland’s ~15,000 pharmacies to stock and sell cannabis medications but it restricts patients and operators from cultivating their own plants - hence all supply must come through a pharmacy.
"The use of non-psychoactive cannabinoid oils, such as cannabidiol (CBD) oil derived from hemp was previously legal in Poland for consumption; but the medicinal cannabis legalization bill more specifically legalized the use of cannabis with more than trace amounts of the psychoactive compound tetrahydrocannabinol (THC) for medicinal purposes. The bill passed through Poland’s lower house of parliament with an astounding majority of 440 votes in favor to two against and one abstention."
"The legalization of medicinal cannabis in Poland was seen by many big players in the cannabis industry as a prime opportunity to establish a foothold in the European cannabis market, especially given the lack of domestic cannabis production operations in Poland and the continued ban on home cultivation.
In October 2018 the Canadian medicinal marijuana producer Aurora Cannabis Inc. became the first cannabis company to be given approval by the Polish Ministry of Health for the importing of medicinal cannabis into the country. At the time of the announcement, Aurora Cannabis Inc. had plans to supply a pain treatment center and a hospital in the Polish capital of Warsaw.
In addition to Aurora Cannabis Inc. another Canadian cannabis company, Canopy Growth Corporation, has also seized this opportunity for expansion in the European marketplace. Canopy Growth’s Toruń-based team, Spectrum Cannabis Polska, has also started importing medical cannabis flower to Poland after receiving regulatory approval."
Now that medical cannabis is legal, and that various supply arrangements have been made, doctors in Poland are free to prescribe medicinal cannabis to patients wherever it is deemed suitable.“The law in Poland does not contain a closed list of medical conditions in which cannabis can be prescribed,” explains Samia al-Hameri, a pharmacist from Spectrum Cannabis, talking to Emerging Europe. “We expect that about 60 percent of products will go to patients with chronic pain, for example associated with cancer or migraines, and the rest to people with multiple sclerosis and epilepsy, amongst others.”
Based on my personal experience in the country I see the MGC's Mercury Pharma Line as the most likely candidate for large scale sales to the majority patients requiring medicinal cannabis however, considering the rate of economic growth and growth in personal wealth there will be a strong future for CannEpil®, CogniCann® especially since Poland has always had a strong demand for and presence of natural/ herbal medicines - Herbapol being Poland's largest producer of such supplements, products and medicines. Another general point worth mentioning, Polpharma SA is the largest Polish manufacturer of pharmaceuticals and a leader in the Polish pharmaceutical market. They actively operate in the markets of Central and Eastern Europe, the Caucasus and Central Asia. Taking this into consideration I would think that once MGC Pharma has its foothold in Poland, it wouldn't be unreasonable to foresee that it's supply reach would very likely extend beyond Poland into Central and Eastern Europe, the Caucasus and Central Asia (as with Polpharma) but also into greater Europe since Poland in an EU member state.
To put the Polish economy into perspective (https://www.euronews.com/2019/06/25/how-poland-s-golden-age-of-economic-growth-is-going-unreported-view) here are some key highlights: "During the current global economic slow-down, Poland stands out as a European growth champion. With an uninterrupted pace of high growth averaging 4.2% per annum between 1992-2019, Poland is steadily catching up with Western Europe and has become the seventh largest economy in the EU with a total GDP of €524 billion. Considering its population of 38 million, scarred by a turbulent history and post-EU entry emigration bleed, we think that Poland’s remarkable growth engine is not receiving the attention it deserves.
The strength and resilience of the Polish economy can be attributed to its large domestic market, early and deep economic reforms and prudent policies, with consistent EU strategy being the top priority, serving as an important discipline for political and economic integration. A vibrant entrepreneurial landscape of small and medium-sized enterprises (SMEs) benefiting from a large domestic market and strong competitive advantages in neighbouring European countries is also an important source of growth.
One of the most important features of the Polish economy is its large domestic consumer market, comprising 61% of GDP, exceeding the EU average and, in this respect, being more reminiscent of the US. In fact, household consumption, driven by a strong labour market and wage growth of more than 5%, is expected to continue to be one of the main drivers of the Polish economy in the mid-term.
Currently, Polish equity valuations are at the lowest level in seven years, around ten times price earnings. Together with a solid Earnings Per Share (EPS) growth of 8.7% forecasted between 2018 and 2021, and a potential for improving dividend yield from the current 2.5% to above 4%, the Polish market offers an attractive proposition to investors. While we might be close to the peak of the macro cycle, sharp deceleration of the economy is unlikely due to the strong domestic growth drivers in place. The timing might be right for investors to finally capitalise on what the World Bank, in atypically ornate rhetoric, has termed the Polish “golden age” of growth."
Overall, despite no hard numbers on revenue and profits, I see this as a very promising deal with many potential benefits in the short, medium and long term.
MXC Price at posting:
2.6¢ Sentiment: Buy Disclosure: Held
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