Evans and Partners Valuation - $1.13

CANN GROUP LTD (CAN.ASX) | Speculative Buy | Valuation: $1.13Crop cashCann is planning to raise $24m to fund existing operations and working capital, while it continues to work on a finance package for the Mildura facility. As a stop gap until Mildura opens, the company is moving to open the route to market and generate revenue. It has secured a host of distribution agreements (with more on the way), manufacturing has commenced via contractor IDT Australia, and raw material is being sourced from existing facilities and imports. Sales of $15m+ are expected in FY21, with potential for more than $30m in FY22. This is not enough to turn a profit, particularly as most of the dried flower will be imported, but it allows Cann to stake a claim and develop a distribution network in readiness for large scale production.The medicinal cannabis market continues to evolve, here and abroad. Approvals for patient access in Australia are now running at more than 4,000 a month and demand is on track to pass 11,000kg in FY21. The international market is also developing, with Europe the most prospective export opportunity for Cann.Earnings and Valuation ImpactWe have revised our forecasts to incorporate the guidance and likely timeline on Mildura. This has led to cuts to Revenue for FY21E and FY22E of 54% and 62%, and a continuation of losses. Our DCF valuation is 20% lower to $1.13, due to the earnings revisions and the increased share count. We have assumed that the Mildura facility is completed by the end of CY2022.Our ThinkingMany players have a horse in the medicinal cannabis race, but few will last the distance. Success will require the combination of low-cost production, strong IP and a large distribution network. The market opportunity remains as large as ever, but there is still plenty to do and reaching large scale production is essential. The equity raise keeps Cann in the race, so we maintain our Speculative Buy.