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Why I hold MXC., page-3

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Bilson

614 Posts.

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04/10/18

22:20

Post #: 36003633
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Originally posted by Reillyblue ↑

At the risk of "ramping", I had some time on my flight to reflect on why I hold MXC. These are the reasons:
Raw Material Production
A business has to have something to sell. At one level MGC can be considered as an agricultural company. It has its farm and it grows its crops. Hence the division MGC Botanical. They grow their own crops and as a diversification and revenue stream this is the least risky and also the least rewarding in terms of price.
However, they are able to create a niche from other market players because of GMP certification but also because of the location in Europe. This is important because it doesn’t only allow access to European Markets but it also makes the company a very attractive play to those who are geographically isolated from Europe. If you doubt this then look at Aurora’s play into Malta.
There are two ways in which this can benefit the company, selling into European markets or alternatively as a partner for other companies wishing to gain exposure to Europe (or a third play may be as a take-over play).
The raw material production is already in production and hence mitigates some of the risk involved with this company.
The Czech facility has produced one crop in 2017. It is 1100 sq. m and they are looking to expand it to 2000 sq. m. The 2^nd crop is due later this year. This creates inventory that ensures they are able to sell product. I would suggest that there has been a build up of inventory ready for any potential sale of MGC Derma.
The Malta facility will increase the production capacity dramatically. Not only will there be a 4000 sq. m facility but they capacity to grow three crops a year will mean much more raw material to sell.
Quality Material
It is one thing to farm raw material it is another to have a point of differentiation on quality. There are some huge hemp farms out there but the European facility is one of only six in the world. With GMP certification it shows that it is of the highest quality. That effort attracts high end partners such as Harvey Nichols and now Lorne Gertner.
The Slovenia operation is producing genetically enhanced strains that enable to improve the quality moving forward.
Value add to raw material
If you want to add value in a manufacturing process then you need to add value to raw material. By taking that product and making goods/medicines you increase the profit margin on the initial products.
It is clear that MGC have been able to do that with cosmetics, nutraceuticals and medicines. However, the next point addresses their issue.
Before I look at that the other way to value add to raw materials is to have cutting edge research and development. This is a company that has built partnerships with Slovenia University, RMIT and the University of WA. From that research will the company develop products that will add huge value to the initial crops.
There has been much made of clinical trials with MGC and them being behind other companies.
Phase 2 non-pivotal crossover study using Cannepil
Cognicann is about to enter into a Phase 2 trial
Further to this they have 3 unregistered medicines that they are looking at bringing onto the market not including the insomnia treatment.
Also remember that MGC have on their scientific board:
Professor Uri Kramer who has conducted full scale epilepsy trial with cannabis
Professor David Neubauer who has vast experience in childhood epilepsy
Dr Jonathon Grunfield who has spent 20 years researching oncology and since 2010 focussing on cannabis as a treatment
Professor Wendyl Souza who is one of the few medical practitioners who is able to prescribe cannabis
In terms of trials there is all of this background research that MGC are able to bring base their trials on.
As well they are working with RMIT and this clarifies for me where the Australian license is at. The last mention discussed the building of a facility on RMIT grounds. I would suggest this has been the hold up for awarding a license. One of the key factors is that the application has secure facilities.
The path to market
It is one thing for a company to have products but it is another for them to be able to sell them. There is a need for a path to market which can be an expensive process. It is a fairly straight forward process to provide refined CBD to a company for them to develop. MGC was able to do this with Masbut life deal which is bringing in approximately 1 million a year.
However, while MGC have been building their products and inventory they have struggled in breaking into markets.
It is a bit of a case of what comes first the chicken or the egg? The company has been building products but struggled to sell them (derma) while at the same time they have built networks but have yet to have the products to sell (pharma). The latter has been mainly due to not having a GMP certification which has been overcome.
The company has been building distribution networks:
Australia – HL Pharma
NZ – MW pharma (250 pharmacies in the network)
Central and Eastern Europe – Lenis
UK, Malta, Africa and Middle East – MW Mangion
Ready for when the product is available which in the case of Cannepil should be early 2019. Most of these deals puts the onus on these companies to get necessary licensing for the product.
Interestingly there are different paths to market for an unregistered medicine. Such as in Australia you can use the Authorised Prescriber pathway which is why Professor Wendyl Souza is such an important addition. With 3000 patients the drug Cannepil, once certified, could be prescribed quickly after.
The company has been building the networks needed to sell their goods.

Cost of Goods
Producing goods to sell it relatively simple if you don’t worry about the cost of goods to sales. Fortunately, the sales revenue of MGC show that they have this under control. CBD sales were around 250000 while the cost of goods was approx. $80000. The problem exists that they don’t sell enough to cover the costs of running the company.
They don’t sell enough because they haven’t been able to engage their distribution networks because they have been waiting on GMP certification. This has arrived and with authentication of Cannepil there should be a flurry of activity.
Keeping Business Costs down
This is where the company let’s itself down. The base payment of salaries is way too much. I would suggest it should be in the vicinity of $1 million not closer to the $1.6 it is. Although there is misinformation that they awarded themselves performance bonus this year. They didn’t. I would much prefer the renumeration to be more closely aligned with share price performance.
A couple of other factors to consider are:
Debt – this can kill companies and MGC has none
Cash – it has 9.8 million cash at hand but 5-6 million is set aside for Malta. I agree with the other posters comments that a CR will be necessary come March or April next year.
Cannaglobal
This posters comments on this reminds me of the old adage “nothing is ever as good as it seems and nothing is ever as bad as it seems.”
The sale seems pretty straight forward to me. MGC are taking the risk of selling the derma business based on the reputation of Lorne Getner’s ability to deliver. This is an investment in Cannaglobal by MGC as much as it is a purchase by Lorne.
The key to the deal is whether Cannaglobal is going to list. It would seem that they will and that the risk they won’t is fairly minimal. That is when we will know what 12 million in equity actually equates to. How much will the market value the entity? A big risk by MGC. However, the reward could be significant no one can debate that his history is impressive and to get Hugh Winter on board is another tick.
The idea that MGC has loaned Cannaglobal money to give us 1 million back sort of falls down when you consider MGC can either take any of the loan and cash it in for equity or cash. We get the million and then get paid back so the idea become a bit like double dipping and doesn’t hold water.
The other factor is how much they are able to move product and the flow back to MGC. This could be significant.
Relationships
The cannaglobal deal is probably more important in that the relationships and connections MGC make. Lorne is obvious in what he brings to the deal. Hugh could potentially bring Aurora into the MGC derma product deal.
This strategic partnership was first muted back in March. The company said it was looking at strategic partnerships or JV in both North America and Australia. I would suggest that this might not be the only deal we hear about.
Potential
The aforementioned shows clearly the potential MGC has. There are other areas that could result in revenue and a rerating.
The work with RMIT focussed on Melanoma and Prostate cancers, the library of cannaboids software and the three unregistered medicines all could be game changes.
If MGC Derma is successful then the process could be mimicked with MGC Nutraceuticals.
Overall
There are a lot of “Ifs and buts” and as my grandma used to say “If ifs and buts were chocolate and nuts life would be a picnic!” MGC is in the spec end of the market and I think people have lost sight of the complete picture getting caught up in the risk side of this company. If you don’t want the risk you won’t get the reward.
Look back over the time since Roby took over and show me where he has put a foot wrong. This deal is significant for him as if it proceeds trust will come back from the market.
IF it comes to fruition he will have negotiated a deal with the “godfather of cannabis” to buy an entity with $80000 worth of sales for 9-12 million and the potential to go up on listing. The deal was a bit cloudy to begin with. Everyone was asking who is Cannaglobal. Now we know two of the main players and you can’t get better CV than theirs. Now the question it is what do Cannaglobal own and will they list.
I’d suggest that Roby doing the due diligence will be a lot more thorough. Even the harshest critics on these forums and facebook have acknowledged Roby is a nice guy who is a details man.
The words Materially advanced suggests to me that they are ready just waiting on this deal to be approved.
GLTA IMO

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They don't have anything to do with the university of WA..?

MXC Price at posting: 5.1¢ Sentiment: None Disclosure: Not Held
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