Seems although the current ASX Cannabis market is broken....

Seems although the current ASX Cannabis market is broken.

There’s clear demand from the retail aspect to secure locally grown and processed Cannabis and value-added products. 3% of Australians have accessed medicinal cannabis in the past 12 months (min 800k people). Yet there is not yet a Cannabis company is Australia with a market cap over $1b. When you compare the medicinal cannabis market to other mature/d markets, it seems implausible that the key players aren’t rapidly increasing in valuations.

11% are Tobacco smokers in Aus ($14b in sales)
40% are alcohol consumers in Aus ($35b sales)
We see a trend
12% prescribed an opioid (rough est $15b sales).

For these ‘vices’ and prescriptions, we are looking at a very rough $1b in sales per 1% of the Aus population the market reaches. From experience, the access pathway for CBD products for a client on flower and oils for a relatively large dose (palliative) is ~ $500/week. This is the very top band of spending, without Government/PBS assistance, which I think is criminal. Either our government needs to step in and assist, or cost of products will have to reduce significantly. I can’t see the price being reduced much further on the manufacturers end given the slim profit margins for established and ‘failing’ cultivators. We cannot be far from government assistance, as backlash from consumers prescribed the medications then not being able to afford it, forcing the hand of medical practitioners to advocate. This is where change happens, and I can see in my work that this is happening.

So if we use the est. of a $3b market size in Australia, which is growing. Who will capitalise on it? Using historical business trends, we have the power curve, where only the top few companies in any given industry are able to succeed. This is made easier with the imminent collapse of competition and what we are told is substantial difficulty raising capital for this market. Which, if true, actually plays to ECS advantage, as it then prices out new local competition.

So, increasing demand, government support, decreasing competition… No, this isn’t a business school exam asking what factors contribute to a growing business, these are real factors potentially acting directly on ECS. It’s one thing to observe the company, which is doing its job of making a profit and producing a product for market. What happens next and the success of the company is influenced by markets.

Now there’s also the going concern of future pricing. This is where I find it interesting that we secured a number of multi-year contracts in the EU. What was the prospective pricing looking like from ECS, did they have the right people in charge of executing the contracts with a solid market outlook in mind. Did ECS undercut themselves and hence EU distributors saw a mispricing by ECS and took advantage of it securing long term supply deals. Whilst we are informed that current Cannabis prices are declining as competition increases, with new legislation, did we not happen to forecast future demand and a shift from oversupply to heavy under supply.

With what looks to be the majority of local production heading overseas, what does this spell for local prices? The cost to Aus consumers is still substantial, despite increasing local production. Clearly EU markets are willing to pay more for long term supply, indicative of a near term surge in pricing. Which had the flow on effect that Australia will continue to import costly products and onsell. Which means, Australian legislation and policy is hindering Australia’s ability to grow a legal Cannabjs market. It’s like so many of our industries that continue to be negligent to Australia’s needs. Local gas going offshore and we pay the price, local oil profits going to overseas parent companies, even maccas Australia profits end up offshore and they pay little to no tax.

What am I implying here? The Australian cannabis industry is another industry ripe for foreign ownership. If we can see it, I can assure you that a foreign investment firm, Pharmaceutical company or Cannabis producer is already many steps ahead. Australian produced product, exceptional potential for long term export supply to matured and emerging markets, leave Australia behind and have our reactionary government only enforce assistive measures once they have already missed the boat and therefore are using taxpayer funds to then assist Australians buy Australian Cannabis. It’s a story as old as markets have been around and export has become accessible to the free market.

So my summary, but ECS, despite my continual disappointment in this recent Cap raise, ECS is the share to own even if my holdings have been watered down. Look at the market, historical market trends, global market progressions and competition. Local market conditions seem irrelevant until Australian policy wakes up and realised that early adoption and assistance is a long term investment, cheaper now than in 5-10 years time. Bells has clearly picked up in it, offices in London, NY and HK, they’re going to pedal this same story to their clients. Let’s just hope the $4.6m (w/ options) in Consulting fees is returned with interest, because to me, that’s all this is, a dilutive factor for marketing and consulting from Bells.

Again appreciate y’all reading my thoughts and views. Hopefully most of my fellow holders share similar views, opinions or educate themselves with my views to broaden their perspective. Please let me know your thoughts and views on this, I do genuinely appreciate different views and opinions as it refines my own.