Evogene's Canonic Positioned To Enter Israeli Medical Cannabis Market
Summary
- Canonic, a subsidiary of Evogene, has a strategy to enter the Israeli medical cannabis market.
- Canonic, using Evogene’s CPB platform, is developing innovative cannabis strains to meet industry needs.
- Evogene operates at a Net Loss but has assets, cash, and no debt.
- Evogene’s stock has been on a one-year uptrend at 384% with break-out rallies.
- I recommend a long-hold strategy with a potential for 25% to 40% profit.
Evogene (NASDAQ:EVGN) is the parent company to four subsidiaries, Biomica, agPlenus, Canonic, and Lavie Bio. Each company uses Evogene’s Artificial Intelligence engine, the CPB platform (computational predictive biology), to map plant and microbial genomes and to identify important gene markers and phenotypes. Each company has its own research agenda and product pipeline. The companies perform research and product development. Canonic is positioned to enter the Israeli medical cannabis market and will introduce its own brand and product line. A breakdown of Evogene and its subsidiaries can be found in its Q4 transcript and Q4 corporate presentation.
The company has changed their business strategy to include the development of end-products for market. They will begin to receive revenues from these products in 2022. The decision to invest with Evogene rests upon the impressiveness of their research and current strategy for producing end-products. They seem well-positioned to fulfill their current business strategy. The company’s financials confirm that the company can accomplish these goals. Their stock price has been on an uptrend and may be setting up for a new break-out. There are good reasons to consider their business functions and stock price movements more closely.
Lavie Bio and agPlenus research and develop agricultural support products, including pesticides, herbicides, and seed treatments. They currently receive revenue through research grants and licensing agreements. They undergo research for specific industry needs, then receive milestone payments as a company implements their product. Both companies have their own end-products in mind. According to a recent presentation from the company, Lavio Bio should release its bio-stimulant agricultural product sometime in 2022.
Biomic is a pre-clinical and clinical stage drug research company. They are researching the treatment of cancer, irritable bowel syndrome, and other “microbiome-related human disorders.” According to Evogene’s recent corporate presentation, Biomic’s first candidate for the treatment of inflammatory bowel disease should be under production by 2022. The company has several studies in different stages. Biomic’s research has recently been covered on Seeking Alpha.
Canonic is innovating medical cannabis products for better efficacy and to meet certain needs of the industry. They are cataloging and breeding cannabis genetics, while looking for strains which offer a high THC content and a higher yield. They aim to find strains which have a particular cannabinoid profile to meet specific human ailments. They have been sorting through a hundred different cannabis strains. They are building a database of phenotypes and will find their winning strains through breeding.
Canonic plans to have medical cannabis products selling in the Israeli market by 2022. They have certain business partnerships which will play key roles fulfilling this business strategy.
In February 2022, Canonic began a collaboration with Cannbit, a subsidiary of Tikun Olam-Cannbit. The collaboration intends to share knowledge and technology concerning novel medical cannabis strains and to develop better strains together, with royalty agreements involved. Both companies hold a large genetic catalog of cannabis strains.
In March 2022, this collaboration evolved into a production and distribution agreement for Canonic’s medical cannabis brands on the Israeli medical cannabis market. Canonic is trying their hand at high end premium medical cannabis products. According to Evogene’s Q4 transcript, the Israeli medical cannabis market is worth $260M and will grow $830M per year. Canonic will provide the genetics and then outsource via Cannbit the growing, processing, packaging, and distribution of the final products.
Evogene has been a publicly traded company for a long time. With their 2020 annual report and Q4 financials, the company is firmly indicating a change in business strategy. Since their inception, they have partnered with other companies who needed research and innovation on specific agricultural products. Evogene made its money undergoing research and receiving milestone payments as the company used Evogene’s products. In their newest business strategy, Evogene will roll out their own end products within each of their four subsidiaries. This change of strategy points to the emergence of new and constant revenue streams for the company.
Evogene operates at a Net Loss but has assets, cash, and no debt
In Millions of USD * | Dec 2020 | Sep 2020 | Jun 2020 | Mar 2020 | |
Revenues | 0.4 | 0.3 | 0.3 | 0.1 | |
Cost Of Revenues | 0.3 | 0.1 | 0.1 | 0 | |
Gross Profit | 0 | 0.2 | 0.2 | 0 | |
Selling General & Admin Expenses | 2.4 | 1.8 | 1.5 | 2.3 | |
R&D Expenses | 4.8 | 4 | 3.9 | 4.6 | |
Total Operating Expenses | 7.2 | 5.8 | 5.4 | 6.9 | |
Operating Income | (7.2) | (5.6) | (5.2) | (6.9) | |
Net Income | (8.1) | (4.8) | (4.2) | (6.2) | |
Total Cash & ST Investments | 48.2 | 43.5 | 38.1 | 40.6 | |
Total Receivables | 3.6 | 1.9 | 1.8 | 2.3 | |
Total Current Assets | 51.8 | 45.4 | 39.8 | 42.9 | |
Total Assets | 71.9 | 66 | 61.1 | 64.6 | |
Accounts Payable | 0.9 | 0.7 | 0.7 | 0.6 | |
Total Liabilities | 15 | 9.9 | 10.1 | 9.7 | |
Current | |||||
Stock Price | 4.79 | 3.96 | 1.00 | 1.18 | 1.52 |
Market Cap | 650.26 | 471.73 | 85.50 | 106.06 | 135.36 |
EV | 537.90 | 387.86 | (9.81) | (10.80) | 0.23 |
*Financial data from SeekingAlpha.
**Stock Price, Market Cap, and EV from TIKR.com.
According to the company’s Q4 transcript, they are currently debt free. In January and February 2021, the company made $28M in proceeds from Direct Offerings. Assets have increased throughout the year as well as cash and investments. Liabilities are higher which is expected with the costs of their new business strategy, i.e. bringing products to market. Although working at a Net Loss, the company’s assets outweigh their liabilities. Enterprise value and market cap are increasing as the company’s research is becoming more known to investors and their stock is experiencing uptrend.
The company recently released its Annual Report and gives details about its current revenue sources. For the year 2020, the company received $1.04M in revenues which breaks down accordingly: Agricultural .847M, Industry .35M, Human .75M, Unallocated .85M. The main source of revenue is through research funds and milestone payments from companies who use their products. The company operates and receives revenues from different geographical regions as follows for 2020: America 65%, Germany 0%, Israel 22%, Brazil 11%, other 2%.
Revenue estimates do not show growth over the next year. In 2022, the company should see revenue from their Israeli medical cannabis sales. Revenue should then begin to increase in their Human and Israel categories. At the same time, Lavio Bio should have its bio-stimulant product to market, which will increase revenue in their Agricultural category and come from their American and Brazil operations. It is unclear what amount these revenues will be. Their medical cannabis products promise a high potential for revenue. Their agricultural support products fulfill a demand in industry and also promise high yield.
The company may be considered for its value and possible growth. The value side concerns their advanced research agenda and the growth side looks toward their potential for future revenue from new products. Until we see revenue uptick in 2022, it should be understood that the company will continue to receive proceeds for research and for milestone payments. For now, an investment in the company must be based on the potential of their research and current positioning for their different markets.
The company’s stock price has been on a one-year uptrend with a 384% increase
1-year price performance chart from stockcharts.com
Starting in September 2020, the stock price rallied to $5 and volume increased. Since then, the price has continued its uptrend, reaching a high over $9. Currently the stock trades around $5. The double bottom formation in March may indicate a new break-out.
6-month price performance chart from stockcharts.com
Within the last six months, the stock price has been up 20.50%. Large institutions hold 27% of the stock (source: stockcharts.com). ARK Investment Funds holds the largest share of the large institutions (12.5% according to TIKR.com). If the stock price undergoes a new break-out, its next price stabilization may be $6 or $7 per share.
The double bottom pattern is consistent with larger market volatility like the tech sell-off, the US treasury bond fire-sale, the fear of inflation. The market is still undergoing this volatility, but the stock price should continue its uptrend.
Take a long-hold position with Evogene and profit 25-40% on its next price stabilization
The double bottom pattern can indicate that the stock moves in either direction and not necessarily a new break-out pattern. The stock is trading between $4.80 and $5.50 over the last week. The next obvious price channel will be $6 to $7. A long-hold strategy would bring between 25% and 40% profit. The steam behind the stock is based on investor sentiment and news released by Evogene. The long-hold strategy should be watched with stop-loss, but the long-term trend of the stock points upwards.
Risk: Moderate to Low
Evogene has recently released it 2020 Annual Report, which describes about thirty pages worth of risk for the company. Their business is conducted in different geographical regions which face different risks of instability. The medical cannabis market in Israel is still emerging and operations in the country can be disrupted due to warfare. As an emerging market, it is unclear what share of the medical cannabis market Canonic will receive. Any disruption in their current business strategy would cause setbacks.
Evogene’s other three subsidiaries rely on the outcome of their research and certain market trends which make their products in demand. Any change in agricultural trends could affect their business. Any unforeseen outcomes of their human drug research can cause setbacks. There is also the high cost of funding clinical research.
The overall stock market conditions may continue in volatility and cause price destabilization, despite positive results from the company. These risks and the myriad of others supplied by the company should be considered for a long-term strategy. Evogene’s financial statements have been consistent over the years and there is no risk of liquidation of insolvency.
Conclusion
Evogene works through four independent subsidiaries, each with their own specialties and markets. The company plans for each of its companies to introduce end-products to their markets. This new business strategy will create large revenue streams for each company. Canonic has plans to bring products to the Israeli medical cannabis market. They have partnered with Cannbit who will grow, process, package, and distributes Canonic’s proprietary cannabis strains. The two companies are also comparing research and genetic catalogues, in order to find the best strains for market need. Evogene has the assets and cash, along with low liabilities, to continue their operations and research efforts. I recommend a long-hold strategy to take advantage of their stock price’s one-year uptrend. If the price stabilizes in the $6 to $7 range, then the strategy will bring between 25% and 40% profit. The risk is moderate to low, although the investment must be watched.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EVGN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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