Althea Group is a manufacturer, distributor, and now also a direct-to-consumer seller of cannabis-based products. Their flagship product is a cannabis-based drink ( a seltzer, bro) that will soon be sold online and in stores across the US.

Here’s the ASX chart of the company’s historical performance:

While the losses might seem scary at first glance, the numbers are not as they appear. A significant portion comes from non-cash write-offs. Specifically, a “non-cash impairment of $17.74 million was recorded for Peak Canada.” This adjustment was made to align AGH’s financials with more realistic post-acquisition performance expectations. 

Although this impacted FY24 results, it clears the path for improved profitability in FY25 by ensuring the company’s financials more accurately reflect current asset values.

To verify my claims here, we’ve got the company’s 4Cs. This year they’ve burned through $2.7M. They recently completed a capital raise, bringing their current cash balance to around $2.8M. This means there’s a strong possibility they will need to raise additional funds, which I consider the biggest risk to the share price. Despite this, I’m willing to accept that risk given the potential for a large inflection point in the company's US entry.

In summary, my investment thesis is based on these key points:

- Strong growth trajectory: The company has been growing at a compound annual growth rate (CAGR) above 30%. This growth is set to continue with their entry into the US market via the cannabis seltzers.

- Path to profitability: While Althea is fundamentally a manufacturer and will require ongoing capital to sustain production, there’s the beginning of some evidence that the company is approaching profitability. We should see this materialise within the current fiscal year.

- Undervalued: The company provided guidance for FY25 with expected revenues in the range of $50 million to $60 million and positive EBITDA between $4 million and $7 million. With current EV around $20M (MC is $15M on share price of 0.037 and they have ~$5M in debt), if this guidance is met, the company is undervalued for a fast-growing entity. 

- Undiscovered potential: Althea appears to me to be largely under the radar in the investment community (last Strawman post was 4 years ago by @mmff ), which could provide additional upside if it becomes discovered.

For now, I hold a very small position. If execution happens, I will slowly add.

- Category Problems : Investing in weed isn’t too different to actually doing weed. What starts off as fun can easily turn pear shaped. My experience with Vitura scarred me for good here. 

- Thin cash cushion: As mentioned, the company’s cash position remains thin, and further capital raises may be necessary, which could impact the share price.

- Industry competition: The cannabis industry is dynamic to say the least. While I don't think competitors are as advanced as Althea in the cannabis beverage market, it’s possible that new entrants emerge, reducing the market share and future profits.

Investment Highlights:

~ Althea has completed its first shipment of medicinal cannabis products to Germany

~ Initial shipment of 2,000 units valued at approximately $1,000,000 (EUR640,000)

~Althea has partnered with one of the country’s leading pharmaceutical wholesalers of cannabis-based medicines, Nimbus Health GmbH, to launch the brand exclusively in Germany

~ Under Althea and Nimbus’ agreement, Althea will receive payment for products supplied to Nimbus, along with 50% of net profit

~The German medicinal cannabis market is the largest medicinal cannabis market in Europe and health insurers typically cover the entire cost of medicinal cannabis treatments

December sales exceed $1.19M with 90% monthly growth in UK

Investment Highlights:

• Althea achieved record sales of $1,190,473 in December 2020, an increase of 40% from November 2020, and the first time monthly sales have exceeded $1 million

• Australian sales were a record $902,466 for December 2020, an increase of 22% month-on month

• UK sales were a record $209,706 in December 2020, an increase of 90% from November 2020, and further evidence of Althea’s first-mover advantage in the territory

07-May-2020:  Phillip Capital: Althea Group (AGH): Ground floor opportunity in Germany; Canada launch imminent

PC have upgraded AGH from "Hold"  to "Accumulate" and they have upgraded their TP from 29 cps to now 57 cps.  High Risk Rating.  PC state that 57 cents is both their 12-month and 24-month target price for AGH, which seems a bit odd.  Hope they haven't been trying the product...  AGH closed at 42 cents today (13-May-2020).