STENOCARE announced on September 18^th a market update highlighting progress in several areas, including increased market share in Denmark, an anticipated start of sales in Germany during October and an update of STENOCARE’s premium products.

The market update included 6 focus areas, summarized below together with Analyst Groups view.

1. STENOCARE is winning market shares in Denmark. As Analyst Group noted in the comment on STENOCARE’s Q2-report, the number of patients using medical cannabis in Denmark has increased since STENOCARE introduced the company’s THC-oil in Q1-22 and CBD-oil in Q1-23, while the number of patients being treated with other products than oil products is declining, proving that the full spectrum oil products are winning market share. This is expected to be attributable to the fact that oil products are a well-known dosage method in the health care industry, why doctors are more likely to prescribe oil products rather than products with other dosage methods, according to Analyst Group. The trend is expected to continue in the coming quarters and accelerate after STENOCARE obtains approval for its balanced oil as this product historically has been prescribed with the highest volume.
2. STENOCARE oil products ready for the German market. As previously announced, STENOCARE has obtained approval for sales of one product in Germany – the largest market in Europe with expected sales of EUR 1bn by 2027, corresponding to over 300,000 patients being treated. STENOCARE has now finalized the supply chain logistical setup as well as secured that the product is covered by German health insurances and the product is expected to be available to patients in October. The German market is anticipated to have high competition, but STENOCARE is expected to have a competitive advantage through the company’s product being reimbursed by insurance companies, why Analyst Group sees the German market as an important sales driver going forward.
3. STENOCARE is getting ready to launch the UK Online Clinic for patients. As mentioned in previous updates, STENOCARE has developed an online IT-platform that can power Online Clinics for patients. This is expected to increase a doctor’s reach to patients and facilitate patients’ access to trained and experienced doctors. The platform will support doctors through easier administration, for instance patient booking, video consultation and patient journal, training, supervision by, and ongoing access to the STENOCARE medical consultant and specialists as well as cost efficiency. Analyst Group believes that STENOCARE’s online platform can enable doctors to increase their geographical reach and thus increase patients access to medical cannabis, which can drive the growth of the medical cannabis market as well as STENOCARE’s sales growth. The first clinic is expected to go live in the UK during Q4-23.
4. STENOCARE is making progress in other markets. STENOCARE is the sole supplier of full spectrum medical cannabis oil products in Norway and Sweden, which entails a first mover advantage anticipated to establish a robust brand reputation and foster customer loyalty, resulting in elevated sales, all preceding the entry of additional competitors into these markets. Moreover, STENOCARE have products for sale in Australia and are expected to have entered 8-10 markets by 2025, compared to six markets today, which is seen as an important value driver going forward.
5. STENOCARE investment in product innovation. As previously communicated, STENOCARE is expected to launch the company’s own premium products with a patented oil technology, enabling an enhanced uptake of the drug in the blood, regardless of food intake as well as a faster effect. STENOCARE is expected to have a product prototype for the new product, named “ASTRUM-OIL”, by the end of 2023, and have the premium product ready for sales during H1-24, in line with previous communications. The new product is expected to have unique characteristics compared to other alternatives, creating a competitive advantage for STENOCARE.
6. STENOCARE is getting ready to expand its supply chain. As a step towards meeting the anticipated increasing demand from launching new products and entering new markets and ensuring a robust supply chain, STENOCARE is expected to seek approval from the medicine agency to export products from the company’s own cultivation facility in Randers. This is seen as an important step to expand the roll out of the premium products as well as making STENOCARE controlling the whole value chain, from plant to patient.

To summarize, we see positively on the fact that STENOCARE are delivering on previously communicated milestones, including entering the German market and launching the company’s premium products. We see that the mentioned growth drivers, in combination with the balanced oil obtaining approval in the next 4-6 months, is estimated to generate rapid sales growth, primarily from 2024 and onwards.

How Analyst Group sees STENOCARE as an investment

In Q2-23, STENOCARE delivered a sales growth of 279% Y-Y, amounting to DKK 1.7m with a stable cost development. However, sales growth was below our expectations due to a delay from agencies regarding approval of new products as well as slower sales than expected in international markets. The delay is expected to affect sales growth for the rest of 2023 as STENOCARE’s balanced oil is expected to obtain approval at the end of 2023. This, in combination with other sales drivers such as entering the German market in H2-23 and a potential launch of the Company’s premium products, is expected to accelerate sales growth from 2024. With estimated net sales of DKK 59.2m by 2025, and with an applied P/S multiple of 5x, a potential present value per share of DKK 10.2 (13.9) is derived in a Base scenario.

STENOCARE published on August 17 its Q2-report for 2023. The following are some key points that we have chosen to highlight in connection with the report:

• Financial Development During the Period
• New Data Implies an Increase in Prescriptions on the Danish Market
• The NHS Research Ethics Committee in the UK has Approved a Clinical Trial on Medical Cannabis and Chronic Pain

Financial Development During the Period

Net sales in Q2-23 amounted to DKK 1.7m (0.5), which corresponds to a sales growth of 279%, albeit lower than expected. The revenue during the quarter is attributable to products on the Danish market where STENOCARE has two products approved for sales, a THC and a CBD oil, and are waiting for approval for a third product, a balanced oil combining CBD and THC. This product has been delayed due to a longer than expected approval process from the Danish Medicinal Agency, caused by pressure on its resources. The approval of the balanced oil is expected to be an important sales driver, as this product has represented +50% of sales volume historically. This, in combination with a delay of a new Swedish product for the same reason, lowered the expected sales for 2023 to DKK 7.5-10m, corresponding to a growth of 167% – 222% Y-Y, from previous DKK 15-20m. However, STENOCARE are still expected to reach an annual sales run rate of DKK 15-20m at the end of 2023, which would put the company in a good position for continued sales growth in 2024. The lower-than-expected sales during the quarter and the delay of approval for important products are likely to result in an update of our revenue forecasts.

Regarding costs, both external expenses and personnel expenses are developing in a stable manner. External expenses excluding COGS are estimated to have amounted to approximately DKK 2m during Q2-23, compared to approximately DKK 2.5m in the same period last year, which proves that STENOCARE are still running a slim organization towards anticipated break-even, which is now expected during 2024. The personnel expenses amounted to DKK 1.6m (1.6) during Q2-23, which also proves a stable cost development.

The cash flow from operations amounted to DKK -4.3m (-3.6), where the decrease is attributable to a less favourable development in working capital. During Q2-23, STENOCARE raised capital through a Unit Rights Issue, where the initial rights issue was subscribed to approximately 127%, raising DKK 10.7m before deduction of transaction related costs. The capital raise has strengthened the company’s financial position and as a result, the cash position amounted to DKK 7m at the end of Q2-23. Moreover, STENOCARE exercised a parallel directed issue where DKK 5m of loans were converted into equity of the same terms as the Unit Rights Issue, which further strengthened the company’s balance sheet. Based on a burn rate of DKK -1.1m per month and the cash position of DKK 7m at the end of Q2-23, STENOCARE are estimated to be funded until the end of the year. However, as part of the announced 12 months capital plan for STENOCARE, that will raise up to DKK 29.7m across three transactions from June 2023 to June 2024, the company could receive an additional DKK 3.7-7.8m in December through exercise of Warrants of Series TO 1, where the exercise price will be between 3.21-6.70 per share. Furthermore, STENOCARE are expected to deliver higher revenues during H2-23 compared to H1-23, for instance through products being available for patients in Germany, which is estimated to have a positive impact on the burn rate.

New Data from the Danish Medicinal Agency

In previous equity research reports for STENOCARE we have expressed the development in number of unique medical cannabis patients, which steadily grew between Q2-18 to Q2-19 as STENOCARE delivered products to the market but later declined as the products were withdrawn from the market. As STENOCARE now has had its THC product approved since early 2022 and CBD product since early 2023, it is now of importance to see the development in number of prescriptions since the company once again has entered the market. During this period STENOCARE’s products have been the only oil products approved under the Danish Pilot Program, why it is assumed that the patient growth is attributable to the company’s products approval on the market. The growth in number of patients is expected to further accelerate as STENOCARE’s balanced oil (combined THC and CBD) obtains approval from the Danish Medicinal Agency, as this product historically has been prescribed with the highest volume, but the current data proves that STENOCARE has a strong position on the Danish market according to Analyst Group.

Update on the Danish Product Pipeline

On July 27, STENOCARE provided an update on the company’s Danish product pipeline, where the products can be divided into four different stages, as per the table below.

Currently, STENOCARE’s balanced oil (a mix of CBD and THC) is due for review by the Danish Medicinal Agency (Stage 3), which should be seen as an important factor for sales growth going forward, as this product historically has represented over 50% of sales volume. STENOCARE’s premium products, which are expected to enhance the uptake of cannabinoids, as well as a faster effect, are in stage 1 which is expected to become commercially available during 2024, given that the Company obtains approval. Considering the competitive advantages with the premium products, this is expected to drive strong revenue growth thereafter.

The Market is Moving in the Right Direction

The NHS Research Ethics Committee in the UK has approved a clinical trial on medical cannabis and chronic pain, which will include up to 5,000 patients. Celadon Pharmaceuticals, a licensed producer of cannabis-based medicines in the UK, are in charge of the trial. Celadon previously conducted a three-month feasibility study with 100 patients, which indicated positive outcomes in terms of quality of life, pain, sleep as well as reduction of opioid usage. Up to 28 million people are thought to be living with some sort of chronic pain, which is the most common symptom where medical cannabis is used for treatment, but regulators and policymakers have repeatedly called for more robust data before an ease in regulation can occur, which this study can provide.

The results of the study can, according to Analyst Group, support a wider prescription of medical cannabis for patients suffering from chronic pain, and enable potential reimbursements from the government in the UK, one of STENOCARE’s markets. As chronic pain is the most common symptom where medical cannabis is used as treatment and 1.4 million people in the UK are thought to buy cannabis illegally for self-medication of chronic pain, the potential market for medical cannabis in the country is expected to be large, where positive results in Celadons study can enable wider prescription of medical cannabis, hence taking market shares from the illegal market, which STENOCARE can capitalize on. Moreover, STENOCARE has also announced the company’s plan to launch an Online Clinic for pain management in the UK, expected to be launched during H2-23, which has the potential to position the company within the area of treatment.

To summarize, STENOCARE delivered lower sales than expected during Q2-23, where product approvals have been delayed due to a longer than expected approval process from medicinal agencies. Costs are developing in a stable manner, also lower than our expectations, which proves that the company are running a slim organization on the way to anticipated break-even. Despite a slower sales growth than expected in 2023, we remain confident that STENOCARE are making the right moves to deliver sales growth going forward, for example through entering new markets, working together with agencies to secure approval for new products and enabling doctors to reach more patients through online clinics.

We will return with an updated equity research report of STENOCARE.

STENOCARE published on June 20 its Q1-report for 2023. The following are some key points that we have chosen to highlight in connection with the report:

• Financial development during the period
• Unit Rights Issue has strengthened the financial position
• One of STENOCARE’s competitors are closing the factory in Denmark

Financial Development During the Period

STENOCARE’s net sales during Q1-23 amounted to DKK 0.8m, compared to DKK 0.9m during Q1-22 and DKK 2.8m during the last quarter (Q4-22). The sales during Q1-23 consists of products sold in Denmark, which is one of STENOCARE’s now six markets. As we have emphasised in previous comments and equity research reports, sales are expected to fluctuate from quarter to quarter as a result of orders being shipped in large quantities, because of distribution partners wanting to reduce their logistical costs. This is expected to be a competitive advantage going forward but can, as earlier mentioned, result in a fluctuation in sales from quarter to quarter. Hence, as STENOCARE delivered products to five countries during Q4-22 and the first shipment to Norway was completed at the end of December 2022, a lower activity regarding delivering products could be expected during Q1-23.  However, we expect stronger quarters ahead regarding sales, as products are delivered to several markets and the company is entering Germany, where products are expected to be available for patients in August 2023.

The cost development was stable during Q1-23, as external expenses amounted to DKK 2.5m compared to DKK 2.7m during Q1-22 and personnel expenses amounted to DKK 1.5m, compared to DKK 1.6m during Q1-22. The decrease in costs shows that STENOCARE is still running a slim organization towards the expected break-even by Q4-23. The lower costs resulted in a slightly better EBITDA-result, amounting to DKK -3.2m, compared to DKK -3.4m during Q1-22. Regarding cash flow, the cash flow from operating activities amounted to DKK -2.3m and the cash position amounted to DKK 1.9m. However, STENOCARE has received DKK 10.7m in gross proceeds from a Unit Rights Issue during June 2023, with warrants of series TO 1 and TO 2 that can add gross proceeds of DKK 3.7-7.8m and DKK 3.7-11.2m in December 2023 and June 2024 respectively.

STENOCARE’s Rights Issue was Subscribed to approximately 127%

The Unit Rights Issue during May and June 2023 was subscribed to approximately 127%, which implies a big interest in STENOCARE as an investment. The gross proceeds from the Issue will be used to further scale the core business, which includes obtaining approval for new products as well as commercial efforts in current and new markets, investment in the completion and commercialization of STENOCARE’s own indoor cultivation facility, and repayment of short-term debt. The Rights Issue is expected to allow STENOCARE to accelerate commercial activities, hence scale up sales and strengthen the company’s financial position. For more information on our view on the Rights Issue, we refer to our previous comment here. Moreover, a conversion of short-term debt of DKK 3.1m into shares in a separate parallel directed issue on identical terms with the Initial Rights Issue is expected, which further strengthens STENOCARE’s financial position. The fact that loan givers have committed to a conversion of debt to shares shows that loan givers believe in STENOCARE’s strategy and ability to create shareholder value going forward.

Denmark’s Largest Cannabis Factory is Closing – Proof of STENOCARE’s Strategy

Canadian cannabis supplier Aurora Cannabis started Aurora Nordic in 2018, with the aim to cultivate and sell medical cannabis to Danish as well as European patients. Since the start, Aurora Nordic have made investments amounting to approx. DKK 500m in their cultivation facility and is currently the largest exporter of medical cannabis in Denmark. However, Aurora have met challenges regarding getting products approved, especially under the Danish pilot program, as only one product has been approved in Denmark since 2018, proving the difficulty to manage the regulation. A possible explanation to this according to Analyst Group, as we have stated in our previous equity research reports, could be that Aurora grows its medical cannabis in greenhouses, unlike STENOCARE’s indoor cultivation, a method that may complicate compliance with regulatory agencies, particularly those concerning the use of pesticides. The Canadian owner Aurora Cannabis have now decided to close its cultivation facility as the profitability of the cultivation facility has not reached expectations, as a result of the facilities large capacity compared to what has actually been sold. This proves, according to Analyst Group, that STENOCARE’s strategy with indoor cultivation and have a supply chain that can grow volume when demand increases, is better for a sustainable business model.

Several Highlights After the Period – STENOCARE Enters Germany

On May 25^th, STENOCARE announced that a new medical cannabis oil product has received approval for sales in Germany, which is the 6^th country with products approved from STENOCARE. The German market for medical cannabis is by far the largest in Europe, with over 200,000 patients being treated with projected sales of EUR 1bn by 2027. This can be compared to the entire European market, where the total sales are expected to reach sales of EUR 2.2bn by 2027, thus the German market is expected to stand for almost half of the total sales on the European market, showcasing the potential of the market. To read more about our view of STENOCARE entering Germany, read our comment here.

Moreover, STENOCARE announced on May 30^th that the company has developed an IT-platform that enables doctors to launch and operate Online Clinics, which is expected to increase a doctor’s reach to patients across their geography and facilitates patients’ access to trained and experienced doctors and specialists. Read our comment on the news here. Lastly, STENOCARE has also announced that the company has selected a partner to produce its premium products, which are based on patented oil technology. The oil technology enables, according to studies, better uptake of cannabinoids, regardless of meal consumption and inter-individual biological differences, as well as a faster effect. A common challenge for doctors within medical cannabis is the accuracy of the dosage uptake for the patients, as this varies depending on whether the drug is taken before or after intake of food and individual biological differences, why a more predictable product like STENOCARE’s premium products is expected to be appreciated by doctors. The company announced that the products are likely to become commercially available during 2024, which is in line with what we have expected in our financial forecasts in previous equity research report updates.

To summarize, STENOCARE delivered a slight decrease in net sales during Q1-23 but where a slower quarter regarding net sales could be expected as large quantities of products were delivered at the end of Q4-22 and sales are expected to fluctuate from quarter to quarter depending on which period a large delivery is made. Hence, we expect stronger sales growth in the coming quarters, together with a continued stable cost base. Furthermore, we see proof on the market that STENOCARE’s strategy is working, as competitor Aurora Nordic have had troubles getting products approved and are closing the factory in Denmark at the same time as STENOCARE is entering new markets, showing that the company’s pharma mindset is paying off.

We will Return with an Updated Equity Research Report of STENOCARE.

STENOCARE announced on May 30^th that the company has developed an IT-platform that enables doctors to launch and operate Online Clinics. The first Online Clinic is expected to be launched in the UK during H2-23, pending regulatory approvals.

The new and innovative IT-platform enables prescribing doctors to launch and operate online clinics, wherever they are. This is expected to increase a doctor’s reach to patients across their geography and facilitates patients’ access to trained and experienced doctors and specialists, regardless of where they live within their country. The platform supports doctors in several ways:

• Administration: patient booking, video consultation, patient journal
• Knowledge: training, supervision by and ongoing access to the STENOCARE medical consultant and specialists
• Ownership: STENOCARE will transfer ownership of the clinics to the doctors as the Online Clinic enters a more stable operation.
• Cost efficiency: The platform helps doctors manage total costs and may limit cost per prescription to patients.
• Compliance: The new IT-platform is GDPR compliant to protect the patient’s data.

The first use of the IT-platform is expected to be in a UK Online pain clinic, where the founders are Dr Ayman Eissa and STENOCARE, where it is expected that further doctors will join the clinic. STENOCARE has a commitment to the transfer of the ownership to the clinic doctors as the clinic reaches a stable operation. The clinic will have a specialty in pain management and treatment with both traditional medicine and medical cannabis.

“The European cannabis market is expected to grow strongly in the coming years with an expected market growth of 43 % (CAGR) until 2027, to reach a market value of EUR 2.2bn. At the same time The European Pain Society currently estimates that there are 100 million pain patients with legal access to medical cannabis in Europe, which implies that an even faster market growth could be possible. A threshold that holds the market growth back is that patients have limited access to prescribing doctors. Analyst Group believes that STENOCARE’s online platform can enable doctors to increase their geographical reach and thus increase patients access to medical cannabis, which can drive the growth of the medical cannabis market as well as STENOCARE’s sales growth.

Furthermore, as we have expressed in recent equity research reports, one important factor for STENOCARE to be able to scale up sales is to ensure the health care industry’s interest and thus that doctors are willing to prescribe medical cannabis to patients. We see the launch of the IT-platform as a step to further educate doctors and the industry about the benefits with medical cannabis, as they get access to supervision from a medical consultant and specialist, that can help doctors make informed decisions regarding how to treat patients.

The digital health market exploded during the corona pandemic as patients had limited access to meet doctors physically. According to Grand View Research, the global digital health market will grow at a CAGR of 18.6%. It is expected that most prescribing doctors within medical cannabis does not use online treatment today, hence, we see good opportunities for STENOCARE to penetrate the market with the platform. It generates several benefits for doctors such as that the geographical reach is expanded, automatic administration and access to a medical consultant from STENOCARE for supervision, which creates incentives for doctors to implement the platform. Moreover, STENOCARE is expected to be an owner in clinics and hence fund the start-up costs in regards to the implementation with the intention to transfer the ownership to the clinic doctors as the clinic reaches stable operations. This is expected to lower the barriers further for doctors to implement the platform and with more patients getting access to prescribing doctors, we expect a strong revenue growth for STENOCARE going forward”, says the analyst at Analyst Group covering STENOCARE.

How Analyst Group sees STENOCARE as an investment.

After entering three new markets in 2022, STENOCARE delivered products to a total of five countries during Q4-22, leading to net sales amounting to DKK 2.8m. This is the best revenues presented since Q1-19, before the resolved issues with STENOCARE’s former supplier, CannTrust, started. The Company now has 10 products approved in six countries, after entering Germany during 2023, and are expected to continue the geographical expansion. Operating on a market with strong expected growth due to further deregulations throughout Europe, Analyst Group believes that the Company is in a great position to deliver strong revenue growth going forward.

STENOCARE announced on May 25^th, that a new medical cannabis oil product has received approval from the Federal Institute for Drugs and Medical Devices (BfArM) for prescription-based sales to German patients.

Germany will be the 6^th market with products approved from STENOCARE, on the road to the company’s target of entering 8-10 markets by 2025. Given STENOCARE’s track record, with products approved in six countries, of which four have been entered during 2022 and 2023, we see a good potential that the company will reach this goal and continue the geographical expansion, hence get access to a larger patient population which is expected to drive the sales growth going forward. Furthermore, STENOCARE has proven that different kinds of markets can be entered; fully legalized (UK, Australia and Germany), pilot programs (Denmark) as well as not legalized markets (Sweden, Norway), which implies that any market is a potential market for STENOCARE.

The German market for medical cannabis is by far the largest in Europe, with over 200,000 patients being treated with projected sales of EUR 1bn by 2027. This can be compared to the entire European market, where the total sales are expected to reach sales of EUR 2.2bn by 2027, thus the German market is expected to stand for almost half of the total sales on the European market, showcasing the potential of the market. Moreover, Germany is set to launch a pilot program regarding cannabis for recreational use, meaning allowance for people to cultivate cannabis at home or in social clubs and also allow pilot shops to sell recreational cannabis. Although this is not a market that STENOCARE addresses, Analyst Group believes this will have an impact on the general acceptance for the use of cannabis, which will also affect the medical cannabis market. In our recent equity research reports, we have argued that an important factor for STENOCARE’s future growth will be to convince doctors of the benefits with medical cannabis and improve the acceptance for cannabis as a medicine. A pilot program for recreational use is expected to be a driver of this acceptance, leading to more prescriptions of medical cannabis, especially in Germany.

As Germany is the most mature market for medical cannabis in Europe, this entails more competition. STENOCARE’s competitive advantage is expected to be that the company’s product on the German market will be reimbursed by insurance companies, which is not the case for all products. This allows more patients to get access to the product as medical cannabis can be an expensive investment for a patient suffering from chronic pain, multiple sclerosis, or epilepsy, why a reimbursement further supports the incentives for patients to use medical cannabis oils. The reimbursements are expected to entail a strong position for STENOCARE on the German market, which we estimate will have an impact on 2023’s figures, as it is expected that the new product will be available for patients during August 2023.

How Analyst Group sees STENOCARE as an investment.

After entering three new markets in 2022, STENOCARE delivered products to a total of five countries during Q4-22, leading to net sales amounting to DKK 2.8m. This is the best revenues presented since Q1-19, before the resolved issues with STENOCARE’s former supplier, CannTrust, started. The Company now has 10 products approved in six countries, after entering Germany during 2023, and are expected to continue the geographical expansion. Operating on a market with strong expected growth due to further deregulations throughout Europe, Analyst Group believes that the Company is in a great position to deliver strong revenue growth going forward.

On May 15, 2023, STENOCARE announced that the company intends to carry out a preferential Rights Issue of shares and warrants of series TO 1 and TO 2. The initial Rights Issue, excluding TO 1 and TO 2, offers 2,335,224 new shares at subscription price per share of DKK 4.58. As the offer is for a unit, which includes two shares, the subscription price per unit is DKK 9.16, corresponding to, given a full subscription of the Rights Issue, gross proceeds in cash of DKK 10.7m and net proceeds, after transaction-related costs, in cash of DKK 8.5m. In addition to the initial rights issue, a unit consists of warrants of series TO 1 and TO 2. These warrants can, if fully subscribed to, provide the Company with an additional amount of approx. DKK 3.7-7.8 million and DKK 3.7-11.2 million in gross proceeds. Hence, the total gross proceeds, if all the steps of the Rights Issue are subscribed and exercised at maximum, amounts to DKK 29.7m.

The Company has received pre-subscription commitments amounting to DKK 3.2 million, or 30% of the initial Rights Issue, and guarantee commitments amounting to DKK 6.1 million, or 56.5%. Hence, the Rights Issue is secured to approximately DKK 9.3 million gross, or 86.5%. Several people from STENOCARE’s board and management have committed to pre-subscription, including CEO Thomas Skovlund Schnegelsberg (5.1% of initial Rights Issue), COO Søren Kjær (9.3%) and CFO Peter Bugge Johansen (1.9%).

The dilution effect from the initial Rights Issue, assuming fully subscribed of 2,335,224 new shares, amounts to approx. 16.7% for existing shareholders who do not exercise the allocated Unit Rights. Shareholders who do not participate in any part of the Issue could experience a dilution of a maximum of 28.6% if all the steps, including TO 1 and TO 2, of the Rights Issue are subscribed and exercised at maximum.

Furthermore, in addition to the Rights Issue, STENOCARE has received commitments to conversion of debt of DKK 3.1m, which is planned to take place in a separate, parallel directed issue on identical terms with the initial Rights Issue. However, this is conditional upon the granting of authorization at an Extraordinary General Meeting, expected to be held on June 13, 2023.

STENOCARE has identified three initiatives to which the funds from the Issue will be directed:

• Further scaling of the core business
• Investment in the completion and commercialization of the indoor cultivation facility
• Repayment of short-term debt

“On November 15, 2022, STENOCARE announced that the company added a new financial instrument, a convertible loan facility of up to DKK 11m, that enables the company to issue loans (convertible bonds) where the lenders have the opportunity to convert to shares at a price that is fixed to 25% above market-price on issue. STENOCARE also announced that the loan facility was expected to cover the company’s funding needs until the anticipated break-even by end of 2023. However, the company also communicated that the Board of Directors and management team are constantly monitoring opportunities to make investments and accelerate the STENOCARE 2.0 strategy to become a leading brand for medical cannabis in Europe. In connection with the Rights Issue, STENOCARE repeats its guidance of expected break-even by the end of 2023, why we see the Rights Issue as a step towards accelerating commercial activities and scale up sales, rather than monitor a worse-than-expected cash flow going forward.

The funds are expected to be used regarding continued investments to secure approval for new products, both in new and existing markets, something that is a result of investment in licenses, infrastructure and distribution.

Furthermore, the funds will also be used to finalize STENOCARE’s own cultivation facility, which is expected to start generating sales during 2024, upon approval from authorities. Thus, the funds are indeed expected to be used for accelerating commercial activities and scale up sales. However, all of the above are activities that is included in our financial forecasts for STENOCARE, why we expected the company to complete these activities without further capital injections, hence, the investments needed for this appears to be higher than we expected.

Going forward, we see it as important that STENOCARE continues to work with its four categories of assets, especially commercial and regulatory assets, to get new products approved and sold in both new and existing markets. Given STENOCARE’s track record, with 11 products approved in five regulated countries, we see that the company has a good opportunity to obtain approvals for new products, as well as the own cultivation facility, in order to scale up sales in the coming years and capitalize on the fast-growing medical cannabis market. Moreover, the repayment of debt will strengthen STENOCARE’s balance sheet, which is expected to result in better opportunities for growth going forward, as organic positive cash flows, which is expected in Q1-24, can be used to accelerate sales rather than repaying debt. Also, the fact that loan givers have committed to a conversion of debt to shares of DKK 3.1m, which is conditional upon the granting of authorization at an Extraordinary General Meeting, shows that loan givers believe in STENOCARE’s strategy and ability to create shareholder value going forward. Lastly, we see positively towards that several people from STENOCARE’s management and board have committed to pre-subscription, since we see this as an incentive to creating further shareholder value going forward.

In conclusion, Analyst Group sees the Unit Rights Issue as an initiative to accelerate commercial activities, hence scale up sales, as well as securing the supply chain, through getting more products approved and finalize the Company’s own cultivation facility. These are activities we expected to be finalized without further capital injections, however, the improved financial position, with the repayment of the short-term debt, puts STENOCARE in a position where the company can invest organic positive cash flow, expected from Q1-24, for further commercial activities rather than repaying debt. Hence, Analyst Group believes that STENOCARE is in a great position to keep capitalizing on a market with strong expected growth and deliver exponential revenue growth going forward”, says the analyst at Analyst Group covering STENOCARE.

About Warrants of Series TO 1

1 (one) Warrant of series TO1 gives the right to subscribe for 1 (one) new share in the Company during the exercise period from 1 December to 14 December 2023. The exercise price of Warrants of series TO 1 will be determined using the 10 day-VWAP prior to the first day of the exercise period, less 30%, with a minimum price of DKK 3.21 per share and a maximum price of DKK 6.70 per share.

About Warrants of Series TO 2

1 (one) Warrant of series TO 2 gives the right to subscribe for 1 (one) new share in the Company during the exercise period that is from 10 June to 21 June 2024. The exercise price of Warrant of series TO 2 will be determined using the 10 day-VWAP prior to the first day of the exercise period, less 30%, with a minimum price of DKK 3.21 per share and a maximum price of DKK 9.62.

STENOCARE published on February 23 its year end report for 2022. The following are some key points that we have chosen to highlight in connection with the report:

• Financial development during the period
• Financial position and cash flow
• The market is moving in the right direction

Financial development during the period

STENOCARE announced on January 9^th, 2023, that net sales for Q4-22 amounted to DKK 2.8m (0), which means net sales for the full year amounted to DKK 4.4m (1.9), corresponding to an increase of 132% and closely in line with Analyst Group’s estimated net sales of DKK 4.8m. Regarding the costs, other external expenses amounted to DKK -3.2m (-2.5), where the COGS stands for the increase compared to Q4-21, personnel expenses amounted to DKK -2.0m (-2.1). All in all, STENOCARE reported an EBITDA of DKK -2.4m, compared to Analyst Group’s estimated DKK -2.2m.

The increase in net sales is a result of STENOCARE’s geographical expansion during 2022, where the company now is active in five markets with a total of 11 products approved in these markets. During the fourth quarter STENOCARE entered Norway, and at the end of the period, the first shipment was made to the country. Entering new markets will continue to be a critical factor going forward, and Analyst Group sees STENOCARE’s track record of entering new markets as a clear Proof of Concept. With the company’s current position, we believe STENOCARE is in a great position to deliver strong revenue growth going forward and see good potential that the company will reach our estimated net sales of DKK 20.8m in 2023.

Financial position and cash flow

During the fourth quarter STENOCARE strengthened its cash position through a convertible loan facility as well as a received tax credit of DKK 1.4m. The company’s cash flow from operating activities before financial items amounted to DKK -2.9m, which implies a burn rate of DKK -1.0m per month and the cash position amounting to DKK 4.4m. However, STENOCARE can issue more loans from the convertible loan facility (convertible bonds) which was adopted on the extraordinary general meeting on Friday November 18^th. Furthermore, the company has accounts receivables which could be turned into cash. Given this, Analyst Group estimates that STENOCARE is financed until H2-23, when the company is expected to go break even and start showing positive cash flow.

The market is moving in the right direction

The medical cannabis market in Europe continues to move towards further legalization of medical cannabis. In Norway, one of STENOCARE’s markets, an event was held in the beginning of 2023 with politicians, medical professionals, and industry stakeholders to discuss access to medical cannabis, which can be seen as a first step towards a potential reform. Today, a selection of products is available under special circumstances, including STENOCARE’s oil products, but it remains difficult for patients to get access to medical cannabis, why a reform could benefit STENOCARE in terms of more patients getting access to the company’s products. Furthermore, a potential legalization of adult use in Germany is ahead during 2023, which could drive more countries to ease regulations also for medical use. Analyst Group sees all legalizations and reforms as small steps towards greater acceptance of medical cannabis, which is expected to drive growth on STENOCARE’s market. 

To summarize, the report was well in line with our expectations. STENOCARE is in a great position to deliver strong growth going forward with 11 approved products in five different markets. At this point we also want to emphasize that sales can fluctuate from quarter to quarter as a result of orders being shipped in large quantities, why this can affect revenues in different quarters accordingly. The company is now operating a lean business to manage its cash position until the expected break even in H2-23.

We will return with an updated equity research report of STENOCARE.

STENOCARE announced on Monday, January 9th, that products were delivered to its five markets during Q4-22, corresponding to net sales of DKK 2.8m.

During the first days of 2023, STENOCARE announced that a new CBD oil was delivered and available for patients in Denmark, as well as the first delivery of three products in Norway. On January 9th, STENOCARE announced that the company has delivered products to five markets during Q4-22, reaching net sales of DKK 2.8m in the same period. This means that net sales for the full year 2022 amounted to DKK 4.4m, closely in line with Analyst Group’s estimated net sales of DKK 4.8m. With 11 approved products in five markets, Analyst Group believes STENOCARE is in a great position to deliver strong revenue growth going forward.

We see good potential regarding the company reaching our estimated sales of DKK 20.8 in 2023, driven by growth in prescriptions from doctors, which is expected to happen due to the advantages that medical cannabis oil products have compared to alternative solutions, like opiates. Furthermore, the medical cannabis industry in Europe has an exciting 2023 ahead, with Germany’s potential legalization of recreational use as a potential highlight. Even though this is not something STENOCARE can capitalize on directly, as the company only deliver products for medical use, we see this as a driver for more countries to ease regulations for medical use, creating overall growth in the European medical cannabis market.

Below is a summary of our revenue forecast for STENOCARE in a Base scenario.

Analyst Groups Summary of STENOCARE as an Investment Case

After several years of work ensuring a good supply chain and getting products approved on five different markets, STENOCARE is now ready to launch 11 full spectrum medical cannabis oil products in five regulated countries. Operating in an industry with strong expected growth and considering the future launch of STENOCARE’s own premium products, which are expected to have several benefits compared to competing products, Analyst Group estimates exponential revenue growth going forward. With estimated net sales of DKK 60.4m by 2024, and with an applied P/S multiple of 7x, a potential present value per share of DKK 21.4 is derived in a Base scenario.