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.