ODI Pharma published on November 22nd the company’s Q1-report for 2024/2025. The following are some key points that we have chosen to highlight in connection with the report:
- Net sales affected by import restrictions – stronger quarters expected ahead
- Continued stable cost base
- Rights issue of SEK 4.1m for continued expansion
Increased Import Quota is Expected to Accelerate Sales in the Coming Quarters
ODI Pharma’s Q1-report in the company’s broken fiscal year showed net sales of SEK 0.1m (0.5), which marked a notch in the growth curve. ODI Pharma’s most important growth driver is sales on the polish market through the market leading pharmaceutical brand Synoptis Pharma, part of the NEUCA Group. The polish market is reliant on imports to supply the rapidly expanding medical cannabis market, as cultivation is not allowed in the country. The import has historically been limited by a quota set by the polish government which determines how much can be imported each year. Going into 2024, the estimate of annual demand for cannabis for Poland, hence also the import quota, amounted to 6 tons, which can be compared to 4.6 tons sold during 2023. However, due to rapid growth in demand throughout the year, the quota was reached with several months left of the year, leading to that the polish government increased the estimated annual demand for cannabis in 2024, hence also the quota, by 5.3 tons or 88% in October 2024. This means that the updated quota amounts to approx. 11.3 tons for 2024.
As the news regarding the updated quota came in early October, ODI Pharma’s net sales in Q1-24/25 is expected to have been affected by prior import restrictions. Nevertheless, the increased quota is a clear sign of the rapid growth in the polish medical cannabis market, with the current quota amounting to a 142% growth compared to the amount sold in 2023. We expect ODI Pharma to capitalize on this as a supplying partner to one of the leading pharmaceutical brands in the country, resulting in accelerated growth in the coming year.
Solid Cost Control
ODI Pharma continues to operate with a slim organisation, with a low cost base as a result. The total operating expenses amounted to SEK 1.6m (1.3), corresponding to a growth of 24% Y-Y but a decrease of 40% Q-Q. Analyst Group believes that ODI Pharma continues to develop with a stable low-cost base, and we anticipate that this low-cost structure will be maintained even during scaling, given the company’s scalable business model.
Rights Issue of SEK 4.1m for Continued Expansion in the Polish Market
The cash flow from operations before changes in working capital amounted to SEK -1.5m, due to a positive effect from changes in working capital amounting to SEK 3.5m the operating cash flow amounted to SEK 2.1m. The cash position at the end of the quarter amounted to SEK 5m, an increase of approx. SEK 2.3m Q-Q. After the end of September, ODI Pharma announced that the company has resolved to carry out a rights issue of approximately SEK 4.1m before transaction costs, with an option for an over-allotment of an additional SEK 2.0m. The transaction-related costs are estimated to amount to a maximum of approximately SEK 0.9m, which would amount to 22% of the gross proceeds in the event of full subscription, which is deemed high.
The Q1-24/25 report showed that ODI Pharma are yet to reach a sustainable positive cash flow, which is expected to be the reason for the communicated rights issue. The import restrictions have hampered the company’s growth in the previous quarter, increasing the need for liquidity in the short term. Nevertheless, with the increased import licenses from the current quarter we asses that the expected revenue growth on the polish market and the scalable business model will be improving profitability, thereby projecting that ODI Pharma will be cash flow positive in 2025. Hence, the cash position at the end of September in combination with the proceeds from the rights issue is expected to be enough to finance the operations until sustainable positive cash flow has been reached.
Strategic Key Recruitments to Leverage on the Market Potential
Finally, several key recruitments within management and the board have taken place in recent months. Malcolm Allan has been appointed to the board, bringing extensive experience from the global cannabis market, including his current role as Vice President at Tilray Brands Inc, which also shows ODI Pharma’s supplier Tilray’s commitment to ODI Pharma’s business model. Furthermore, Jan-Mark Edewaard has been appointed as the new CEO, starting in January. Jan-Mark brings over 25 years of financial and operational experience, having led complex projects across various industries. Analyst Group believes that both appointments possess relevant experience to contribute to the company’s upcoming growth initiatives in the European medical cannabis market.
To summarize, Analyst Group sees the Q1-results as a notch in the growth curve, as a result of import restrictions in the polish market, which has been resolved after the quarter. Going forward, we expect momentum to pick up for ODI Pharma, as the polish market experiences rapid growth, which ODI Pharma is expected to capitalize on through the collaboration agreement with Synoptis Pharma, a market leading pharmaceutical brand in the polish market.
We will return with an updated equity research report of ODI Pharma.
