STENOCARE announced on November 26th the STENOCARE 3.0 Strategy, which means that the company will focus on trading prescription-based medical cannabis sourced from suppliers and exit the production activities at STENOCARE’s own indoor cultivation facility. The decision is based on prolonged and uncertain approval timelines with the Danish Medicines Agency, which creates difficulties in establishing a reliable timeline for the facility’s approval. This exit will eliminate approximately DKK 18m in cost obligations over the next six years.
When the legalization of medical cannabis began in Europe in 2017, quality and legal requirements were established to mirror pharmaceutical standards, why STENOCARE deemed it crucial to control the entire value chain to ensure the highest possible product quality. However, the indoor cultivation facility has been delayed, and there is still no clear timeline for approval from the Danish Medicines Agency. At the same time, the production facility involves high costs and is capital-intensive, prompting STENOCARE to discontinue production. In-house production has proven to be too capital-intensive for smaller players in the market, leaving only larger companies able to sustain a fully integrated value chain, a trend that is expected to continue over the next year.
STENOCARE’s current financial position is assumed to have influenced the decision, as the cash balance at the end of Q3-24 amounted to DKK 0.1 million, a plan for the company’s future funding is expected to be announced soon. While STENOCARE will not receive any payment for transferring the production facility, the company will be relieved of all related costs, including the significant long-term lease and equipment lease. This represents a financial obligation of approximately DKK 14m over the next six years, which will no longer weigh on the company. Furthermore, STENOCARE will achieve annual savings of approximately DKK 4m in production staff and operating costs during 2025.
STENOCARE has signed a conditional agreement with Hedemann Løvstad Ejendomsselskab ApS (HLE) to end the lease contract for the cultivation facility. As part of this agreement, ownership of production equipment will be transferred to HLE, but the agreement is conditional upon STENOCARE’s success in raising capital.
According to Analyst Group, the discontinuation of production is a positive development for STENOCARE’s financial position, which is currently strained. Despite the company’s historical investments in the facility, substantial cost savings is to be expected in the coming years. Furthermore, we believe that the company’s key growth and value drivers remain intact, primarily via the innovative ASTRUM oil, which is approved for sale in Australia and Germany as of now, furthermore the sale of prescription-based medical cannabis oil products in six countries. Among these, Denmark, Australia, and Germany are considered the most promising markets, despite the current challenges in Denmark stemming from increased competition and a unique situation involving a competing magistral product subsidized at 85% for patients by the Danish Medicines Agency, compared to STENOCARE’s 50%. As a result, STENOCARE is focusing on transitioning into a trading company, where there is greater growth opportunities and improved profitability.
