STENOCARE announced on November 23^rd that the company has signed agreements that will make a new product, a Balanced 25-25 oil, available for patients in Australia from Q1-24. The decision comes after sales in the country have performed better than budgeted.

Adding a new Product is seen as a Natural Step

STENOCARE entered Australia in 2022 with the Balanced 12.5-12.5 oil and the response from doctors and patients has exceeded the expectations. As a result, STENOCARE is now launching a new product in the country, a Balanced 25-25 oil, hence providing choices for both first-time medical cannabis users and experienced patients, which will expand the reach to doctors and patients. Typically, when patients start medication with medical cannabis, a lower dose is needed to avoid more significant side effects. Therefore, STENOCARE began by introducing the slightly weaker 12.5-12.5 oil. However, as patients become accustomed to the dosage, and symptoms evolve, it may be relevant to increase the dosage. Consequently, STENOCARE is now launching the balanced 25-25 oil. The launch is seen as a natural step to continue treating patients who need to progress to a stronger dosage, thus preventing the loss of these patients to competitors.

Market with Large Potential

The Australian market has grown to over 200,000 patients, which can be compared to Europe’s largest market Germany with approximately 230,000 patients, showcasing the market potential. Moreover, just like the European market, the Australian market is expected to show continued growth over the coming years. According to Grand View Research, the Australian Legal Cannabis Market is expected to grow at a CAGR of 29.6% from 2023 to 2030 and be valued at USD 525m at the end of the forecast period. Drivers of market growth are expected to be the growing legalization of cannabis, mostly for medical use, as well as the increasing public knowledge of health benefits of cannabis intake.

Analyst Group’s view

In our last equity research report we stated that the ramp-up in sales in international markets have been lower than our expectations, at the same time as patient growth has been strong in Denmark. Consequently, we see positive on the news of stronger sales and the introduction of the new product. Although sales have been below our expectations thus far, and market penetration has taken longer than initially anticipated, we still see significant potential in the vast Australian market, which is also expected to grow substantially. The introduction of the new balanced oil is considered as a natural step to diversify the offering in the country and continue treating existing patients who require a stronger dosage. Consequently, STENOCARE is expanding the number of addressable patients through the new oil, which is expected to result in more individuals being treated with the company’s products and contribute to sales growth in the market.

How Analyst Group sees STENOCARE as an investment

The number of patients continued to grow strongly during Q3-23 for STENOCARE A/S (“STENOCARE” or “the Company”) which resulted in actual sales of DKK 2.3m. The reported net sales amounted to DKK 0.2m but included a large product return from Norway of DKK 2.1m, which we consider as a one-of occasion. Adjusted for the product return, EBITDA amounted to DKK -1.7m, the best in a quarter since Q1-19 and we estimate STENOCARE to reach break-even by the end of 2024. With estimated net sales of DKK 66.6m by 2026, and with an applied P/S multiple of 5x, a potential present value per share of DKK 9.4 (10.2) is derived in a Base scenario.

STENOCARE published on November 9^th its Q3-report for 2023. The following are some key points that we have chosen to highlight in connection with the report:

• Continued patient growth – growth in actual sales in Q3-23
• The cost-base remains stable
• Development on the market promotes investments from big pharma

Financial Development During the Period

The reported net sales in Q3-23 amounted to DKK 0.2m. However, sales were negatively affected by a return of products from Norway amounting to DKK 2.1m, which was delivered in Q4-22. The pro forma adjustment consequently impacts the sales in Q4-22, but the technical adjustment is accounted for in Q3-23. Excluding the product return, sales in Q3-23 amounted to DKK 2.3m (0.3), corresponding to a growth of 686% Y-Y, albeit from low levels. The sales growth is attributable to a strong patient growth in Denmark, which data from the Danish Health Data Authority has suggested. However, the ramp-up in sales in international markets has been slower than we initially anticipated, which demonstrates the market’s inertia. However, we still believe that STENOCARE is moving in the right direction in regards to market strategy. After the quarter’s end, the company delivered its first products to Europe’s largest market, Germany, which has over 230,000 patients and projected sales of EUR 1bn in 2027.

During the third quarter, STENOCARE continued to evolve with a stable cost base, where operating costs amounted to DKK 4.9m, compared to DKK 4.6m during the same period the previous year or DKK 5.2m in the preceding quarter. EBITDA amounted to DKK -3.8m (-3.5), which was negatively affected by the return of products from Norway. Adjusted for the returned products, EBITDA amounted to DKK -1.7m, which is the best operating result since Q1-19. Based on this, we believe that STENOCARE’s costs continue to evolve as planned, moving towards the estimated break-even point by the end of 2024.

The cash flow from operating activities amounted to DKK -1.6m (-3.6), which was positively affected by a favorable development in working capital. The cash position at the end of the period amounted to DKK 5m and based on an estimated burn rate of DKK -0.7m per month, STENOCARE would be financed until early Q2-24, based on the cash position at the end of September, everything else equal. However, STENOCARE could strengthen the company’s cash position through exercise of warrants of series TO1 in December. The exercise price of Warrants of series TO1 will be a minimum price of DKK 3.21 per share and a maximum price of DKK 6.70 per share, which would strengthen STENOCARE’s cash position with between DKK 3.7-7.8m in gross proceeds. Accordingly, we see it as important that STENOCARE can strengthen the company’s cash position through TO1 to monitor the liquidity towards the estimated break even at the end of 2024 without further external capital injections.

Continued Patient Growth in Denmark

The Danish Health Data Authority has published new data on the number of Danish patients treated with medical cannabis under the Danish pilot program, which showed continued growth during Q2-23 as the number of patients grew to 798, corresponding to a growth of 90% from the same period last year. The number of patients has been growing steadily since STENOCARE introduced the company’s THC-oil and later the CBD-oil, as per the graph below. Moreover, the growth is expected to accelerate further with an approval of STENOCARE balanced oil, which is expected in Q2-24.

Development on the Market Promotes Investments from Big Pharma

In a notable development, the U.S. Department of Health and Human Services (HHS) has proposed a reclassification of cannabis to categorize it as a drug with reduced risks. This proposal sets the stage for the re-evaluation of the drug’s legal status, which could potentially expand its availability for medical and therapeutic purposes nationwide in the United States. This represents a substantial reduction in the regulatory obstacles associated with cannabis, rendering it a more attractive field for investment and scientific exploration. Furthermore, reclassification would also create opportunities for federal funding to support cannabis research, thereby reducing certain financial uncertainties.

In addition, market analyst Prohibition Partners recently published its Pharmaceutical Cannabis Report, which presents mounting evidence that adresses the effectiveness of cannabis in addressing various conditions, spanning from chronic pain to epilepsy and specific forms of cancer. The report also underscores the increasing worldwide research and development initiatives focused on uncovering the complete array of therapeutic attributes associated with cannabis.

The view of medical cannabis as a lower-risk drug, in combination with the heightened recognition of medical cannabis as a proven treatment for several symptoms, such as chronic pain and epilepsy, is expected to lead to a growing interest from big pharma companies and increase investments in the market. This is also something that has evolved in the last years as we have seen when, for instance, Pfizer acquired Arena Pharmaceuticals, a biotech company with one pipeline dedicated to cannabinoid-type therapeutics, for USD 6.7bn and Jazz Pharmceutical acquiring GW Pharmaceuticals, the developer of Epidiolex, the first FDA-authorized CBD medicine for treating children with Lennox-Gastaut and Dravet syndromes. Continued large investments from big pharma is proof of extended interest in the market and these companies may also gain advantages from more lenient regulations governing clinical trials, potentially expediting the process of introducing cannabis-derived medications to the market, hence accelerating market growth, something that is expected to favour STENOCARE.

To summarize, STENOCARE delivered sales relatively in line with our expectations (excluding returned products) and a stable cost-base. The product return from Norway is not desirable but something that we consider as a one-off occasion. Excluding the product return STENOCARE continues to deliver sales growth, driven by strong patient growth in Denmark, which is expected to continue and accelerate if STENOCARE’s balanced oil obtains approval, now expected during Q2-24. However, sales in international markets have been slower than first anticipated, which holds the growth back somewhat. We still see significant potential in these markets in the long run and expect STENOCARE to enter more markets in the coming years. A continued patient growth in Denmark, as well as on international markets, where STENOCARE now have entered Germany, Europe’s largest market, in combination with a stable cost base will be important factors to reach the estimated break even at the end of 2024.

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

STENOCARE announced on November 6^th an updated guidance for 2023 and 2024 as well as sales in Q3-23, amounting to DKK 2.3m. Moreover, STENOCARE also announced that products from the Norwegian market worth DKK 2.1m have been returned to STENOCARE, which will be technically adjusted for in Q3-23 – leading to reported net sales in Q3-23 amounted to DKK 0.2m.

Product Return Will Affect Sales in Q3-23

In Q4-22, STENOCARE made the first shipment of full spectrum medical cannabis oil products to the company’s Norwegian partner, Apotek 1, for sales in the Norwegian market. However, the management of the pain centers (hospitals) decided to hold back the budget for treatment with all cannabis-based products, which has hampered sales and consequently led to product expiration. As a result, products worth of DKK 2.1m have now been returned to STENOCARE. The financial adjustment will affect the reported net sales in Q3-23 negatively by DKK 2.1m, which is unrelated to the actual sales in Q3-23. The pro-forma adjustment for the revenue is for Q4-22, which is adjusted from the earlier reported DKK 2.8m to DKK 0.7m. So, while the change pertains to reduced sales in Q4-22, STENOCARE will thus experience a financial impact during Q3-23, with the report expected to be presented on Thursday, November 9^th.

As a result of the product expiring, STENOCARE has implemented new procedures to secure the largest possible assurance of sales to patients prior to delivery to all new markets in the future. The updated procedures are expected to reduce the risk of similar large volume expirations going forward.

Updated Guidance for 2023 and 2024

Sales in Q3-23 amounted to DKK 2.3m (0.3), corresponding to a growth of 686% Y-Y, albeit from low levels. These figures are excluding the product returns from Norway, why the reported sales amounts to DKK 0.2m. Moreover, STENOCARE announced a preliminary sales guidance for Q4-23 of DKK 1.7m, which, excluding product returns, would mean sales of DKK 6.5m for the full year 2023. This can be compared to our estimate in our latest equity research report of DKK 7.8m.

STENOCARE also announced that the company expects sales to amount to DKK 15m in 2024 (+/- 20%), which would correspond to a growth of 131% compared to 2023 guidance of DKK 6.5m. The sales growth is expected to be attributable to a continued strong growth of sales volume in Denmark, where data shows that STENOCARE are winning market shares from competing products, as well as approval of a third product in the country, which is expected to be a significant driver of growth. Furthermore, STENOCARE is expected to launch the company’s patented premium products in 2024, which is also estimated to drive sales growth.

The guidance of sales of DKK 15m in 2024 can be compared to our estimate in our latest equity research report of DKK 24.1m. The difference is assumed to be attributable to a delay from medicine agencies regarding STENOCARE’s balanced oil in Denmark, which is now expected to be ready for sales in Q2-24, compared to late 2023 in our last update. Also, the ramp-up in sales in international markets has been slower than we initially anticipated. However, we still see significant potential in these markets in the long run and expect STENOCARE to enter more markets in the coming years. Moreover, STENOCARE also guided for a projected break-even by the end of 2024, which is in line with our previous estimates, anticipating lower costs than Analyst Group’s estimates. Overall, we consider it likely that we will update our financial forecasts for STENOCARE in conjunction with our Q3-report update.

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 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.

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.