STENOCARE A/S (STENOCARE or the “Company”) published on February 27^th the Company’s Q4-report for 2024. The following are some key points that we have chosen to highlight in connection with the report:

• Sales above guidance and our estimates
• Astrum oil is now available in three countries
• The result was affected by a special item – operational EBITDA better than our estimates
• Strengthened financial position through a rights issue after the end of Q4-24

Sales Above Our Estimates and Astrum Oil Available in Three Countries

The gross sales amounted to DKK 1.5m (1.7) in Q4-24, corresponding to a decrease of 17 % but 17% above guidance of DKK 1.2m. Net sales, including product returns, amounted to DKK 1.3m (1.3), which was 21% above Analyst Groups estimate of DKK 1.0m.

As Analyst Group has previously stated, we see the company’s premium product Astrum oil as an important growth driver in the coming year, as it distinguishes STENOCARE from competitors as a first mover in the next generation of medical cannabis, providing improved, uniform and faster uptake in the blood. The product became available to patients in three countries during 2025, Germany, Australia, and Norway, which is why sales in Q4-24 only reflect STENOCARE’s other product range.

The Result was Affected by a one-off Special Item

The EBITDA result amounted to DKK -15.1m and was affected by a special item amounting to DKK 13.1m attributable to the exit of the Company’s cultivation facility. In November, STENOCARE announced the STENOCARE 3.0 Strategy, which states 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. 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 registered in the balance sheet and additional DKK 5m in annual operational costs, which will no longer weigh on the Company. To summarize, there are no cash proceeds from the exit but DKK 13.1m of long-term lease commitment related to exit of the cultivation facility are included as costs in special items during Q4-24.

Adjusted for the special item, the EBITDA result amounted to DKK -2.0m (-3.0), which was better than Analyst Group’s estimate of DKK -2.5m. The cost base continues to decrease as STENOCARE are operating with a lean organization, personnel expenses amounted to DKK 1.1m (1.8), corresponding to a decrease of 41%. With the exit from the cultivation, expected annual operational costs savings of DKK 5m will be made, why we estimate a continued decreased cost base in 2025 compared to 2024. Below is a summary of our estimates vs the outcome excluding the special item amounting to DKK 13.1.

German Cannabis Import Surged in Q4, but Political Pressure Builds on Flourishing Medical Market

Germany imported a record amount of cannabis during Q4 and for the full year 2024 medical cannabis import more than doubled to 70 tonnes, up from 32 tonnes in 2023. The growth comes from the implementation of the Cannabis Act (CanG) on April 1^st, 2024, which legalized cannabis for adult use, where cannabis also was removed from the list of narcotics, something that is expected to have simplified the process for more doctors to prescribe medical cannabis and ease the way for patients to obtain a prescription. STENOCARE has had a product approved in Germany since Q4-23, but given the Company’s sales in 2024, STENOCARE’s growth in the country is assumed to have been absent.

A large portion of the market growth has been driven by the rapid expansion of telemedicine clinics, which has raised concerns that the ease of access to medical cannabis has allowed individuals who do not actually require medication to gain access to medical cannabis. In the German election on February 23^rd, Christian Democratic Union (CDU), received the most seats in Germany’s federal election, a party that has previously pledged to abolish the previous government’s cannabis law. However, it remains unclear whether this would mean rolling back the changes to medical cannabis, namely removing it from the list of narcotics, which has driven the recent boom in the market, as well as whether CDU will have a majority to go ahead with its intention.

Nevertheless, STENOCARE focuses on prescription based medical cannabis and has long focused on educating doctors on potential applications. Since January 2025, Astrum Oil has been available to German patients, and we expect the product’s benefits to drive sales to patients in need of medical cannabis treatment, regardless of political initiatives that may hinder overall market growth.

The Financial Position Strengthened

The cash balance amounted to DKK 1.4m at the end of Q4-24, however after the end of Q4-24 STENOCARE announced the outcome of the conditional rights issue which was conducted in January 2025. The rights issue will provide STENOCARE with estimated net proceeds amounting to DKK 7.9m. The proceeds are expected to be used for commercial activities linked to the company’s existing product portfolio, as well as servicing the convertible loan of DKK 2.8m with interests and instalments.

We expect STENOCARE’s burn rate to decrease going forward because of the exit from cultivation activities as well as increased sales of the Astrum Oil, which is seen as an important growth driver, given that it distinguishes STENOCARE from competitors as a first mover in the next generation of medical cannabis. Based on this, we estimate that STENOCARE are financed for the remainder of 2025.

To summarize, STENOCARE delivered a report where sales were above guidance and our estimate, as well as an operational EBITDA result, excluding special items, that was above our expectations. The medical cannabis market has proven challenging to penetrate, partly due to high competition and partly due to widespread skepticism toward cannabis among prescribing doctors. STENOCARE is therefore expected to place greater focus on educating doctors about the benefits of medical cannabis treatment, thereby driving growth, where we see the Astrum Oil as an important growth driver as it distinguishes STENOCARE from competitors as a first mover in the next generation of medical cannabis.

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

On January 22^nd, STENOCARE announced the outcome of the conditional rights issue, which was subscribed to approximately 37.7%. Moreover, guaranteed commitments from Exelity AB amounting to 7.3% will be activated to achieve a subscription rate of 45%, which will provide STENOCARE with DKK 9.1m in gross proceeds in order to execute on the STENOCARE 3.0 strategy.

Analyst Group’s View of the Outcome

The rights issue will provide STENOCARE with DKK 9.1m in gross proceeds and with estimated transaction-related costs amounting to DKK 0.9m and guarantor compensation of DKK 0.3m, the estimated net proceeds amount to DKK 7.9m. With the new STENOCARE 3.0 strategy the company is transforming into a trading company, focusing on distribution of prescription-based medical cannabis and hence exiting production activities, the proceeds are expected to be used for commercial activities linked to the company’s existing product portfolio, which consists of 13 approved products in six countries. STENOCARE has already established key assets (regulatory, supply chain, commercial, partnerships), that will be the foundation for the new strategy. The medical cannabis market has proven challenging to penetrate, partly due to high competition and partly due to widespread skepticism toward cannabis among prescribing doctors. STENOCARE is therefore expected to place greater focus on educating doctors about the benefits of medical cannabis treatment, thereby driving growth.

We see the company’s premium product Astrum oil as an important growth driver in the coming year, as it distinguishes STENOCARE from competitors as a first mover in the next generation of medical cannabis, providing improved, uniform and faster uptake in the blood. During 2024, STENOCARE announced that the Astrum oil has been approved for sales in three countries, Australia, Germany and Norway, which we see as the most important growth driver, particularly as Australia and Germany are two of the largest medical cannabis markets globally. Furthermore, STENOCARE is expected to receive approvals in additional markets going forward, since the company has a strong track record of market approvals.

In addition to the commercial activities, part of the net proceeds is expected to be used for servicing the convertible loan of DKK 2.8m with interests and installments. Going forward, as STENOCARE has decided to exit its production activities, substantial cost savings are expected going forward, equivalent to DKK 4m annually in 2025 for personnel and other expenses, as well as long-term lease and equipment lease amounting to DKK 14m over the next six years. This is expected to reduce the company’s burn rate going forward and contribute to a shorter path toward achieving positive cash flow.

Considering challenging market conditions, where many smaller companies face difficulties in raising capital under favorable terms, Analyst Group considers the outcome of the rights issue reasonable.

Subscription Rate and Dilution

The rights issue was subscribed to approximately 37.7%, including the pre-subscription commitments and compensation free guarantees of 7.4%. As a result, guarantor commitments of 7.3% will be activated to achieve a subscription rate of 45%, corresponding to 18,191,248 new shares and STENOCARE will receive DKK 9.1m in gross proceeds. Transaction related costs are estimated at DKK 0.9m plus guarantor compensation of DKK 0.3m, which results in estimated net proceeds of DKK 7.9m.

As mentioned, the total number of shares will increase by 18,191,248 new shares, from 20,212,497 shares to 38,403,745 shares, why the dilution effect for shareholders who did not participate in the rights issue amounts to approximately 47.4%.

In summary, we view the outcome of the rights issue as reasonable, given the current market climate. We expect STENOCARE to utilize the net proceeds, in addition to repaying the loan, to scale up sales, including education on the benefits of the new innovative Astrum oil. After several sales-challenging years for STENOCARE, partly due to a more sluggish market than expected, it is critical for the company to prove the company’s ability to increase sales in different markets. We see the new wholehearted focus on becoming a distributor, and the benefits of Astrum oil, as important factors for achieving this success.

On December 18^th, STENOCARE announced that the company has resolved a rights issue of up to DKK 20.2m at a subscription price of DKK 0.5. The capital increase is conditional upon a minimum of a total subscription rate of approximately 45 percent, providing the Company with approximately DKK 9.1m before deduction of transaction related costs. STENOCARE has received legally binding written pre-subscription commitments and compensation free guarantees from management and existing shareholders of DKK 1.5m, corresponding to approximately 7.4% of the total Rights Issue.

The rights issue will offer existing shareholders two subscription rights for each share held, with each right enabling the purchase of one new share at a price of DKK 0.5. The subscription period runs from January 7 to January 20, 2025, and the offering is contingent upon a minimum subscription of 18,191,248 shares, equivalent to approximately 45% of the issue, which would provide STENOCARE with approximately DKK 9.1m in gross proceeds before deduction of transaction-related costs estimated at DKK 0.9m. If fully subscribed, the company will raise DKK 20.2m before transaction costs, which are estimated at DKK 1.7m, leaving net proceeds of DKK 18.5m.

The proceeds will be used to fund commercial activities, including the launch of STENOCARE’s innovative ASTRUM 10-10 medical cannabis product in key markets like Australia, Germany, and Norway. The company’s new strategy, STENOCARE 3.0, focuses on becoming a trading entity, ceasing its in-house cultivation to reduce costs significantly. This pivot is expected to save approximately DKK 14m in lease obligations and DKK 4m annually in operating costs. Additionally, the proceeds will be used to service the convertible loan of DKK 2.8m with interests and installments.

Analyst Group’s view of the Rights Issue

Analyst Group has previously highlighted STENOCARE’s strained financial position in earlier updates, where a share issue was regarded as the most likely scenario. The company has also communicated that it has been exploring various financing options, making the announced rights issue no significant surprise. However, the weak stock performance during the last months, which is likely affected by the uncertainty regarding the financial position, and the current financial market environment for capital raises is resulting in a substantial stock dilution of 67% given full subscription for shareholders who chooses not to subscribe, which is not a positive aspect for the shareholders in the short term. Going forward, the proceeds are necessary for STENOCARE to execute on planned commercial activities with the launch of the Astrum oil in several markets seen as the most important growth driver. Given that the net proceeds are expected to be used for commercial activities, except the repayment of debt of DKK 2.8m, the capital raise is expected to strengthen the revenue outlook for the company.

As the STENOCARE 3.0 strategy focuses on becoming a trading company and exit from cultivation activities, we expect a significantly decreased cost base going forward, which is why more focus and capital are expected to be directed toward increasing sales of the products that STENOCARE currently has on the market, comprising 13 products across six countries. The medical cannabis market has proven challenging to penetrate, partly due to high competition and partly due to widespread skepticism toward cannabis among prescribing doctors. STENOCARE is therefore expected to place greater focus on educating doctors about the benefits of medical cannabis treatment, thereby driving growth.

Furthermore, STENOCARE addresses the challenges of high competition and the stigma among doctors regarding medical cannabis with its Astrum oil product. This innovative and patented product is expected to improve the uptake in the blood and deliver a uniform uptake in the blood across individuals and regardless of food consumption, unlike other medical cannabis products. Historically, doctors have encountered challenges when prescribing medical cannabis to patients due to the body’s metabolism, which significantly reduces the uptake of cannabinoids. Astrum oil thereby facilitates decision-making for doctors and differentiates STENOCARE from its competitors, making the product a key growth driver for the company.

In summary, the announced rights issue was anticipated; however, given the weak share price and challenging market conditions for capital raising, it results in a dilution effect of 67% for shareholders who choose not to participate, assuming full subscription. With a subscription price of DKK 0.5 per share, this corresponds to a pre-money valuation of DKK 10.1m. Considering the opportunities associated with an increased commercialization focus on Astrum oil, which is expected to drive expansion into additional markets, Analyst Group views the announced rights issue as an attractive investment opportunity.

On December 17^th, STENOCARE announced that the company has received approval for a new product in Denmark, CBD100, which has a high concentration of CBD active ingredients (100 mg/ml). This makes STENOCARE the only supplier to offer a CBD100 oil product in Denmark.

With the CBD100 oil product added to the portfolio, STENOCARE’s portfolio consists of four products approved for sales in Denmark, including a lighter CBD-oil, a THC-oil and a balanced oil, which solidifies the company’s position as a leading supplier in the country, which recently formally agreed on permanent legalization of medical cannabis.

The new product, CBD100, has a higher concentration of CBD, which targets patients who need higher dosages in its treatment. CBD can be used as a treatment for a range of symptoms, including chronic pain, anxiety, stress, and nausea experienced by cancer patients during treatments, thereby addressing several significant and widespread symptoms affecting numerous patients. The new CBD oil provides doctors in Denmark with an additional option for treating these symptoms, as STENOCARE becomes the sole supplier of medical cannabis oil products with such a high concentration of CBD, which, according to Analyst Group, constitutes a competitive advantage.

STENOCARE has a strong track record of getting products approved in several markets, both highly regulated and markets with lower barriers to entry, which the approval of the CBD100 oil product further solidifies. This is expected to be beneficial in the company’s new strategy, aiming to be a leading trading company for medical cannabis products with broad range of products to reach more patients and hence deliver growth in sales.

In summary, we view positively on the news of the approved CBD100 oil product, as it further solidifies STENOCARE’s position as a leading supplier in Denmark and provides an additional option for doctors and patients in Denmark, as this is the only medical cannabis oil product with this concentration of CBD, which is seen as a competitive advantage.

STENOCARE announced on December 2^nd that the company’s premium product, the Astrum oil, has been approved for sales on the Norwegian market. The product is expected to have several benefits compared to the medical cannabis oil available today, including a higher, more uniform, and faster uptake in the blood. The product, Astrum 10-10 oil Stenocare, with 10 mg/ml THC and 10 mg/ml CBD, is expected to be available for patients in Norway within the next 30 days.

The Benefits of the Astrum Oil

Today, doctors encounter challenges when prescribing medical cannabis to patients due to the body’s metabolism, which significantly reduces the uptake of cannabinoids to approximately 15%. This results in only a variable and often minimal portion of the cannabinoids being actively delivered to the body with therapeutic effect, meaning an inconsistent uptake of the active ingredients into the blood. Additionally, the absorption by the body varies from person to person and depending on whether the medication is taken before or after food consumption. This variability leads to unpredictable effects and complicates the doctors’ ability to prescribe the correct dosage.

STENOCARE’s new Astrum oil addresses all of these problems as it is based on a new innovative oil technology. In H2-22, STENOCARE released a study in dogs, showing that the Astrum oil improves the uptake in the blood with a factor of 2.6 compared to a reference MCT-oil product in the market. Moreover, the Astrum oil delivers a uniform uptake in the blood across individuals and regardless of food consumption. Lastly, the Astrum oil improves the time from dosing to full effect from 2-4 hours to just 1 hour, an important step to help patients manage their medical problems.

Analyst Group’s View of the Approval

With the launch of the Astrum oil, which has previously been approved in Australia and Germany, we see STENOCARE as a first mover in next generation medical cannabis oil products. STENOCARE are dependent on doctors prescribing the company’s products and considering the advantages of the Astrum Oil, we expect doctors to appreciate the new product. The Astrum oil is expected to be a more predictable medical cannabis product, helping doctors to prescribe the correct dosage.

As we see the Astrum oil as the most important value driver, we view positively on the approval since it further proves the need. Moreover, the launch on the Norwegian market increases the availability of the product for patients and facilitate for doctors. However, the Norwegian market is significantly smaller than the German and Australian markets, both in terms of number of addressable patients due to lower population and since it is a highly regulated market, where it remains difficult to obtain access to medical cannabis, with many patients that are thought to turn to the black market instead.

Furthermore, STENOCARE has historically encountered challenges with the highly regulated Norwegian market. 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) unexpectedly decided to hold back the budget for treatment with all cannabis-based products, which hampered sales and consequently led to product expiration. As a result, products worth of DKK 2.1m were returned to STENOCARE. However, we expect that 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.

Nevertheless, the approval once again demonstrates STENOCARE’s ability to secure product approvals in highly regulated markets. The company has thus reaffirmed its capacity to obtain approvals across all types of markets, which we regard as a strength for future expansion into additional markets with Astrum oil.

In summary, Analyst Group views positively on STENOCARE’s approval of the Astrum oil in the Norwegian market even though the market is expected to have a significantly smaller financial impact than the approval on the German and Australian, due to the higher regulated market as well as the smaller population, hence the number of addressable patients. Nevertheless, it demonstrates the ability to secure product approvals in highly regulated markets, which we view as advantageous for the continued expansion of Astrum oil and is expected to make the product available for more patients, which we see as the most important growth driver for STENOCARE going forward.

STENOCARE announced on November 26^th 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.

Medical cannabis has been legal in Denmark under a pilot program since 2018 during a trial period that was set to expire in December 2025. However, on November 19th, the Danish Health Minister invited political parties to discuss the permanent legalization of medical cannabis in Denmark, where STENOCARE has three medical cannabis oil products approved for sale. The intention of the government is to proceed with the legalization.

The government in Denmark is proposing to make the pilot program permanent and has invited political parties to discuss the matter. According to a press release from the Minister for Interior and Health, this is based on a new evaluation which shows that the number of redeemed prescriptions has increased significantly and is now at its highest level since 2018. According to The Minister of Interior and Health, Sophie Løhde, many patients has benefitted from the treatment of medical cannabis, for instance cancer patients who may suffer from severe nausea after chemotherapy treatment, or people with multiple sclerosis who may experience severe pain.

The potential permanent legalization will enable continued treatment with medical cannabis for patients and provide clarity regarding the future of the industry in the country.

Analyst Group’s view of the impact on STENOCARE

Analyst Group views this as positive news for STENOCARE, a leading supplier of medical cannabis products to the Danish Pilot Programme since 2018. With potential permanent legalization, a clear future will be established for STENOCARE in the country, further justifying investments in new products. For instance, the company’s innovative new product, Astrum oil, which according to Analyst Group has the potential to revolutionize the industry, has been approved in Australia and Germany, and we now see Denmark as the next potential market for the product.

The Danish market has been STENOCARE’s home market and its most important in terms of sales historically, as the company is expected to have a strong brand among doctors in the country. Hence, we see good potential for STENOCARE to grow in the market, even though a special situation with a competing magistral product, which is supported by an 85% patient subsidy from the Danish Medicines Agency, is expected to hamper sales growth in the short term.

In summary, legalization eliminates a source of uncertainty for STENOCARE, paving the way for continued investments in the country, which is one of the company’s most important markets.

STENOCARE published on November 5^th the company’s Q3-report for 2024. The following are some key points that we have chosen to highlight in connection with the report:

• Continued challenging market affected sales
• A decreased cost base to adapt to the slower sales
• Additional funding needed to leverage market potential

Challenging Market Conditions Continued During Q3-24

The gross sales amounted to DKK 1.1m (2.4) in Q3-24, corresponding to a decrease of 53 %. Net sales were affected by returns of expired products amounting to DKK 2m, leading to net sales amounting to DKK -0.9m (0.2). The expired return products is assumed to be primarily attributable to the Danish market, where the company are experiencing increased competition and a special situation with a competing magistral product being supported with 85% patient subsidy from the Danish Medicines Agency, compared to STENOCARE’s 50%. This has led to slower sales than expected as well as expired products being returned to the company. STENOCARE are exploring various avenues to address this situation, including a dialogue with the medicines agency but the situation is unchanged and expected to affect the company throughout the rest of 2024.

Additionally, STENOCARE had products returned from UK and Norway, delivered in Q3-23, due to expiry, indicating that demand has been lower than expected in these countries as well. This is anticipated to be due to that the integration of medical cannabis into clinical practice has not progressed as rapidly as was anticipated a few years ago as well as increased competition.

STENOCARE has long addressed the increasing competition by initiating the development of a new, innovative product, now named Astrum Oil, which has been approved for sale in Australia and Germany. The product is expected to have several benefits compared to the medical cannabis oil available today, including a higher, more uniform, and faster uptake in the blood. With this launch, we see STENOCARE as a first mover in next generation medical cannabis oil products, why we see that the company can gain an advantage against competitors. The product is expected to be available for patients from Q4-24.

In summary, there are several short-term sales challenges, however, given the advantages of the company’s innovative Astrum Oil, STENOCARE is still considered to have strong potential for substantial revenue growth in the longer term.

Additional Cost Savings in a Tough Market

The operational expenses amounted to DKK 3m (4), corresponding in a decrease of 26%. Cost of goods sold is included in the external expenses and due to the lower gross sales in Q3-24 compared to last year, the cost of goods sold has decreased, explaining part of the decrease. Additionally, we believe that STENOCARE has continued to optimize the company’s cost structure to reduce the burn rate, given the lack of sales acceleration so far, which we view positively on.

Plan to Adress the Capital Requirements for Future Growth Expected

STENOCARE’s cash position amounted to DKK 0.1m at the end of Q3-24 and the company stated in the Q3 report that the plan for future funding of the company will be announced soon. During Q3-24 the cash flow from operating activities amounted to DKK -1.9m and was positively affected by DKK 2.2m through change in working capital. The main explanation for the positive effect is the increase in the item “Other payables”, where we could see a similar effect in Q3-23, when STENOCARE also had product returns. The effect was later reversed in Q4-23, why we expect this to have a similar negative effect on the cash flow in the upcoming fourth quarter.

As mentioned in our previous updates regarding STENOCARE, the company will need to secure additional funding to enable future growth initiatives such as the launch of Astrum oil. We consider the most likely option to be a capital raise, however, given the recent weak stock performance, such a capital raise could incur under unfavourable conditions for existing shareholders.

To summarize, STENOCARE continues to experience challenges regarding market conditions through increased competition, higher subsidy on a competing product in Denmark and an overall slower market growth than expected, which has affected sales. We expect these challenges to remain in the short term but consider the company’s Astrum oil as a potential strong sales driver in the longer term given the advantages of the product for industry. STENOCARE continues to optimize the cost base to adapt to the current market but will need additional funding going forward, where we expect a plan regarding the future capital requirements to be announced soon.

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

STENOCARE announced on October 14th that the company has updated the sales guidance for 2024, from gross sales of DKK 6-8m, which are now expected to amount to DKK 4.5m. STENOCARE is also exploring various financing opportunities to meet both short-term and long-term capital needs.

The primary reason for the updated guidance is the unfavorable market conditions that were mentioned in connection with the Q2 report in August, which persisted throughout Q3 and led to lower sales than anticipated. The unfavorable market conditions mentioned include a decrease in product prices and increased competition due to higher product price subsidies on magistral products in Denmark, which has not been resolved during Q3-24. Additionally, the company has experienced returns on expired products amounting to approximately DKK 2m, which were initially delivered to meet expected demand and will affect the Q3 results.

Analyst Group’s view

As mentioned in connection with the Q2 report, STENOCARE entered 2024 with several potential growth drivers, including the balanced oil approved in Denmark, a new product in Australia, and entry into the German market. However, these have not delivered the expected growth, even though the company has successfully made the planned strategic progress in these countries. This is believed to be due to the integration of medical cannabis into clinical practice not progressing as rapidly as anticipated a few years ago. Moreover, market conditions in Denmark have impacted sales in the country and resulted in product returns. Gross sales are expected to amount to DKK 1.1m, and with product returns of DKK 2m, this implies negative net sales of approximately DKK -1m in Q3-24. STENOCARE has revised the company’s logistical supply principles together with local pharma distributors to minimize the future risk of product returns in the Danish market.

In our latest equity research report, we had estimated net sales of DKK 6m for 2024. Considering the updated guidance as well as the product returns of DKK 2m, we expect to lower this estimate in connection with our next update following the Q3 report. Nevertheless, STENOCARE is expected to deliver the new premium Astrum oil to both Germany and Australia in Q4, which is expected to offer several benefits compared to the medical cannabis oil available today, including higher, more consistent, and faster absorption into the bloodstream. With this launch, we see STENOCARE as a first mover in next-generation medical cannabis oil products, which we believe will give the company a competitive advantage. The Astrum oil is expected to become an important sales driver going into 2025.

Lastly, STENOCARE is considering a range of financing options to address the company’s capital needs in both the short and long term, with more details expected to be announced soon. In our analysis following the Q2 report, we mentioned that we believe STENOCARE will need to secure additional funding, most likely through a capital raise, to enable future growth initiatives such as the launch of Astrum oil. However, given the recent weak stock performance, such a capital raise could incur under unfavorable conditions for existing shareholders.

STENOCARE published on August 21^st the company’s Q2-report for 2024. The following are some key points that we have chosen to highlight in connection with the report:

• Financial development during the period
• Launch of premium products ahead of plan
• Financial position and burn rate

Sales Lower than Expected due to Unfavourable Market Dynamics Concerning Pricing and Reimbursement Principles

STENOCARE’s net sales amounted to DKK 0.7m (1.7), corresponding to a decrease of 57% compared to Q2-23, which was below Analyst Group’s expectations. The lower than anticipated sales are, among other things, a result of a decrease in product prices and increased competition due to higher product price subsidy in Denmark, as well as slower sales in international markets. STENOCARE had several growth drivers going into 2024, including the balanced oil approved in Denmark, a new product in Australia and entering the German market, which has not delivered growth as expected, even though the company has successfully made the planned strategic progress in these countries. This is anticipated to be due to the integration of medical cannabis into clinical practice has not progressed as rapidly as was anticipated a few years ago.

Based on the financial performance and the outlook for 2024 STENOCARE announced on August 20th that the company updates the guidance for 2024, from gross sales of DKK 12-18m to DKK 6-8m and that the expected break even at the end of 2024 is no longer realistic. The revised guidance is primarily based on the earlier mentioned increasing competition and the dynamic pricing model in Denmark, which has entailed a decline in prices and hence affected STENOCARE’s net sales, even though the company expects to deliver +20% more products units in Denmark during 2024. Even though sales are expected to improve in H2-24 compared to H1-24 we are likely to update our financial forecasts for STENOCARE based on the financial performance in Q2-24 as well as the updated guidance.

The Cost Base Continues to Decrease

The operational expenses, excluding depreciation, amounted to DKK -3.5m (-4,3), corresponding to a decrease of 19%. Thus, we believe that STENOCARE is continuing to optimize its cost structure to reduce the company’s burn rate, given the lack of sales acceleration so far, which we view positively.

Launch of Premium Products Ahead of Plan

During Q2-24, STENOCARE announced that the company’s premium product, the Astrum oil, is ready for launch on the Australian market. The product is expected to have several benefits compared to the medical cannabis oil available today, including a higher, more uniform, and faster uptake in the blood. With this launch, we see STENOCARE as a first mover in next generation medical cannabis oil products, why we see that the company can gain an advantage against potential competitors. After the end of the period, on July 31st, STENOCARE announced that the Astrum oil has been approved in Europe’s largest medical cannabis market, Germany.

Moreover, STENOCARE also announced that the company is looking into an expansion to Canada. The Canadian market is a vast market with a lot of competition but with STENOCARE’s premium product Astrum, Analyst Group believes that STENOCARE can position the company’s products within a distinct niche, even in the most competitive markets such as the Canadian, because of the unique benefits with the products patented oil technology. This enables STENOCARE to become one of the few European companies capable of capitalizing on one of the largest medical cannabis markets globally.

Stable Patient Development in Denmark

The number of patients using medical cannabis under the Danish pilot program had a stable development in Q1-24, which is the last published figures, amounting to 816 compared to 662 in Q1-23. When looking at the number of patients using medical cannabis under the Danish pilot program, the number of patients has historically increased after new products from STENOCARE has been approved as illustrated in the graph below. From April 18^th, STENOCARE’s balanced oil has been approved for sales in Denmark, which historically has represented +50% of the total sales, why we estimate that the newly approved balanced oil will accelerate patient growth in the coming quarters, which is also expected to drive sales volume. However, due to price declines the total sales is expected to be lower than earlier anticipated in the coming quarters.

Capital Increases and Reduction of Debt but Additional Funding Expected to be Needed

During Q2-24, STENOCARE strengthened the cash position through warrants of series TO2 with net proceeds of approximately DKK 4.2m and a directed issue of DKK 1m to the major shareholder HHTM ApS. Moreover, STENOCARE negotiated a loan agreement with shareholder HHTM ApS amounting to DKK 2.8m with a slightly better interest rate than the existing debt (1.97% vs 2%) and with a loan term of 30 months compared to the existing debt of DKK 6m which was due on January 1^st, 2025. Through the new loan, the directed issue and partial of the new proceeds from TO2 warrants, the existing debt of DKK 6m was repaid, leading to the total debt on STENOCARE’s balance sheet amounting DKK 2.8m after the transactions.

Through these activities, STENOCARE’s debt has decreased, and the cash position has strengthened, which we view positively. The transactions are not visible in the Q2-report as they were completed just after the end of the quarter. Given that the “old” debt of DKK 6m has been repaid with the new loan of DKK 2.8m, the proceeds from the directed issue of DKK 1m, we estimate that approximately DKK 2.2m of the proceeds from TO2 has been used to repay the loan, which leaves approximately DKK 2m as cash at bank at the end of Q2-24. The burn rate in Q2-24 was DKK -0.77m per month and given the financial performance in H1-24, the updated guidance, and the estimated cash balance of approximately DKK 2m at the end of Q2-24, Analyst Group believes that the company will need to secure additional funding, most likely through a capital raise.

To summarize, STENOCARE delivered a report with lower sales than estimated but also lower costs than expected. We continue to see several growth drivers, even though they are materializing more slowly than we previously anticipated, however we expect higher revenue in H2-24 compared to H1-24.

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

STENOCARE published on May 2 the company’s Q1-report for 2024. The following are some key points that we have chosen to highlight in connection with the report:

• Financial development during the period
• New product approved in Denmark
• Accelerated sales growth is important for the financial position

43% Sales Growth

STENOCARE’s net sales amounted to DKK 1.2m in Q1-24, corresponding to a growth of 43% compared to Q1-23 when net sales amounted to DKK 0.8m. The gross sales, excluding product returns, amounted to DKK 1.4m, corresponding to a growth of 62%. The sales in Q1-24 included delivery of products to the Danish market, where a new product was approved for sales in Q1-24, a mixed THC/CBD oil which historically has represented +50% of sales volume in the Danish market and expected to drive the sales growth in the coming quarters as the product is available for sale since April 2024. The new product is not included in the Q1 figures but sold to the distributors after the reporting period.

With reported sales of DKK 1.2m in Q1-24, STENOCARE has a way to go to reach our annual revenue forecast for 2024 of DKK 16.5m in a Base scenario. However, it should be noted that, as mentioned in our previous updates regarding STENOCARE, sales are expected to fluctuate between quarters as a result of the company delivering products in large bulks, which means that sales are affected by in which quarter larger deliveries occur. Given the approval of the balanced oil in Q1-24, we expect growing sales on the Danish market going forward, in combination with deliveries to international markets, where sales have so far developed slower than estimated. However, a new product was launched to the Australian market during Q1-24, which is expected to be a sales driver in that market moving forward. Moreover, STENOCARE entered the German market in Q4-23, where we expect more sales in the coming quarters.

Slightly Decreased Cost Base

The operational expenses, including depreciation, amounted to DKK -4.5m in Q1-24, compared to DKK -4.8m in Q1-23, corresponding to a decrease of 7%. Sequentially, the operational expenses decreased from DKK 5.1m in Q4-23, a reduction of 12%. The sales growth in combination with the decreasing cost base, the EBITDA result improved to DKK -2.5m in Q1-24 from DKK -3.2m in Q1-23. With a slim organization and lean cost base, the estimated accelerated sales growth is expected to lead to the anticipated break even by the end of 2024.

New Product Approved in Denmark

On February 26^th, STENOCARE announced that a new product has been approved for sales under the Danish pilot program. The product is a mixed THC/CBD oil product, which means that STENOCARE has regained the position as the only provider of all three essential oil products under the Danish Pilot Programme: THC oil, CBD oil, and now also the new THC/CBD mixed oil. This means that STENOCARE are now back with three different products approved in Denmark, like in 2018/2019, before STENOCARE had to terminate the partnership with their then only supplier, CannTrust, and start to look for a new partner and again getting products approved by authorities, which has now been completed. When looking at the number of patients using medical cannabis under the Danish pilot program, the number of patients has historically increased after new products from STENOCARE has been approved as illustrated in the graph below. Moreover, in 2018/2019, the balanced oil represented +50% of the total sales, why we estimate that the newly approved balanced oil will accelerate patient growth in the coming quarters, thus also sales growth for STENOCARE.

Accelerated Sales Growth is Important for the Financial Position

The cash position at the end of Q1-24 amounted to DKK 2.6m, compared to DKK 9.5m at the end of Q4-23. In addition to the reported EBITDA loss, the cash position was affected by a repayment of convertible loans amounting to DKK 3.2m, which we accounted for in our comment on STENOCARE’s Q4 report. Based on the current cash position and an estimated burn rate of DKK -0.7m per month, STENOCARE would be financed until July 2024. However, the cash position can be strengthened in June by the exercise of warrants of series TO2, where 1,712,999 warrants can be exercised in the period 10 to 21 June 2024 with a price per share of the VWAP for the last 10 trading days before the exercise period beginning less 30%. Moreover, Analyst Group estimates, as previously mentioned, accelerated sales growth in the coming quarters to improve the cash flow, which we see as important to avoid further external capital raising in the future.

To summarize, STENOCARE delivered a stable report with a decreasing cost base. An accelerated sales growth is expected in the coming quarters, among other things through the introduction of new products in Denmark as well as Australia to reach our sales forecast of DKK 16.5m for 2024, which is also important for the cash position to avoid further external capital raising in the future.

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

STENOCARE announced on December 14^th that the company has entered into a new partnership agreement with Quest Biotech Pharma (“QBP”), aimed at expanding its reach to more prescribing doctors and patients in Australia.

New Partnership to Increase Doctors Reach

QBP is a highly specialized Australian pharmaceutical company who can increase the capacity of prescribing doctors of STENOCARE branded products via multiple channels. QBP has a pharmaceutical approach to medical cannabis education and offers free and balanced educational resources on medical cannabis to patients, nurses, doctors, and pharmacists. For instance, QBP partners with a holistic tele healthcare clinic – TeleDocs Clinic – serving patients with convenient access to medical care services nationwide. This is expected to increase prescribing doctors reach to patients, just like STENOCARE’s own online clinic, as TeleDocs Clinic addresses all of Australia. The agreement has the potential to double the sales run rate of STENOCARE-branded products in Australia during 2024.

Analyst Group’s View of the Partnership

In our last equity research reports we have stated the importance of ensuring the health care industry’s interest and thus that doctors are willing to prescribe medical cannabis to patients. An essential step for this to happen is to educate doctors about the benefits of medical cannabis and the treatment process, as there are significant knowledge gaps in the market today. The partnership with QBP is expected to address this issue since the QBP pharmacists provide free and balanced education about medicinal cannabis to patients, nurses, doctors, and pharmacists. Consequently, more doctors can be educated about the advantages of medical cannabis and, in turn, prescribe it. Additionally, STENOCARE’s dosing method is expected to be advantageous in persuading doctors to prescribe medical cannabis, as they are accustomed to dosing with oils in other medications, compared to other products such as dried cannabis, which is used for smoking and is generally perceived as more harmful.

Furthermore, the partnership with QBP is expected to enable doctors prescribing STENOCARE’s products to expand their reach to patients, given QBP’s partnership with the holistic telehealth clinic, TeleDocs Clinic. Just like with STENOCARE’s own online clinic, doctors, with the assistance of TeleDocs Clinic, can reach patients across the entire country, thereby increasing the number of addressable patients. Given that Australia is a vast and sparsely populated country, it is crucial to be able to reach extensive areas to address as many patients as possible, making a tele healthcare clinic a suitable solution.

In summary, Analyst Group views positively on STENOCARE’s new partnership with QBP, as we anticipate that it will result in an increased number of prescriptions by doctors in Australia, contributing to strong revenue growth in the country in the coming years and beyond.

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 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.