Creso Pharma Ltd (ASX:CPH, OTCQB:COPHF) subsidiary Mernova Medicinal Inc has inked a deal with North American regulatory and scientific cannabis consulting agency CannDelta Inc to map the European Good Manufacturing Practice (GMP) licensing process for its Canadian manufacturing facility.
Lucrative Australian market
The agreement will enable Mernova to fast-track cannabis exports to Australia as well as Europe. An EU GMP licence would allow the company to broaden its international footprint considerably and unlock multiple new large markets with higher margins.
The EU GMP describes the minimum standard that a medicines manufacturer must meet in its production processes in order to export to several major global markets.
A regulatory upgrade has the potential to unlock new, large international markets and higher-margin sales for Mernova.
Creso has trained its sights on Australia in particular, following the Federal Government’s decision to amend regulations around the import of cannabis so that from July this year it must conform with the GMP standard.
The Australian market provides a lucrative opportunity for Creso – it offers, at minimum, double the pricing found in Canada on a per-gram sales basis, which means increased revenues and higher margins if the company can unlock this market.
Leveraging HHI asset
The strategic decision follows Creso Pharma’s acquisition of Health House International Limited (ASX:HHI) (HHI).
Creso plans to leverage HHI’s established cannabis distribution network and relationships to pursue high-growth sales in Australia following approvals.
Mernova is currently operating at 60% capacity, adjusted to match supply and demand, which means it has been cash-flow positive in Q1. The company hopes that international revenue sources could scale sales growth materially without the need to invest in a new production footprint.
The EU GMP process is set to commence immediately with Mernova personnel working closely with CannDelta to ensure all requirements are assessed as quickly as possible.
Under the agreement, CannDelta will provide quality and regulatory advisory support to Mernova as it progresses its EU GMP licence application.
The support will include:
- reviewing and recommending on the company’s physical security, standard operating procedures, inventory control and record-keeping measures;
- assisting with additional cleaning and process validation, building and equipment qualification, installation or upgrade requirements; and
- stability study protocols prior to inspection and approval of the licence.
Scaling up operations
“The decision to pursue EU GMP registration for Mernova will allow the company to considerably scale up operations and further expand our international footprint outside of Canada,” CEO and managing director William Lay said.
“Following the completion of the HHI acquisition, Creso Pharma has an enviable international medicinal cannabis distribution network which can be immediately leveraged to drive sales growth in Australia at a much higher margin than Canada.
“Further, to have secured the services of a top-tier consulting firm such as CannDelta will ensure Mernova’s operations are running at optimum capacity and in line with stringent regulations.
“Work alongside CannDelta is expected to commence in the coming weeks, which will be followed by minor building upgrades and process optimisation prior to an EU GMP inspection in early 2024. We look forward to providing shareholders with additional updates over the coming months.”