GROUP LIMITED
Annual Report 2018
Our business is science...
CONTENTS
2
BUSINESS MODEL AND
THE INDUSTRY VALUE CHAIN
4 MESSAGE FROM CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
6
OPERATIONS REVIEW
10 DIRECTORS’ REPORT
22 AUDITOR’S INDEPENDENCE DECLARATION
23 CONSOLIDATED STATEMENT OF PROFIT
OR LOSS AND OTHER COMPREHENSIVE INCOME
24 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
25 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
26 CONSOLIDATED STATEMENT OF CASH FLOWS
27 NOTES TO THE FINANCIAL STATEMENTS
41 DIRECTORS’ DECLARATION
42
47 SHAREHOLDER INFORMATION
IBC CORPORATE DIRECTORY
INDEPENDENT AUDITOR’S REPORT
CORPORATE INFORMATION
DIRECTORS
These are the full financial statements of
Cann Group Ltd (the Company) and its subsidiaries,
including Cannproducts Pty Ltd (incorporated and
domiciled in Victoria, Australia), Cannoperations Pty Ltd
(incorporated and domiciled in Victoria, Australia), Cann IP
Pty Ltd (incorporated and domiciled in Victoria, Australia)
and Botanitech Pty Ltd (incorporated and domiciled in
Victoria, Australia), (together, the Group). These financial
statements are for the year ended 30 June 2018. Unless
otherwise stated, all amounts are presented in $AUD.
A description of the group’s operations and of its principal
activities is included in the review of operations and
activities in the attaching directors’ report.
Mr Allan McCallum (Chairman)
Mr Philip Jacobsen (Deputy Chairman)
Mr Douglas Rathbone
Mr Geoffrey Pearce
Mr Neil Belot (appointed 26 February 2018)
…our product is quality of life
Cann Group aims to improve the quality of life for people
with chronic medical conditions that can be more effectively
managed or treated with medicinal cannabis.
We take a science-based approach to developing safe,
innovative and effective treatments that seek to benefit
each patient’s personal experience of wellness.
CANN GROuP LIMITED ANNuAL REPORT 2018
1
BUSINESS MODEL AND
THE INDUSTRY VALUE CHAIN
After listing on the ASX in May 2017,
Cann Group has established itself
as a leader in the quickly evolving
medicinal cannabis industry in
Australia.
The company is pursuing a fully integrated business
model, with resources and capabilities spanning
research & development; cultivation & production;
manufacturing; packaging & distribution; clinical
evaluation; and distribution/supply to patients in
both Australia and in export markets where a legal
framework exists for medicinal cannabis treatment.
A FULLY INTEGRATED BUSINESS MODEL BUILT FOR GROWTH
CANN’S COMPETITIVE STRENGTHS LIE IN THESE SEGMENTS
OF THE VALUE CHAIN…
RESEARCH
& DEVELOPMENT
Research &
Development
CULTIVATION
& PRODUCTION
Cultivation &
Production
MANUFACTURING
Manufacturing
Packaging &
Distribution
Clinical
Evaluation/End
Use Demand
• Accessing and storing
• Secure indoor grow
elite genetics and tissue
culture program
rooms and glasshouse
cultivation facilities
• Developing ‘next
generation’ cannabis
strains
• Internal R&D capabilities
supplemented with
key partnerships
& collaborations
• Ongoing programs
to establish optimised
growing conditions
• Expansion program
underway involving
new ≈ $100m facility
• Leading extraction &
analysis technology
• Formulations and
delivery systems
• Value-added and higher
margin treatments in
development
• Robust GMP
manufacturing
standards
2
In the 2018 financial reporting period, Cann Group
has secured positions across the full value chain,
through its own investments and via important
collaborations and partnerships that will add
significant value to the company’s business plans.
…WITH A CLEAR PATHWAY TO SECURE
INVOLVEMENT IN THESE SEGMENTS
Research &
Development
Cultivation &
Production
Manufacturing
PACKAGING
& DISTRIBUTION
Packaging &
Distribution
Clinical
Evaluation/End
Use Demand
• Active Medicinal
Cannabis Medicines
Portal
• License to Wisp
Vaporiser
• High volume export
capability
• Evolving clinical
trial program
• Medical education
and community
awareness
initiatives
The Olivia Newton-John Cancer
Research Institute is integrated
within the ONJ Cancer Centre and
is a leader in the development
of immunotherapies, targeted
therapeutics and personalised
cancer medicine.
Our research laboratories are only
metres away from where patients
are cared for and receive treatment.
This inspires, and enables the rapid
translation of scientific discovery
into clinical trial of new and better
cancer treatments.
Olivia Newton John’s personal
experience has made her a strong
advocate for the legalised use of
medicinal cannabis to help treat
cancer-related pain. Cann Group
is working with the ONJ to explore
opportunities to undertake clinical
research that will help establish the
benefits of medicinal cannabis treatment
and optimum treatment regimes.
CANN GROuP LIMITED ANNuAL REPORT 2018
3
MESSAGE FROM CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
…The past 12 months was particularly important
in relation to the Company securing the necessary
licences and permits that govern our various
research, cultivation, manufacturing and
import/export activities…
4
Dear Shareholders,
The 2018 financial year – our first full year as a publicly
listed company – encompassed a period of important and
positive progress as we continued to lay the foundations
for a robust and profitable business that will generate long
term value for our stakeholders.
Our strategy involves a strong science-based focus
on securing the capabilities and resources to develop
safe, innovative and effective medicinal cannabis
treatments that make a meaningful difference to quality
of life. We are achieving this through ongoing investment
in building the skills of our own people; expanding our
facilities; and entering into partnerships and collaborations
that provide access to new technology and complement
our in-house capabilities.
The past 12 months was particularly important in relation
to the Company securing the necessary licences and
permits that govern our various research, cultivation,
manufacturing and import/export activities. We have
worked closely with the Federal Government’s Office
of Drug Control to ensure our facilities and procedures
meet the relevant requirements. While the period saw
a large number of many new operators in the sector
apply for licensing approvals, Cann Group remains one
of relatively few companies that have secured both the
licences and, critically, the permits, that allow us to
continue to execute on our business plan.
As with any new industry – and particularly those that are
closely regulated – it will take some time for Government
to optimise the processes and provide all of the necessary
resources to ensure those processes are undertaken on
an efficient basis. We will continue to support the
Government’s efforts in that regard.
During the year, we completed expansion works
at our Southern facility and commissioned our new,
larger Northern facility. While the Northern facility
provides expanded cultivation space, we are focusing
our activities at Northern on a genetics and tissue culture
program that will yield valuable new cannabis strains for
future product development.
We also announced our stage 3 expansion, which will
involve a state-of-the-art green field development including
glasshouse cultivation space, research and development
laboratories and full GMP manufacturing facilities.
The 37,000m2 development will be located at the Melbourne
Airport precinct, with an MOU having been signed with
Australian Pacific Airports (Melbourne) Pty Ltd this past
June. The project is in design phase, with a commissioning
of the initial works targeted in July 2019.
The relationships and partnerships we have formed over
the reporting period will prove invaluable as we continue
to build the business. We are collaborating with a range
of organisations that provide access to critical skills,
technology and experience. These include La Trobe
University; Agriculture Victoria; CSIRO; and several
medically focused organisations that will help facilitate
further clinical evaluation of treatments.
We have also strengthened our relationship with our strategic
shareholder, Aurora Cannabis Inc (Canada). While this
has been formalised via an important Technical Services
Agreement, Aurora’s involvement and support extends
well beyond the scope of that agreement as we continue
to draw on their industry experience and know-how.
Our own team has expanded considerably over the period.
We now have a committed group of some 40 employees
who are making a tremendous contribution to the growth
of the Company. Their efforts are appreciated.
While the past year has seen a necessary focus on
planning and building-out our R&D, cultivation and product
development base, we are now expanding our focus to
cover clinical evaluation; product distribution and other
commercial aspects of the business.
Australia remains the primary focus for the business and
we welcome the continuing discussions on streamlining
access for patients in this country. We are also actively
pursuing opportunities to export our products to overseas
markets that have legalised medicinal cannabis.
With strong shareholder support for a major capital raising
completed during the year, the company is in a sound
financial position to continue with our expansion plans.
The Company has established itself as a leader in the
quickly evolving Australian medicinal cannabis industry
and we are proud of what has been achieved in a relatively
short time.
Yours sincerely
Allan McCallum
Chairman
Peter Crock
Chief Executive Officer
CANN GROuP LIMITED ANNuAL REPORT 2018
5
OPERATIONS REVIEW
Production
Cann Group Limited (“Cann”) started harvesting medicinal
cannabis at its Southern facility in Melbourne in August
2017. The production process included curing and drying
harvested material; samples sent for analysis to allow
processes to be validated; and the propagation of new
crops at the facility.
Cultivation and harvesting operations continued successfully
during the year, with Cann harvesting numerous crops
during the period.
Facilities
Early in the year, the Company added capacity at its
Southern facility with four new secure cultivation rooms,
an additional drying room and a secure storage room.
We commissioned the Northern cultivation and research
facility in Melbourne in December. The Northern facility
features greenhouse cultivation areas and adjoining
laboratory/research facilities. The cultivation areas
are configured as a series of individual cultivation
compartments, allowing the separation of different
cannabis varieties during cultivation and harvest.
While this facility provides expanded cultivation space,
it is currently focused on accommodating our genetics
and tissue culture programs.
The official commissioning of the Northern facility followed
the receipt of a relevant permit from the Office of Drug
Control (ODC) in October. We were eligible for the new
permit under our cultivation licences for medicinal and
research purposes, which were varied by the ODC
to include the Northern Facility.
In June 2018, we signed a Heads of Agreement with
Australia Pacific Airports (Melbourne) Pty Ltd (APAM),
securing the site of the Company’s Stage 3 facility.
Under the lease arrangement, APAM will fund and
undertake the primary build of the 37,000m2 facility,
representing a multi-million-dollar contribution to the
project. The state-of-the-art green field development
will incorporate glasshouse cultivation space, laboratories,
and a GMP manufacturing facility.
Aurora Larssen Projects (ALPS), a specialist greenhouse
engineering consultancy providing technical consulting to
the greenhouse industry worldwide, is designing the facility.
Upon completion of the construction, Cann – with the
support of ALPS – will complete the fit-out and technology
deployment required at the facility. The total business
case investment is estimated at $100 million, with the
facility expected to employ approximately 170 staff.
Under the heads of agreement, we are permitted to
operate cultivation, manufacturing, warehousing and
distribution of medicinal cannabis, and are responsible
for obtaining all necessary government approvals.
The details set out in the agreement for lease are
subject to the approval of the APAM board which
must be obtained prior to the execution of the formal
lease documents.
We are continuing to make progress on the Project
Tullamarine detailed design phase. Completion of the
first glasshouse is targeted for July 2019, with cultivation
to start following its completion.
The Company has also had initial discussions with
several parties regarding future offtake and expects
to make announcements regarding this in due course.
Regulatory
In October 2017, Cann was granted a licence to import
and/or export cannabis genetics and medicinal cannabis
products by the Australian Government Department of
Health, through the Office of Drug Control (ODC). As a
holder of this licence, the Company can apply for a permit
to export raw cannabis material and cannabis oil for
analytical testing.
The Company intends to utilise the analytical services
of Anandia Laboratories in Canada to complement
the capabilities available to the Company in Australia.
The licence also allows Cann to apply for a permit
to import cannabis genetics and medicinal cannabis
products from legal international sources.
We have worked closely with our strategic shareholder
in Canada, Aurora Cannabis, and Anandia Laboratories
to identify suitable genetics and medicinal cannabis
products for inclusion in import permit applications which
have now been granted by the Australian Government.
6
OPERATIONS REVIEW (CONTINUED)
Cann’s import/export licence was followed by an
announcement from the Australian Government on
4 January 2018 that Australian producers of medicinal
cannabis would be permitted to export product to
overseas markets. This is expected to lead to further
investment in the Australian industry and provide
local companies with an incentive to accelerate
their development plans.
In February, the Company announced it had received
two new licences from the Office of Drug Control to enable
continuation of our cultivation and production of cannabis
for research and medicinal purposes. The Company was
required to reapply to the ODC as per current legislation,
because the initial licences were issued for a set term
of 12 months.
Cann also received the corresponding permits to these
licences, including permits for cultivation relating to research
activity, for the maintenance and use of mother plants
and – importantly – for cultivation and product for supply
for therapeutic purposes.
Securing the licences and permits demonstrated Cann’s
capability as a reliable medicinal cannabis producer during
2017, having successfully completed multiple harvests
of material, and aiming to scale up our production during
the 2018 calendar year. The permits also allowed us to
continue our research and work with partners including
La Trobe University, Aurora Cannabis, Agriculture Victoria,
CSIRO and Anandia Labs.
In March, we announced we had secured export permits
from Health Canada, to accompany our import permits
from the drug control section of the Therapeutic Goods
Administration, enabling the Company to initiate the import
of genetics and cannabis oils from our Canadian partners.
The receipt of these permits also enabled Cann to begin
importing tissue culture from Aurora Cannabis and Anandia
Labs in the June quarter. While the material has arrived in
Australia, it is still undergoing quarantine screening by the
Australian Department of Agriculture and Water Resources.
The importation of this material will allow Cann to establish
a bank of various genetics, facilitating research into the
suitability of particular strains for certain therapeutic
applications. In addition, by fostering a plant breeding
program, we will establish surety around the supply of
material moving forward and broaden this supply beyond
the limited locally available and legally approved genetics.
The import permits for cannabis oil allowed the Company
to import four products developed by Aurora Cannabis
to Australia, which will be made available to medical
practitioners seeking to provide medicinal cannabis to
patients under the Special Access Scheme or Authorised
Prescriber Scheme. Cann received the first shipment of oil
in the June quarter, and we have subsequently announced
that the first patients have been supplied, following specific
patient-product approval through the Therapeutic Good
Administration’s Special Access Scheme.
Partnerships and Research
In July 2017, Cann announced the execution of a Technical
Services Agreement with Aurora Cannabis Inc, Canada’s
second largest publicly listed medical cannabis producer
and the first company to establish purpose-built cultivation
facilities in Canada.
Aurora is a 22.9% shareholder of Cann, taking a cornerstone
investment position in the company’s IPO and participating
in Cann’s capital raising in December 2017.
The Agreement, which extends to the end of 2022, is
facilitating an exchange of information and support across
areas including the cultivation and processing of medical
cannabis; extraction and manufacturing technology; and
analysis of cannabis extracts.
Canada has a well-established medical cannabis industry,
and Aurora is incorporating industry-leading technology
into its new 800,000sq ft facility in Edmonton. The Aurora
connection provides an opportunity for Cann to expand
our knowledge and expertise as we grow our position as
a leader in Australia’s fledgling medicinal cannabis market.
Post year-end, in August 2018, we announced the signing
of an MOU with Agriculture Victoria to undertake further
medicinal cannabis research.
CANN GROuP LIMITED ANNuAL REPORT 2018
7
OPERATIONS REVIEW (CONTINUED)
Cann and Agriculture Victoria have outlined several
common areas of interest which will be pursued under
a set of Research Projects. Areas of focus will include
activities relating to medicinal cannabis cultivation,
production and extraction, cannabis strain genome
analysis and strain identification, accelerated precision
breeding and development of novel and designer
medicinal cannabis strains that will add to Cann’s
intellectual property portfolio.
The Research division of Agriculture Victoria is part
of the Victorian Government’s Department of Economic
Development, Jobs, Transport and Resources (DEDJTR).
Cann has also supplied a quantity of medicinal cannabis
biomass to Agriculture Victoria to be used for research
purposes.
In the June quarter, Cann announced plans to expand
our research and development operations with La Trobe
University, signing a memorandum of understanding
that strengthens the relationship between the parties.
The MOU is a precursor to a strategic relationship agreement
whereby Cann and La Trobe can enhance its capabilities
across research, teaching and knowledge related to the
medicinal cannabis industry.
Product development and patient access
In September 2017, Cann Group (through our wholly-owned
subsidiary Cannproducts Pty Ltd) announced it was
a partner in the Medicinal Cannabis Medicines Portal
to facilitate streamlined medicinal cannabis prescribing
and dispensing in Australia.
The Portal is a platform that will allow collaboration between
prescribers, pharmacists and sponsor manufacturers
to help patients access appropriate medicinal cannabis
treatment in line with national and state/territory-based
laws and requirements. It also provides logistics support for
pharmacy wholesaler ordering and pharmacy dispensing.
Subsequent to year end, the Company announced that the
first patients had been approved through the Therapeutic
Good Administration’s Special Access Scheme to begin
treatment with a medicinal cannabis product supplied
by Cann Group.
The product – an ingestible oil containing a 1:1 ratio
of THC and CBD – is produced by Aurora Cannabis
in Canada and imported into Australia by Cann Group.
We will be importing additional supplies of cannabis oil
from Aurora in several different formulations, with patients
granted access after having been approved for treatment
through the TGA’s Special Access Scheme or Authorised
Prescriber Scheme.
The supply of product to patients in Australia marks an
important milestone in our plans to be a fully integrated
medicinal cannabis company.
In August 2017, we executed a licencing and distribution
agreement with CannaKorp, Inc. to import and sell
CannaKorp’s proprietary ‘Wisp’ vaporising system as well
as securing the right to produce the medicinal cannabis
pods associated with the device.
CannaKorp is a Massachusetts-based technology
company simplifying and improving the inhalation
process for medicinal cannabis patients. It has
designed and developed vaporisation technology
which incorporates a desktop vaporiser device that
accepts single-use pods containing precisely prepared
ground cannabis.
Under the terms of the agreement Cann, through our
wholly-owned subsidiary Cannproducts Pty Ltd, is granted
a licence to import and sell the system in Australia and
New Zealand, as well as manufacturing rights which
includes an initial nine-month exclusive right following
regulatory approvals.
Intended sales of the system and pods will be subject to
obtaining all necessary regulatory approvals, with CannaKorp
and Cann working collaboratively to obtain these.
This delivery system will initially be produced by our
manufacturing partner, IDT Australia Limited, with whom
we executed a manufacturing agreement subsequent
to year end.
IDT has been contracted to provide manufacturing
support in relation to medicinal cannabis-based
product formulations intended for supply to patients
in Australia and overseas.
8
OPERATIONS REVIEW (CONTINUED)
IDT’s capabilities and experience in working with
leading pharmaceutical companies make it an excellent
manufacturing partner and we look forward to developing
a range of delivery systems and dosage forms that can
meet the varying needs of patients who can benefit from
medicinal cannabis treatments.
On the clinical trial front, the Company continues to work
with a range of organisations to assess appropriate trial
opportunities that we can support. These include the
Olivia Newton-John Cancer Wellness and Research
Centre in Melbourne and its associated Research
Institute, which has a strong interest in this area.
Corporate
Capital raising
Cann announced in late November 2017 a fully
underwritten $60 million institutional share placement
and fully underwritten $10 million Share Purchase Plan
(SPP). Once completed, the total raised was approximately
$78 million at a price of $2.50 per share.
Proceeds from the capital raising are funding the
Company’s accelerated growth plans which includes the
construction of its Stage 3, large-scale cultivation facility
and full GMP manufacturing capabilities. The Stage 3
expansion will allow additional involvement in, and support
for, clinical trial activity, and further development of product
manufacturing capabilities. Further expansion plans will
progress as demand for medicinal cannabis continues
to build.
Major shareholder Aurora Cannabis Inc (Aurora)
participated fully in the placement and the Company
issued new placement shares to Aurora, increasing
its shareholding from 19.9% to 22.9%.
Change of Registered Office
During the December quarter, Cann’s corporate
and registered office moved to La Trobe University’s
Technology Enterprise Centre (TEC) in Bundoora, Victoria.
Post year-end, Cann announced it had relocated
its corporate headquarters to be within the Walter
and Eliza Hall Institute of Medical Research at La Trobe,
enabling continuation of its rapid expansion.
Board, Management and Staff
On 1 March 2018, Cann announced the appointment
of Aurora Cannabis Chief Global Business Development
Officer Neil Belot as a Director of the Company, following
Aurora’s participation in Cann’s capital raising in which
it increased its holding to 22.9%.
Cann also recruited new staff during the year, including
Quality Assurance staff, taking total number of employees
to more than 40.
S&P/ASX Indices rebalance
During the March quarter, Cann was added to the S&P
ASX All Ordinaries Index, with the inclusion becoming
effective as of 19 March 2018.
Outlook
Looking ahead to the 2019 reporting period, the Company
is committed to maintaining strong momentum.
We are continuing to strengthen the capabilities of our
own team and we will secure meaningful value from the
partnerships we have established.
By the end of the period, construction on our Phase 3
expansion facility will be well underway.
We also expect to have progressed the development
of a range of new dosage forms, suitable for patients
in Australia and in overseas markets. Having already
secured our export licence, we are working with the
authorities to gain approval for the permits which will
allow us to start export sales.
We will also step up our engagement with the medical
community as we support a streamlining of the
requirements for patient access and help ensure medical
professionals have the resources they require to make
considered decisions on the suitability of medicinal
cannabis treatment for their patients.
It will be another challenging and busy year, but one that
should see substantial progress against the Company’s
business objectives.
CANN GROuP LIMITED ANNuAL REPORT 2018
9
DIRECTORS’ REPORT
Your directors present their report on the Group
for the year ended 30 June 2018.
Douglas John Rathbone,
AM, FATSE, FI ChemE, ARMIT B Comm, TTC
Information on Directors
The names and details of the directors in office during
the year and until the date of this report are as follows.
Directors have been in office for this entire year unless
otherwise stated.
Allan McCallum,
Dip. Ag Science, FAICD (Non-executive Chairman)
Allan has broad experience as a public company director
in agribusiness and healthcare who has strong ethics,
proven leadership capabilities and extensive experience
in strategy development and implementation and
mergers and acquisitions. Allan is the current Chair
of Tassal Group Ltd (ASX TGR) from 7 October 2003
Australia’s largest producer of Atlantic salmon and
a Director of Medical Developments International Ltd
(ASX MVP) from 27 October 2003, a pharmaceutical
and device manufacturer, marketing nationally and
internationally. His previous board roles include Incitec Pivot
Ltd (ASX IPL) from 30 January 1998 to 19 December 2013
and Graincorp Ltd (ASX GNR) from 26 February 1998 to
26 August 2005.
Director since 30 January 2015
Special Responsibilities – Member of Audit and Risk
Committee and Chairman of Remuneration Committee
Interest in Shares
5,580,000 Ordinary Shares
Philip Robert Nicholas Jacobsen,
CPA (Deputy Chairman)
An experienced public company director, he co-founded
Premier Artists in 1975 and The Frontier Touring Company
in 1979. He serves as a director of Liberation Music, Premier
Artists, The Harbour Agency and Jacobsen Bloodstock.
Former Chair of MCM Entertainment Group, Philip brings
to the Board a 45 plus year history of applying solid fiscal
accounting perspectives to an emerging business model
in a constantly changing, high demand market place.
Director since 30 January 2015
Special Responsibilities – Chairman of Audit and Risk
Committee and Member of Remuneration Committee
Interest in Shares
4,064,518 Ordinary Shares
An experienced public company director, he is the former
Managing Director and CEO of Nufarm Limited (ASX NUF)
from 21 August 1987 to 4 February 2015 – an ASX 200 listed
company and is a former Board member of the FERNZ
Corporation and the CSIRO. The Chairman of the Rathbone
Wine Group, Director of Cotton Seed Distributors, Leaf
Resources Ltd (ASX LER) from 1 November 2016 and
Chairman since 1 April 2018, Go Resources, Queenscliff
Harbour Pty Ltd and AgBiTech. He is also a former member
of the RABO Bank Advisory Board, an Honorary Life
Governor of the Royal Children’s Hospital and a former
Director of the Burnett Centre for Medical Research.
Doug brings to the Board experienced management
and corporate governance skills together with a passion to
grow the business having successfully transformed Nufarm
to become one of the world’s leading crop protection and
seed companies with an extensive global footprint.
Director since 16 March 2015
Special Responsibilities – Member of Audit and Risk
Committee and Remuneration Committee
Interest in Shares and Performance Rights
2,331,185 Ordinary Shares
Geoffrey Ronald Pearce
Geoff is a successful entrepreneur and businessman
with more than 40 years’ experience in the personal care
industry. He established and owned Scental Pacific
Pty Ltd and grew the business to become Victoria’s
largest manufacturer of personal care products before
selling it to the Smorgon Family. He later built a contract
manufacturing business, Beautiworx Australia Pty Ltd,
which was also sold. Geoff currently owns The Continental
Group, which supplies pharmaceutical packaging and
raw materials and has developed alliances with some
of the world’s leading herbal extract manufacturers.
He has extensive experience in areas including
manufacturing, procurement, distribution and regulatory
affairs. He is Chairman of Probiotec Ltd (ASX PBP)
since 28 November 2016 and a Director of McPherson’s
Limited (ASX MCP) since 20 February 2018.
Director since 11 April 2016
Special Responsibilities – Member of Audit and
Risk Committee and Remuneration Committee
Interest in Shares
1,554,195 Ordinary Shares
10
DIRECTORS’ REPORT (CONTINUED)
Neil Belot
Neil is presently the Chief Global Business Development
Officer of Aurora Cannabis Inc. (“Aurora”) responsible
for developing and executing business opportunities
on behalf of Aurora to create shareholder value and drive
long term growth utilising his comprehensive knowledge
of the global regulated cannabis industry, commodity
markets, cannabis cultivation, stakeholder relations,
branding and marketing. He has also held the position
of Chief Brand Officer at Aurora with responsibility for
strategic and operational oversight of sales, marketing,
client and stakeholder relations, digital technology and
business development. Prior to his roles with Aurora
Neil was an Executive Director of the Canadian Medical
Cannabis Industry Association and the Gas Portfolio
and Energy Services Manager at the Housing Services
Corporation, both Canadian entities. He has post-graduate
qualifications including Masters of Business Administration
in Finance and International Exchange obtained from
Dalhousie University (Nova Scotia, Canada) and the
Copenhagen Business Scholl (Denmark) and graduate
qualifications of a Bachelor of Business Administration
from Acadia University (Nova Scotia, Canada).
He is a Canadian citizen.
Director since 26 February 2018
Special Responsibilities – Nil.
Interest in Shares
Nil
CHIEF EXECUTIVE OFFICER
Peter Crock,
CEO, B.Ag.Sci (Hon); MBA
Peter is an experienced public company senior manager
with deep knowledge and expertise in marketing and
technology development. Since joining Cann Group in May
2016, Peter has reset the business plan as directed by the
board and led the company through a successful initial public
offering (IPO) to list on the Australian Securities Exchange
(ASX), raising $13.5 million while bringing outstanding
institutional and cornerstone investor support. This was
followed by a subsequent $70m+ capital raising within the
same year to accelerate the company’s expansion program.
In a 28-year career at Nufarm Limited (ASX: NUF), Peter held
senior management roles in marketing, business
development, and information technology and led Nufarm’s
new technologies division which involved the licensing and
commercial development of several new agribusiness
technologies. He has project managed the successful
integration of newly acquired businesses and has extensive
experience working with regulators in Australia and overseas.
COMPANY SECRETARY
AND CHIEF FINANCIAL OFFICER
Richard Baker,
M.Commrcl Law, B.Ec., FGIA, CPA
A senior experienced Financial Controller and Company
Secretary, with extensive ASX experience, in terms of
governance, capital raisings and reporting including
implementing internal controls, accounting and ERP
systems in established and start-up enterprises. He has had
public practice experience in business services, taxation
and audit to a diverse range of clients involved in FMCG,
manufacturing, professional services and transport and
gained a variety of experience as Financial Controller with
previous employers including mineral exploration, import
and distribution, FMCG and professional consulting.
DIVIDENDS
No dividends have been paid or have been recommended
during the year.
PRINCIPAL ACTIVITIES
The principal activities of the Group during the year
consisted of cultivation of medicinal cannabis for both
medicinal and research purposes pursuant to the
licenses and permits issued to Group members and
commercialising the outputs for medicinal uses, as well
as developing Cann’s cannabis cultivation technology of
controlled growing environments with a view to substantially
increasing capacity of the growing environments Cann also
actively sought and entered in various agreements with
strategic collaborators to further commercialisation of
Cann’s outputs for medicinal purposes.
No significant change in the nature of these activities
occurred during the year.
OPERATING RESULTS FOR THE YEAR
The Group made an operating loss of $4,725,857 for the
year ended 30 June 2018.
The Group’s basic and diluted earnings per share is
($0.038) (2017: $0.051). The Weighted Average number of
Shares used to calculate the basic and diluted earnings
per share is 125,281,943 (2017: 52,328,805).
The net assets of the Group are $85.87 million
as at 30 June 2018 (2017: $14.66 million).
For further detail please refer to the Message from Chairman
and Chief Executive Officer and the Operations Review
which forms part of this annual report.
CANN GROuP LIMITED ANNuAL REPORT 2018
11
DIRECTORS’ REPORT (CONTINUED)
SIGNIFICANT CHANGES IN THE STATE
OF AFFAIRS
FUTURE DEVELOPMENTS, PROSPECTS
AND BUSINESS STRATEGIES
Share Placements
During the year the Company placed New Shares to
institutional, professional and sophisticated investors
as follows:
• on 12 December 2017 the Company placed 23,480,000
New Shares at $2.50 per New Share; and
Other than matters referred to elsewhere in this report
and above, further information as to likely developments
in the operations of the Group and the expected results
of operations have not been included in this report
because the directors believe it would be likely to result
in unreasonable prejudice to the entity.
• on 24 January 2018 the Company placed 3,194,033
New Shares at $2.50 per New Share.
ENVIRONMENTAL REGULATION
AND PERFORMANCE
During the year the Company also placed 520,000 New
Shares at $2.50 per New Share to Directors of the Company.
The Group’s operations are not subject to any particular
environmental regulations.
Share Purchase Plan
During the year the Company issued a Share Purchase Plan
(SPP) dated 13 December 2017 to eligible shareholders,
being shareholders who were recorded on Cann’s share
register at 7:00pm (AEDT) on 29 November 2017. The SPP
was oversubscribed and after a scale-back a total of
3,999,264 New Shares were issued to subscribers at
a price of $2.50 per New Share.
There were no other significant changes in the state
of affairs of the Group during the year.
DIRECTORS’ MEETINGS
The number of meetings of the Company’s Board of Directors, Audit and Risk Committee and Remuneration Committee
members held during the year ended 30 June 2018 and the number of meetings attended by each Director/member were:
Board Meetings
Audit and Risk
Committee Meetings
Remuneration
Committee Meetings
Number
eligible to
attend
Number
attended
Number
eligible to
attend
Number
attended
Number
eligible to
attend
Number
attended
7
7
7
7
3
7
7
7
7
3
2
2
2
2
–
2
2
2
2
–
1
1
1
1
–
1
1
1
1
–
Name
Allan McCallum
Philip Jacobsen
Douglas Rathbone
Geoff Pearce
Neil Belot (appointed 26 February 2018)
OPTIONS
The Group has on issue 2,000,000 options to purchase ordinary fully paid shares. The options were issued to the
Underwriters of the Initial Public Offering Prospectus dated 28 March 2017 and the associated Supplementary Prospectus
dated 12 April 2017.
The options are exercisable at $0.37 at any time during the period commencing from the date of their issue and
expiring on 30 June 2019.
12
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (AuDITED)
1. Introduction
This Remuneration Report outlines the Company’s
remuneration strategy for the financial year ended
30 June 2018 and provides detailed information on the
remuneration outcomes for the year for the Directors,
Chief Executive Officer (CEO) and other Key Management
Personnel. For the purpose of this Report Key Management
Personnel are defined as persons having authority and
responsibility for planning, directing and controlling major
activities of the Group and include all Non-Executive
Directors of the Company.
The Directors of the Company are pleased to present
the Remuneration Report (Report) for the Company
and its subsidiaries (Group) for the financial year ended
30 June 2018. This Report forms part of the Directors’
Report and has been prepared and audited in accordance
with the requirements of the Corporations Act 2001.
2. Remuneration Philosophy
During the year the Cann Board of Directors formed a
Remuneration Committee consisting of four of the five
members of the Board. The Remuneration Committee is
responsible for making recommendations to the Board
on remuneration policies and packages applicable to
Directors, the CEO and Key Management Personnel.
The Remuneration Committee is subject to the Remuneration
Policy and that Policy having the objectives to provide a
competitive, benchmarked and flexible structure and is
tailored to the specific circumstances of the Company
and which reflects the person’s duties and responsibilities
so as to attract, motivate and retain people of the
appropriate quality.
The Company’s Remuneration Policy is reviewed at least
once a year and is subject to amendment to ensure it reflects
market best practice.
Remuneration levels are competitively set to attract
appropriately qualified and experienced Directors and
executives. The Remuneration Committee obtains market
data on remuneration levels. The remuneration packages
of the Chief Executive Officer and Senior Executives may
include a short-term incentive component that is based
on specific Company goals pertaining to financial and
operational performance. The Chief Executive Officer
and Senior Executives may also be invited to participate
in the Company’s Long-term Incentive Plan, the benefits
of which are conditional upon the Company achieving
certain performance criteria, the details of which are
outlined below.
In accordance with the ASX Corporate Governance
Principles and Recommendations, the structure of
Non-executive Director remuneration is separate from
executive remuneration.
3. Relationship between the Remuneration
Policy and Company Performance
At the present stage of the Company’s evolution, the
consolidated entity assesses its performance from
achievement of operational goals and shareholder value.
The performance measures for both the Company’s
Short-term Incentive Plan (STI Plan) and Long-term
Incentive Plan (LTI Plan) have been tailored to align
at-risk remuneration and performance hurdle thresholds
to the delivery of operational and future financial objectives
and sustained shareholder value growth.
4. Components of Remuneration –
Non-executive Directors
The Constitution of the Company and the ASX Listing Rules
require that the aggregate remuneration of non-executive
Directors shall be determined from time to time by a
resolution approved by shareholders at a general meeting.
Currently the aggregate remuneration threshold is set at
$175,000 per annum as approved by shareholders at the
AGM held on 19 October 2016. Legislated superannuation
conditions made on behalf of non-executive Directors are
included within the aggregate remuneration threshold.
Non-executive Directors receive a cash fee for their service
and have no entitlement to any performance-based
remuneration or any participation in any share-based
incentive schemes. Presently no additional fee is paid
to non-executive Directors for being a member of any
Board committees.
Fees payable to the non-executive Directors for the 2018
financial year inclusive of superannuation contributions
were as follows:
Chairman
Each other non-executive Director
$
32,850
21,900
CANN GROuP LIMITED ANNuAL REPORT 2018
13
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
5. Components of Remuneration –
Chief Executive Officer and Other
Senior Executives
(a) Structure
The Company aims to reward the Chief Executive Officer
and Senior Executives with a level and mix of remuneration
commensurate with their position and responsibilities
within the Group, so as to:
• reward them for Company and individual performance
against targets set by reference to appropriate
benchmarks and key performance indicators;
• align their interest with those of shareholders; and
• ensure total remuneration is competitive by market
standards.
Remuneration consists of both fixed and variable
remuneration components. The variable remuneration
consists of the STI Plan and the LTI Plan.
The proportion of fixed and variable remuneration
is established for the Chief Executive Officer by the
Board and for each Senior Executive by the Board
following recommendations from the Chief Executive
Officer and the Remuneration Committee.
The Chief Executive Officer’s and Senior Executives’
remuneration packages are all subject to Board approval.
(b) Fixed remuneration
The fixed remuneration component of the Chief Executive
Officer and Senior Executive’s total remuneration package
is expressed as a total package consisting of base salary
and statutory superannuation contributions.
Fixed remuneration reflects the complexity of the individual’s
role and their experience, knowledge and performance.
Internal and external benchmarking is regularly undertaken
and fixed remuneration levels are set with regard to the
external market median, with scope for incremental
increase for superior performance.
Fixed remuneration is reviewed annually, taking into
account the performance of the individual and the Group.
There are no guaranteed increases to fixed remuneration
in any contracts of employment.
The Chief Executive Officer and Senior Executives have
the option to receive their fixed annual remuneration
in cash and a limited range of prescribed fringe benefits.
The total cost of any remuneration package, including
fringe benefits tax, is taken into account in determining
an employee’s fixed annual remuneration.
(c) Variable remuneration – STI Plan
The STI Plan component of an Executive’s total remuneration
is an annual cash incentive plan. The STI Plan links a
portion of Executive remuneration opportunity to specific
financial and non-financial measures.
From a governance perspective, all performance measures
under the STI Plan must be clearly defined and measurable.
The Remuneration Committee approves the targets and
assesses the performance outcome of the Chief Executive
Officer. The Board and the Chief Executive Officer set the
targets and assesses the performance of Senior Executives.
The Board approves STI Plan payments for the Chief
Executive Officer and Senior Executives. Under the STI
Plan, the Board has discretion to adjust STI Plan outcomes
based on the achievements which are consistent with the
Group’s strategic priorities and, in the opinion of the Board,
enhance shareholder value.
One hundred percent (100%) of awarded STI is paid
in cash at a time determined by the Board, however
for future years the timing will be upon Board approval
of the audited year-end accounts. In future years the
financial performance measures will be implemented
and then for the Executive’s to qualify for a payment
of an STI a pre-agreed level of Group profit must first
be achieved. Once this has been achieved, the level
of payment the Executive receives is determined based
on the achievement of their pre-determined financial and
non-financial measures.
The target STI Plan percentage range for the Chief Executive
Officer and other Key Management Personnel in respect
of the financial year ended 30 June 2018 is detailed below:
Executive
P. Crock
R. Baker
S. Notaro
G. Aldred
C. McGregor
J. Yodgee
STI range
calculated on
fixed annual
remuneration
30% – 60%
15% – 30%
15% – 30%
15% – 30%
15% – 30%
15% – 30%
14
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
(d) Variable remuneration – LTI Plan
The LTI component of the Chief Executive Officer and
other Senior Executives total remuneration is an equity
incentive plan that is designed to encourage the Chief
Executive Officer and Senior Executives to focus on key
performance drivers which underpin sustainable growth in
shareholder value. The LTI Plan facilitates share ownership
by the Chief Executive Officer and Senior Executives and
links a significant proportion of their at-risk remuneration to
the Group’s ongoing share price and returns to shareholders
over the performance period. It is intended that any future
LTI’s will focus on driving key performance outcomes that
underpin sustainable growth and the creation of shareholder
wealth in the longer term. This will be achieved by motivating
and rewarding the Chief Executive Officer and Senior
Executives to drive share price growth via improvements to
Total Shareholder Returns and Return on Invested Capital.
Under the LTI Plan, the Chief Executive Officer and other
Senior Executives are granted performance rights which
will only vest on the achievement of certain performance
hurdles and service conditions.
Each grant of performance rights is subject to specific
performance hurdles and the degree to which those hurdles
have been met is assessed by the Board at the end of
the relevant performance period. The Board may, at its
discretion, vary the performance hurdles for each offer
made under the LTI Plan, however once the Board has
prescribed the performance hurdle(s) for a specific offer,
those hurdles cannot be varied in respect of that offer.
If a change of control occurs during a performance
period, the pro-rated number of performance rights
held by a participant (calculated according to the part
of the performance period elapsed prior to the change
of control) is determined and to the extent the performance
hurdles have been met those pro-rated performance rights
will vest.
Performance rights granted for the financial
year ended 30 June 2018
The performance hurdles for the grant of rights
of performance rights to the Chief Executive Officer
in the financial year ended 30 June 2018 are based
on shareholder value and service period. The Performance
Rights vest in three tranches and below are the terms
of the performance rights:
• 250,000 Performance Rights vest subject to the share
price of Cann achieving a 30-day Volume Weighted
Average Price (VWAP) of greater than $1.00 at any time
during the two-year period (referred to as the vesting
period) between the grant date and 21 November 2019
(vesting date) and ongoing employment during this
period with the Company;
• 350,000 Performance Rights vest subject to the share
price of Cann achieving a 30-day VWAP of greater than
$1.50 at any time during the vesting period and ongoing
employment during this period with the Company;
• 400,000 Performance Rights vest subject to the share
price of Cann achieving a 30-day VWAP of greater than
$2.00 at any time during the vesting period and ongoing
employment during this period with the Company;
• the Performance Rights were issued at no cost and there
is no exercise price payable to acquire the underlying
shares should the vesting conditions be met;
• once vested, the Performance Rights may be exercised
at any time until their expiry which is three years after the
grant date, being 20 November 2020 (expiry date); and
• once the Performance Rights vest and are subsequently
exercised and converted to ordinary shares in Cann, they
are subject to a further two-year restriction period from
the date of exercise in which they cannot be transferred
or disposed of. We have assumed the Performance
Rights will be exercised and converted to ordinary shares
in Cann on the vesting date. Accordingly, once vested
and exercised, the share-based payments are in
substance unlisted ordinary shares.
CANN GROuP LIMITED ANNuAL REPORT 2018
15
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
(e) Contract for services –
Chief Executive Officer
The structure of the Chief Executive Officer’s
remuneration is in accordance with his employment
agreement. The Chief Executive Officer’s employment
agreement is for an indefinite term. The Company
may terminate the agreement by providing four months’
notice and the Chief Executive Officer may terminate the
agreement by providing four months’ notice. There are
no termination benefits beyond statutory leave and
superannuation entitlements associated with termination
in accordance with the above notice requirements or
in circumstances where notice is not required pursuant
to the employment agreement.
(f) Contract for services – Senior Executives
The terms on which the majority of Senior Executives
are engaged provide for termination by either the
Executive of the Company on four months’ notice.
There are no termination benefits beyond statutory
leave and superannuation entitlements associated
these notice requirements.
6. Key Management Personnel
Remuneration
(a) Identity of Key Management Personnel
The following were Key Management Personnel of the
consolidated entity at any time during the financial year.
Directors:
Name
A. McCallum
P. Jacobsen
D. Rathbone
G. Pearce
N. Belot*
Title
Chairman
Deputy Chairman
Non-executive Director
Non-executive Director
Non-executive Director
* Period from 26 February 2018 to 30 June 2018.
Other Key Management Personnel
Name
P. Crock
Title
Chief Executive Officer
16
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
(b) Remuneration of Key Management Personnel
Details of the nature and amount of each major element of remuneration of each Key Management Personnel and the
consolidated entity are set out below. The remuneration tables are calculated on an accruals basis and only include
remuneration relating to the relevant period that the employees was a Key Management Personnel of the Company.
Short-term employment
benefits
Post-
employment
Benefits
Share-based
remuneration
Salary and
Fees
$
STI cash
bonus
$
Superannua-
tion
$
Performance
Rights
$
Total
$
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2018
2017
2018
2017
30,000
5,000
21,900
3,650
20,000
3,333
20,000
3,333
–
103,201
6,667
230,178
194,224
328,745
–
–
–
–
–
–
–
–
–
–
–
–
50,000
2,850
475
–
–
1,900
317
1,900
317
–
–
–
–
11,686
–
5,843
–
6,778
4,207
–
32,850
17,161
21,900
9,493
21,900
10,428
21,900
7,857
–
3,038
106,248
–
6,667
20,571
15,712
742,877
993,626
2,921
262,857
–
27,221
742,877
1,098,843
312,741
50,000
16,821
34,473
414,044
2018 FINANCIAL YEAR
Non-Executive Directors
A. McCallum
P. Jacobsen
D. Rathbone
G. Pearce
M. Murchison
N. Belot (appointed 26 February 2018)
Other Key Management Personnel
and Executive Officers
P. Crock
Total
Total
Analysis of LTI and other performance rights granted as remuneration
Details the vesting profile of the performance rights granted as remuneration to the Chief Executive Officer and each of
the named Executive Officers are summarised below:
CANN GROuP LIMITED ANNuAL REPORT 2018
17
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
Performance rights granted during the financial year ended 30 June 2018
Value yet to vest
Number
granted
Grant date
Vesting date
Vested
during
the year
Number
Vested
during
the year
%
Forfeited
during
the year
Number
Forfeited
during
the year
%
Minimum
$
Maximum
$
P. Crock 1,000,000 21 November 2017 21 November 2019
–
–
–
–
– 2,465,000
Shares issued on exercise of the Performance Rights will be subject to a restriction period of two years during which the
shares issued on exercise of the Performance Rights cannot be transferred or otherwise dealt with.
Performance rights granted during the financial year ended 30 June 2017
There were no performance rights granted to Key Management Personnel during the financial year ended 30 June 2017.
Equity Holdings
Balance at
appoint-
ment date
(if applica-
ble)
On exercise
of perfor-
mance
rights
Balance
as at
1 July 2017
Acquisi-
tions,
disposal or
transfers*
Balance at
resignation
date (if
applicable)
Balance
as at
30 June
2018
Balance
held
nominally
On exercise
of options
Number
Number
Number
Number
Number
Number
Number
Number
2018
Directors
A. McCallum
5,480,000
P. Jacobsen
3,773,334
D. Rathbone
2,193,334
G. Pearce
1,200,000
N. Belot
–
Other Key Management Personnel
P. Crock
Total
336,667
12,983,335
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100,000
291,184
137,851
354,195
–
3,728
886,958
–
–
–
–
–
–
–
5,580,000
4,064,518
2,331,185
1,554,195
–
340,395
13,870,293
–
–
–
–
–
–
–
* The purchases, disposal or transfers of shares are in compliance with the Company’s Securities Trading Policy.
18
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
Balance at
appoint-
ment date
(if applica-
ble)
On exercise
of perfor-
mance
rights
Balance
as at
1 July 2016
Acquisi-
tions,
disposal or
transfers*
Balance at
resignation
date (if
applicable)
Balance
as at
30 June
2017
Balance
held
nominally
On exercise
of options
Number
Number
Number
Number
Number
Number
Number
Number
2017
Directors
A. McCallum
3,840,000
P. Jacobsen
2,300,000
D. Rathbone
1,120,000
G. Pearce
520,000
M. Murchison
13,600,000
Other Key Management Personnel
P. Crock
Total
–
21,380,000
–
–
–
–
–
–
–
1,000,000
640,000
–
500,000
800,000
173,334
580,000
320,000
173,334
360,000
320,000
–
–
–
–
–
5,480,000
3,773,334
2,193,334
1,200,000
260,000
–
(13,600,000)
13,600,000
260,000
250,000
–
86,667
–
336,667
2,950,000
2,080,000 (13,166,665) 13,600,000
13,243,335
–
–
–
–
–
–
* The purchases, disposal or transfers of shares are in compliance with the Company’s Securities Trading Policy.
Long-term Incentive Plan – Performance Rights
Balance at
appoint-
ment date
(if applica-
ble)
Balance
as at
1 July 2017
Granted
Vested
Lapsed
Net other
change
Balance
as at 30
June 2018
Balance
held
nominally
2018
P. Crock
Total
Number
Number
Number
Number
Number
Number
Number
Number
–
–
–
–
1,000,000
1,000,000
–
–
–
–
–
–
1,000,000
1,000,000
–
–
There were no performance rights granted to Key Management Personnel through a Long-term Incentive Plan during the
financial year ended 30 June 2017.
CANN GROuP LIMITED ANNuAL REPORT 2018
19
DIRECTORS’ REPORT (CONTINUED)
REMuNERATION REPORT (CONTINUED)
Balance at
appoint-
ment date
(if applica-
ble)
Balance as
at 1 July
2016
Granted
Vested
Lapsed
Net other
change
Balance as
at 30 June
2017
Balance
held
nominally
2017
Number
Number
Number
Number
Number
Number
Number
Number
Directors
A. McCallum
1,000,000
P. Jacobsen
D. Rathbone
G. Pearce
500,000
580,000
360,000
M. Murchison
260,000
Other Key Management Personnel
P. Crock
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,000,000
500,000
580,000
360,000
260,000
250,000
2,950,000
–
–
–
–
–
–
–
–
–
–
–
–
250,000
250,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20
DIRECTORS’ REPORT (CONTINUED)
Indemnifying Officers or Auditor
• The non-audit services provided do not undermine
the general principles relating to auditor independence
as set out in APES 110 Code of Ethics for Professional
Accountants as they did not involve reviewing or auditing
the auditors own work, acting in a management or
decision-making capacity for the Group, acting
as an advocate for the Group or jointly sharing
risks and rewards.
Details of the amounts paid to the auditor of the Group,
William Buck, for audit and non-audit services provided
during the year are set out in Note 6.
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration as
required under section 307C of the Corporations Act 2001
is set out on page 22.
CEO and CFO Declaration
The CEO and CFO have given a declaration to the
Board concerning the Group’s financial statements
under section 295A(2) of the Corporations Act 2001
and recommendations 4.2 and 7.2 of the ASX Corporate
Governance Council Principles of Good Corporate
Governance and Best Practice Recommendations
in regards to the integrity of the financial statements.
Corporate Governance Statement
In accordance with Listing Rule 4.10.3 and the Appendix 4G
lodged by the Company, the Company’s 2018 Corporate
Governance Statement can be found on its website
https://www.canngrouplimited.com/
Signed in accordance with a resolution of the Board of
Directors.
Allan McCallum
Chairman
Date: 22 August 2018
No indemnities have been given, however a Directors and
Officers insurance premium totalling $32,200 has been
paid, during or since the end of the year, for any person
who is or has been an officer of the Group. No indemnities
have been given during or since the end of the year for
any person who has been an auditor of the Group.
Proceedings on Behalf of the Group
No person has applied for leave of court to bring
proceedings on behalf of the Group or intervene
in any proceedings to which the Group is a party for
the purpose of taking responsibility on behalf of the
Group for all or any part of those proceedings.
There were no proceedings during the year.
Events After the End of the
Reporting Period
There were no other matters or circumstances have
arisen since the end of the year which significantly
affected or may significantly affect the operation
of the Group, the results of those operations, or the
state of affairs of the Group in future financial years.
Non-Audit Services
The Company’s Audit and Risk Committee (“the Committee”)
is responsible for the maintenance of audit independence.
Specifically, the Committee Charter ensures the
independence of the auditor is maintained by:
• Limiting the scope and nature of non-audit services
that may be provided; and
• Requiring that permitted non-audit services must
be pre-approved by the Chairman of the Committee.
During the year William Buck, the Group’s auditor, has
performed certain other services in addition to the audit
and review of the financial statements. The Board has
considered the non-audit services provided during the
year by the auditor and in accordance with the advice
provided by the Committee, is satisfied that the provision
of those non-audit services during the year by the auditor
is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001
for the following reasons:
• All non-audit services were subject to the corporate
governance procedures adopted by the Group and
have been reviewed by the Committee to ensure
they do not impact the integrity and objectivity of the
auditor; and
CANN GROuP LIMITED ANNuAL REPORT 2018
21
AUDITOR’S INDEPENDENCE DECLARATION
22
CONSOLIDATED STATEMENT OF PROFIT
OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JuNE 2018
Revenue
Other income
Administration and corporate costs
Research and development costs
Fair value adjustment of biological assets
Changes in inventories of finished goods and work-in-progress
Note
2018
$
560,000
943,391
2017
$
–
8,421
3
3
(7,286,394)
(1,642,100)
(776,430)
(547,782)
104,820
1,737,137
–
–
Loss before transaction costs, finance costs and income tax expense
(4,717,476)
(2,181,461)
Transaction costs of the IPO
Finance costs
Loss before income tax expense
Income tax expense
Loss attributable to members of the Group
Other comprehensive income
–
(406,435)
(8,381)
(549)
(4,725,857)
(2,588,445)
-
–
(4,725,857)
(2,588,445)
–
–
Total comprehensive loss attributable to members of the Group
(4,725,857)
(2,588,445)
Basic and Diluted Earnings Per Share (EPS)
Weighted Average number of Shares used to calculate EPS*
(0.038)
(0.051)
125,281,943
52,328,805
* The potentially dilutive effects of any contingently issuable ordinary shares have not been considered in the diluted loss per share calculation
because the Group is in a loss-making position and such an effect would be anti-dilutive.
The accompanying notes form part of these statements.
CANN GROuP LIMITED ANNuAL REPORT 2018
23
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
AS AT 30 JuNE 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Investment in term deposits
Prepayments
Inventories
Biological assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Plant and equipment
Intangible assets
Investment in term deposits
Rental bonds
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Unsecured trade and other payables
Lease liability
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liability
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued equity
Performance rights reserve
Accumulated losses
TOTAL EQUITY
The accompanying notes form part of these statements.
24
Note
2018
$
2017
$
49,566,890
11,113,964
30,082,849
–
137,693
133,453
7
1,405,286
–
205,301
24,927
81,398,019
11,272,344
7
5,232,518
716,672
84,971
–
–
3,000,000
85,000
85,000
5,402,489
3,801,672
86,800,508
15,074,016
907,107
389,103
4,198
4,198
911,305
393,301
16,369
16,369
20,567
20,567
927,674
413,868
85,872,834
14,660,148
10
12
95,081,758
20,187,092
1,043,877
–
(10,252,801)
(5,526,944)
85,872,834
14,660,148
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JuNE 2018
Balance at 1 July 2017
Issue of shares
Costs of issuing shares
Issue and vesting of Classes C and D performance rights
Transactions with owners in their capacity as owners
Comprehensive loss for the period ended 30 June 2018
Issued equity
$
20,187,092
77,983,243
(3,088,577)
–
–
Performance
Rights
reserve
$
Accumulated
losses
$
Total equity
$
–
–
–
1,043,877
(5,526,944)
14,660,148
–
–
–
77,983,243
(3,088,577)
1,043,877
–
(4,725,857)
(4,725,857)
Balance at 30 June 2018
95,081,758
1,043,877
(10,252,801)
85,872,834
Balance at 1 July 2016
Issue of shares
Costs of issuing shares
Issue and vesting of Class B performance rights
and issue of shares
Issued equity
$
Performance
Rights
reserve
$
Accumulated
losses
$
Total equity
$
4,376,271
515,409
(3,202,197)
1,689,483
16,485,465
(1,037,259)
–
–
–
110,904
–
–
–
16,485,465
(1,037,259)
110,904
Conversion of Class B performance rights and issue of shares
362,615
(362,615)
Cancellation of Class A performance rights
–
(263,698)
263,698
–
–
Transactions with owners in their capacity as owners
20,187,092
Comprehensive loss for the period ended 30 June 2017
Balance at 30 June 2017
–
20,187,092
–
–
–
(2,938,499)
17,248,593
(2,588,445)
(2,588,445)
(5,526,945)
14,660,148
The accompanying notes form part of these statements
CANN GROuP LIMITED ANNuAL REPORT 2018
25
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JuNE 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Revenue from customers
Other income received
Payments to suppliers and employees
Interest receipted
Note
2018
$
2017
$
616,000
45,646
–
382
(5,313,902)
(2,307,271)
897,745
8,038
Net cash flows provided by/(used in) operating activities
14
(3,754,511)
(2,298,851)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment
Acquisition of other assets
Investment in term deposits
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of shares
Costs of issuing shares
Net cash flows provided by financing activities
Net increase/(decrease) in cash held
Cash and cash equivalents at the beginning of the year
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
The accompanying notes form part of these statements
(5,579,380)
(329,446)
(25,000)
(50,000)
(27,082,849)
(3,000,000)
(32,687,229)
(3,379,446)
77,983,243
15,619,000
(3,088,577)
(170,794)
74,894,666
15,448,206
38,452,926
9,769,909
11,113,964
1,344,055
49,566,890
11,113,964
26
NOTES TO THE FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
These are the financial statements of Cann Group Limited (the Company) and its subsidiaries, including Cannproducts
Pty Ltd, Cannoperations Pty Ltd, Cann IP Pty Ltd (formerly Anslinger Holdings Pty Ltd) and Botanitech Pty Ltd (formerly
Cann Investments Pty Ltd), all incorporated and domiciled in Victoria, Australia (together, the Group). Cann Group Limited
is an ASX-listed public company incorporated and domiciled in Victoria, Australia. These financial statements are for
the year ended 30 June 2018. Unless otherwise stated, all amounts are presented in $AUD, which is the functional and
presentation currency of all entities in the Group. The financial statements were authorised for issue by the Directors on
the date of signing the attached Directors’ Declaration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The financial statements are general purpose financial statements that have been prepared in accordance with Australian
Accounting Standards, including Australian Accounting Interpretations, other authoritative announcements of the
Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001 as appropriate for for-profit oriented entities.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial
statements containing relevant and reliable information about transactions, events and conditions. Compliance with
Australian Accounting Standards ensures that the financial statements and notes also comply with International
Financial Reporting Standards. Material accounting policies adopted in the preparation of these financial statements
are presented below. They have been consistently applied unless otherwise stated.
The financial statements have been prepared on an accruals basis and are based on historical costs.
The amounts presented in the financial statements have been rounded to the nearest dollar.
Accounting Standards and Interpretations
(i) Changes in accounting policy and disclosures
The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period and there was
no material impact arising from the adoption of the new, revised and amending Accounting Standards.
(ii) Accounting standards and interpretations issued but not yet effective
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and
have not been adopted by the Group for the annual reporting period ending 30 June 2018 are outlined in the table below.
Standard
Mandatory date for
annual reporting periods
(beginning on or after)
Reporting period standard
adopted by the Company
AASB 9 Financial Instruments and related standards
AASB 15 Revenue from Contracts with Customers and AASB 2014-5
Amendments to Australian Accounting Standards from AASB 15
1 January 2018
1 January 2018
1 July 2018
1 July 2018
AASB 16 Leases
1 January 2019
1 July 2018
Management have assessed that standards AASB 9: Financial Instruments and related standards and AASB 15: Revenue
from Contracts with Customers (and AASB 2014-5 Amendments to Australian Accounting Standards from AASB 15) will
not materially impact the financial statements when adopted.
Management has assessed that the standard AASB 16: Leases will have a material effect on the financial statements
impacting through the capitalisation of right to use leased assets and the corresponding lease liability connected with
the current rental arrangement.
Refer to Note 17 for the Group’s current lease commitments.
CANN GROuP LIMITED ANNuAL REPORT 2018
27
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(b) Principles of Consolidation
These consolidated financial statements comprise the financial statements of the Company and its controlled entities
throughout reporting period. Controlled entities refers to entities over which the Group has the power to govern the
financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights.
The existence and effect of the potential voting rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity.
The financial statements of the controlled entities used in the preparation of the consolidated financial statements are
prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions
and events in similar circumstances.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions
and dividends are eliminated in full.
(c) Income Tax
The income tax expense (income) for the year comprises current income tax expense (income) and deferred tax
expense (income).
Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities
(assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the
year as well as unused tax losses.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the
asset is realised or the liability is settled and their measurement also reflects the manner in which management
expects to recover or settle the carrying amount of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is
probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.
(d) Cash and cash equivalents
Cash in the Statement of Financial Position comprise cash at bank and in hand. Cash at bank includes term deposits
with a term of three months or less.
For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents
as defined above.
(e) Inventory
Inventory is valued depending upon the specific purpose of that inventory class. Costs incurred for inventory held as
(i)
research and development is expensed as incurred;
(ii) bearer plant inventory held is valued at cost less accumulated depreciation and impairment losses; and
(iii) non-bearer plant inventory is valued at fair value less costs to sell, and where fair value is not readily available,
at cost or Net Realisable Value.
(f) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred
is not recoverable from the Australian Taxation Office (ATO).
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts
from customers or payments to suppliers.
28
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(f) Trade and other payables
Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided
to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make
future payments in respect of the purchase of these goods and services.
(g) Trade and other receivables
Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary
course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified
as current assets. All other receivables are classified as non-current assets.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment.
At each reporting date, the Group’s directors assess whether there is objective evidence that trade and other receivables
have been impaired. Impairment losses are recognised in the profit or loss.
(i) Plant and Equipment
Each class of plant and equipment is carried at cost less any accumulated depreciation and impairment losses.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the
recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash
flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have
been discounted to their present values in determining recoverable amounts.
The cost of plant and equipment constructed within the Group includes the cost of materials, direct labour, borrowing
costs and an appropriate proportion of fixed and variable overheads.
Depreciation
The depreciable amount of all plant and equipment is depreciated on a diminishing value basis over the asset’s useful
life to the Group commencing from the time the asset is held ready for use.
As at 30 June 2018, the Group’s asset classes had effective useful lives as follows:
Asset Class
Grow Room facilities and infrastructure
Computer, network and security equipment
Tools and workshop equipment
Leasehold improvements
Office furniture and equipment
Useful Life
(years)
3 to 7
1 to 3
1 to 3
2 to 5
1 to 3
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses
are included in the statement of profit of loss and other comprehensive income.
(j) Impairment of Assets
At each reporting date, the Group’s directors review the carrying values of the Group’s tangible and intangible assets
to determine whether there is any indication that those assets have been impaired. If such an indication exists, the
recoverable amount of the asset, being the higher of the asset’s fair value less cost to sell and value in use, is compared
to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the
statement of profit or loss and other comprehensive income.
CANN GROuP LIMITED ANNuAL REPORT 2018
29
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(k) Share Based Payments
The Company reflects in its comprehensive income (or loss) and its financial position the effects of share-based
payment transactions, including expenses associated with transactions in which shares are granted to related parties,
key management personnel and employees.
For share-based payments received by employees and key management personnel of the Group, fair value is measured
by reference to the fair value of the equity instruments granted at their grant date, being the date that both the recipient
and the Company have a shared understanding of the terms and conditions connected to the share-based payment.
Any market-based vesting conditions are incorporated into the valuation of the share-based payment arrangement
as at the grant date of the share-based payment. Share-based payments with non-market based performance conditions
vest according to the pro-rata achievement of those conditions. Share-based payments with non-performance based
conditions are valued using the Black-Scholes model and payments with market-based performance conditions are
valued using a binomial model which incorporates from both the performance rights arrangement and market data that
existed at grant date.
(l) Critical Accounting Estimates and Judgements
The Directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge
and best available current information. Estimates assume reasonable expectation of future events and are based on
current trends and economic data, obtained both externally and within the entity.
Key Judgement – non-recognition of carry-forward tax losses
The balance of future income tax benefit estimated as $1,560,494 (2017: $703,351) arising from current year tax losses
of $4,725,857 (2017: $2,588,445) and timing differences has not been recognised as an asset because recovery is not
regarded as probable. The cumulative future income tax benefit estimated to be $2,637,618, which has not been
recognised as an asset, will only be obtained if
(i)
the Company derives future assessable income of a nature and an amount sufficient to enable the benefit to be realised;
(ii)
the Company continues to comply with the conditions for deductibility imposed by law; and
(iii) no changes in tax legislation adversely affecting the Company realising the benefit.
Key Judgement – valuation of biological assets
The valuation methodology of biological assets relate to the forecast harvest weights, forecast sale prices, forecast feed
costs, labour and overheads, as well as discount rate. Discounted cash flows consider the present value of the net cash
flows expected to be generated by the crop at maturity, the expected additional biological transformation and the risks
associated with the asset; the expected net cash flows are discounted using risk-adjusted discount rates.
Key Judgement – valuation of Performance Rights
Performance rights issued are measured at the fair value from grant date. These were independently valued using a
Binomial valuation model. The data input into this model included the volatility rate of 100%, and risk free rate of 1.92%.
Key Judgement – non-recognition of research and development tax incentive benefits
The balance of research and development tax incentive arising from operations of the Company has not been
recognised as an asset because receipt as at this stage as it cannot be reliably calculated. The research and
development tax incentive, which has not been recognised as an asset, will only be obtained if:
(i)
(ii)
the Company’s activities fulfil the eligibility criteria of the research and development tax initiative and it is successful
in registering for the research and development tax initiative;
the Company continues to comply with the conditions for registration of the research and development tax initiative
imposed by law; and
(iii) no changes in tax legislation adversely affecting the Company realising the tax incentive from research and
development.
30
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. EXPENSES
Depreciation
Employee salaries
Employee superannuation
Share-based payments
Lease expense
Occupancy expenses
2018
$
2017
$
(831,757)
(124,297)
(2,223,666)
(569,945)
(176,635)
(53,147)
(1,043,877)
(110,904)
(1,092)
(834)
(544,412)
(269,690)
(4,821,439)
(1,128,817)
4. BASIC AND DILUTED LOSS per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are
as follows:
Net loss attributable to ordinary equity holders (used in calculating basic and diluted EPS)
(4,725,857)
(2,588,445)
2018
$
2017
$
Weighted average number of ordinary shares for the purpose of earnings per share
125,281,943
52,328,805
Performance Rights have not been included in the weighted average number of ordinary shares as the Group presently
has accumulated losses and no certainty of future profits to offset those losses.
The potentially dilutive effects of any contingently issuable ordinary shares have not been considered in the diluted loss
per share calculation because the Group is in a loss-making position and such an effect would be anti-dilutive.
Number of
shares
Number of
shares
CANN GROuP LIMITED ANNuAL REPORT 2018
31
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. KEY MANAGEMENT PERSONNEL
(a) Names and positions held of key management personnel in office at any time during the year are:
Key Management Person
Mr Allan McCallum
Mr Philip Jacobsen
Mr Douglas Rathbone
Mr Geoff Pearce
Mr Neil Belot (appointed 26 February 2018)
Position
Chairman
Deputy Chairman
Director
Director
Director
Mr Peter Crock
Chief Executive Officer
(b) Remuneration paid to Key Management Personnel
Short-term employee benefits
Post-employment benefits
Share-based payments
2018
$
2017
$
328,745
362,750
27,221
742,877
16,821
34,473
1,098,843
414,044
6. AUDITOR’S REMUNERATION
During the year the following fees were paid or payable for services provided by the auditor of Group, its related practices
and non-related audit firms:
(i) AUDIT AND OTHER ASSURANCE SERVICES
Audit and review of financial statements
Other audit and assurance related services
Total remuneration for audit and other assurance services
(ii) CONSULTING SERVICES
Consulting fees regarding Research and Development Tax Incentive
Total remuneration for consulting services
Total remuneration of William Buck
7. INVENTORIES
Finished goods – biomass
Finished goods – oil
32
2018
$
2017
$
28,000
460
24,000
1,365
28,460
25,365
29,990
29,990
58,450
800
800
26,165
2018
$
2017
$
1,371,366
33,920
1,405,286
–
–
–
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. PLANT AND EQUIPMENT
(a) Plant and equipment
Growth
Facilities
$
Other plant
& equipment
$
2018
Total
$
Growth
Facilities
$
Other plant
& equipment
$
2017
Total
$
Cost
5,075,150
1,374,117
6,449,267
728,597
141,288
869,855
Accumulated Depreciation
(706,823)
(278,147)
(984,972)
(106,374)
(46,839)
(153,213)
Loss on disposal
Closing Balance
(231,777)
(231,777)
4,136,550
1,095,970
5,232,518
622,223
94,451
716,672
(b) Movements in plant and equipment
Growth
Facilities
$
Other plant
& equipment
$
2018
Total
$
Growth
Facilities
$
Other plant
& equipment
$
2017
Total
$
Opening Balance
622,223
94,449
716,672
452,372
Additions
Depreciation
Loss on disposal
Closing Balance
4,346,553
1,232,828
5,579,381
259,109
(600,448)
(231,309)
(831,757)
(89,258)
(35,039)
(124,297)
(231,777)
–
(231,777)
–
–
–
4,136,550
1,095,969
5,232,518
622,223
94,451
716,672
34,386
95,104
486,758
354,213
During the year Secure Cultivation Rooms 03 to 07 were completed to operational levels and were available for use
during the year. Secure Cultivation Room 08 was in construction as at 30 June 2018. As at 30 June 2018 the Directors
reviewed the overall progress of the Secure Cultivation Rooms and the Directors conducted an impairment test which
was applied as at 30 June 2018 whereby the Directors compared the carrying values of all of the Secure Grow Rooms
and the Laboratory/Drying Room to the selling values of comparable assets and concluded that no impairment existed
relating to these assets. The Research and Development/Nursery was disposed of during the year for no consideration.
Initial costs of preliminary works prior to construction of the Stage 3 facility which will consist of glasshouse cultivation
space, research and development laboratories and a GMP manufacturing facility. The capitalised costs relate to facility
design fees and consultant fees relating to regulatory approvals.
9. CONTROLLED ENTITIES
Cann Group Limited has four wholly-owned subsidiaries as at 30 June 2018 as follows:
Subsidiary Name
Cannproducts Pty Ltd (ACN 600 887 189)
Cannoperations Pty Ltd (ACN 603 323 226)
Date Acquired
27 February 2015
27 February 2015
Cann IP Pty Ltd (formerly Anslinger Holdings Pty Ltd) (ACN 169 764 407)
27 February 2015
Botanitech Pty Ltd (formerly Cann Investments Pty Ltd) (ACN 604 834 488)
18 March 2015
Number of
Shares held
Percentage
Shareholding
100
100
100
100
100%
100%
100%
100%
CANN GROuP LIMITED ANNuAL REPORT 2018
33
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. ISSUED CAPITAL
Ordinary shares – fully paid
Total issued capital
30 June 2018
Number
of Shares
30 June 2017
Number
of Shares
30 June 2018
$
30 June 2017
$
139,546,632
108,353,335
95,081,758
20,187,092
139,546,632 108,353,335
95,081,758
20,187,092
Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number
of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each
shareholder has one vote on a show of hands.
Movements in issued capital:
Issue Date
Balance 1 July 2017
12 December 2017 – placement (net of costs)
22 January 2018 – share purchase plan (net of costs)
23 January 2018 – placement (net of costs)
24 January 2018 – placement (net of costs)
Issue Price
$
Number
of Shares
and Options
2018
$
108,353,335
19,949,092
23,480,000
56,172,622
3,999,264
9,499,813
520,000
1,241,858
3,194,033
7,980,373
2.50
2.50
2.50
2.50
Total Issued Capital on an undiluted basis as at 30 June 2018
139,546,632
94,843,758
Total Options on issue**
–
2,000,000
238,000
Total Issued Capital on a diluted basis as at 30 June 2018
141,546,632
95,081,758
** Refer Note 11 regarding total number of Options on issue as at 30 June 2018.
Issue Date
Balance 1 July 2016
29 September 2016 – placement
22 November 2016 – placement
21 February 2017 – placement
31 March 2017 – issued pursuant to exercise of options
Issue Price
$
Number
of Shares
and Options
2017
$
39,346,668
4,376,271
320,000
160,000
160,000
48,000
24,000
24,000
13,486,667
2,023,000
0.15
0.15
0.15
0.15
20 April 2017 – issued pursuant to vesting of Performance Rights
–
7,180,000
362,615
3 May 2017 – issued pursuant to Initial Public Offering (net of costs)
0.30
47,700,000
13,091,206
Total Issued Capital on an undiluted basis as at 30 June 2017
108,353,335
19,949,092
Total Options on issue
–
2,000,000
238,000
Total Issued Capital on a diluted basis as at 30 June 2017
110,353,335
20,187,092
34
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. OPTIONS
During the year the Group had Underwriter Options issued pursuant to the Initial Public Offering Prospectus dated
28 March 2017 (and the Supplementary Prospectus dated 12 April 2017).
Underwriter Options issued pursuant to the Initial Public Offering Prospectus dated 28 March 2017 (and the
Supplementary Prospectus dated 12 April 2017)
The Underwriters (or their respective nominees) to the Initial Public Offering were issued 2,000,000 Underwriter
Options in the Company. The Underwriter Options will have an exercise price $0.37 and expire on 30 June 2019.
The Underwriter Options (and any underlying Shares issued as a result of the exercise of any of these Underwriter Options)
will be subject to a 24-month escrow period.
Upon conversion, the underlying Shares issued will be subject to the same rights and liabilities of all other Shares.
Issue Date
Balance 1 July 2017
Balance 30 June 2018
Issue Date
Balance 1 July 2016
Issued 2 May 2017
Balance 30 June 2017
Issue Price
$
Number of
Options
2,000,000
2,000,000
Issue Price
$
Number of
Options
–
–
2,000,000
2,000,000
CANN GROuP LIMITED ANNuAL REPORT 2018
35
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. PERFORMANCE RIGHTS
Movement in Performance Rights Reserve
Performance Rights Class C
Date
Balance 1 July 2017
21 November 2017^
Balance 30 June 2018
Number of
Performance
Rights
–
2018
$
–
1,000,000
742,877
1,000,000
742,877
^ On 21 November 2017 1,000,000 Performance Rights Class C were issued to the Chief Executive Officer with a total vesting value of $2,465,000
to 21 November 2019.
The Performance Rights Class C are subject to the following vesting conditions:
• 250,000 Performance Rights Class C subject to the offeree being continuously employed for a period of two years
from the grant date and the 30-day Volume Weighted Average Price of Cann Group Limited’s ordinary shares as
traded on the Australian Securities Exchange (ASX) is greater than $1.00;
• 350,000 Performance Rights Class C subject to the offeree being continuously employed for a period of two years
from the grant date and the 30-day Volume Weighted Average Price of Cann Group Limited’s ordinary shares as
traded on the ASX is greater than $1.50;
• 400,000 Performance Rights Class C subject to the offeree being continuously employed for a period of two years
from the grant date and the 30-day Volume Weighted Average Price of Cann Group Limited’s ordinary shares as
traded on the ASX is greater than $2.00; and
• The grant date was 21 November 2017.
Shares issued on exercise of the Performance Rights Class C will be subject to a restriction period of two years during
which the shares issued on exercise of the Performance Rights cannot be transferred or otherwise dealt with.
Rights Class D
Date
Balance 1 July 2017
19 January 2018^^
Balance 30 June 2018
Number of
Performance
Rights
–
2018
$
–
100,000
301,000
100,000
301,000
^^ On 19 January 2018 100,000 Performance Rights Class D were issued to the Company Secretary.
The Performance Rights Class D are subject to the following vesting conditions:
• 100,000 Performance Rights Class D subject to the completion of the Institutional Placement and
Share Purchase Plan and not to vest or be exercised prior to 4 May 2019.
• The grant date was 19 January 2018.
No restriction period is applicable to shares issued as a result to the exercise of Performance Rights Class D.
The total vested value as at 30 June 2018 for both Class C and Class D Performance is $1,043,877.
36
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY INFORMATION
Transactions between the Consolidated Group and related parties are on normal commercial terms and conditions
no more favourable than those available to other parties unless otherwise stated. Related party transactions not
otherwise disclosed in these financial statements include the following:
Aurora Cannabis Inc.
Payment for consulting fees to Aurora Larssen Projects, Inc. a wholly-owned subsidiary of Aurora Cannabis, Inc.
a shareholder and has an employee as a Director of the Company*
Payment for consulting fees (pursuant to Technical Services Agreement) to Aurora Cannabis, Inc. a shareholder
and has an employee as a Director of the Company**
Total Aurora Cannabis Inc.
Others
Purchase of motor vehicle from Mr Peter Crock, an employee and shareholder
Total
2018
$
1,130,621
47,280
1,177,901
56,585
1,234,486
* Aurora Larssen Projects provided design services to the Company’s Stage 3 development.
** Aurora Cannabis Inc. provides consultancy services regarding cultivation medicinal cannabis and manufacture of medicinal cannabis products
through a Technical Services Agreement.
14. CONTINGENT LIABILITIES AND COMMITMENTS
The Company has a bank guarantees of $35,000 and $50,000 for the operating premises lease of the Company’s
previous corporate office, Southern and Northern premises respectively. With the exception of these bank guarantees,
the Company currently has no contingent liabilities or commitments at the date of signing this report. In July the Company
signed a surrender of lease with the landlord to the former corporate office and expects the bank guarantee to be returned
within the coming months.
During the year the Company had a bank guarantee of $12,952 pertaining to the previous corporate office which has been
returned by the landlord. Consequently, the term deposit securing that bank guarantee appears in cash and cash equivalents.
15. EVENTS AFTER THE END OF THE REPORTING PERIOD
There were no other matters or circumstances arising since the end of the year which significantly affected or may
significantly affect the operation of the Group, the results of those operations, or the state of affairs of the Group
in future financial years.
CANN GROuP LIMITED ANNuAL REPORT 2018
37
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. CASH FLOW INFORMATION
Reconciliation of net loss after tax to net cash flows from operations
Profit/(loss) for the year
Non-cash flows in profit
Vesting of performance rights Class B
Share-based payments
Depreciation and loss on sale of assets
Amortisation
Movements in working capital
(Increase)/decrease in trade receivables and other assets
(Decrease)/increase in trade and other payables
(Increase)/decrease in stock on hand and biological assets
Net cash outflows from operating activities
2018
$
2017
$
(4,725,857)
(2,588,445)
–
110,304
1,043,877
–
1,063,534
124,297
15,029
–
(4,239)
(127,934)
438,805
207,254
(1,585,660)
(24,927)
(3,754,511)
(2,298,851)
17. OPERATING LEASE
The Group has three existing operating leases for premises as follows:
Southern Facility
The term of the lease is three years and six months commencing 4 September 2015 and allows for two further terms
of three years each. It is assumed in the operating lease commitments below that the Group will renew this lease for
a further term three years.
Northern Facility
The term of the lease is three years commencing 1 April 2017.
Corporate Office
The term of the lease is one year commencing 1 July 2018.
All of the leased premises are located in Melbourne, Victoria.
Operating lease commitments are:
Period
Less than 12 months
From one to five years
2018
$
2017
$
669,945
518,021
664,610
834,138
1,334,555
1,352,159
38
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. FINANCIAL RISK MANAGEMENT
The consolidated Group’s material financial instruments consist of deposits with banks and its accounts payable and
other liabilities. The Board is responsible for managing the Group’s significant financial risks, which are its liquidity risk,
which it does through regularly reviewing rolling cash flow forecasts and examining its levels of available working capital
against such forecasts and its interest rate risk exposure.
Liquidity risk
Liquidity risk arises from the possibility that the Group may encounter difficulty in meeting its obligations for its financial
liabilities, which at 30 June 2018 were accounts payable with due terms from 0 – 45 days.
Interest rate risk exposure
The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s market value will
fluctuate as a result of changes in market interest rates, and the effective weighted average interest rates on classes
of financial assets and financial liabilities are as follows:
Weighted
average
effective
interest rate
%
Floating
interest rate
$
1 year
or less
$
1 to 5
years
$
Over 5
years
$
Non-interest
bearing
$
Total
$
2018
From 1 July 2017
to 30 June 2018
ASSETS
Cash and Bank
Balances
1.34
3,252,971
–
Term Deposits
2.62
Receivables
–
–
75,357,392
–
Total financial assets
3,252,971
75,357,392
LIABILITIES
Trade and other
creditors
Total financial
liabilities
Net financial assets
(liabilities)
–
–
–
–
3,252,971
75,357,392
Sensitivity analysis for interest rate risk:
Effect on profit
Market Risk
–
–
–
–
–
–
-
–
–
–
–
–
–
–
1,124,176
4,377,147
–
–
75,357,392
–
1,124,176
79,734,539
927,674
927,674
927,674
927,674
196,502
78,806,865
$
50bps
decrease
$
50bps
increase
(376,787)
376,787
The Group does not believe it has any material market risk of loss arising from adverse movements of market instruments
including foreign exchange and interest rates.
CANN GROuP LIMITED ANNuAL REPORT 2018
39
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Credit Risk
The Group does not believe it has any material risk from a counterparty defaulting on its contractual obligations or
commitments resulting in financial loss as such risk is managed by implementing a policy of only dealing with creditworthy
counterparties in accordance with established credit limits for all future transactions with customers. The Group also
reviews the overall financial strength of its customers by monitoring publicly available credit information.
The Directors have assessed that the fair values of the Group’s financial assets and liabilities reasonably approximate
their carrying values, as represented in these financial statements.
19. CAPITAL MANAGEMENT
The Board of Directors are charged with determining the optimal mix of debt and equity which is suitable for the needs
of the Group. For the year ended 30 June 2018 the Group held no material commercial borrowings or material facilities
for credit as the board considered that, at this point of time, that funds sourced through equity would be most appropriate.
The Group’s treasury function reports to the board periodically with forecast cash flow information that enables the Board
to conduct its capital raising activities in an orderly fashion at a dilutive cost to existing shareholders that is appropriate
and reasonable.
20. PARENT ENTITY DISCLOSURES
Financial Position
ASSETS
Current assets
Non-current assets
Total assets
LIABILITIES
Current liabilities
Non-current liabilities
Total liabilities
EQUITY
Issued capital
Reserves
Accumulated losses
Total equity
Financial Performance
Loss for the year
Other comprehensive income
Total comprehensive loss
2018
$
2017
$
90,407,525
16,911,629
14,789
25,314
90,422,314
16,936,943
484,073
227,298
16,369
20,567
500,442
247,865
95,081,758
20,187,092
1,043,877
-
(6,203,763)
(3,498,014)
89,921,872
16,689,078
2018
$
2017
$
(2,705,749)
(1,784,294)
–-
–
(2,705,749)
(1,784,294)
The subsidiary companies have expenditure commitments under the premises lease. The parent entity has
committed to providing funds to ensure the subsidiary companies can fulfil these commitments as well as any
other operating commitments.
40
DIRECTORS’ DECLARATION
1. The Directors declare that the financial statements and notes set out on pages 23 to 40 are in accordance
with the Corporations Act 2001 and:
a. comply with International Financial Reporting Standards, as stated in Note 2 to the financial statements;
b. comply with Accounting Standards, the Corporations Regulations 2001; and
c. give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year
ended 30 June 2018 of the consolidated group.
2. The Chief Executive Officer and Company Secretary have each declared that:
a.
the financial records of the Company for the year ended 30 June 2018 have been properly maintained
in accordance with section 286 of the Corporations Act 2001;
b.
the financial statements and notes for the year comply with the Accounting Standards; and
c.
the financial statements and notes for the year give a true and fair view.
3.
In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts
as and when they become due and payable.
This declaration is made in accordance with a resolution of the Directors.
Allan McCallum
Chairman
Date: 22 August 2018
CANN GROuP LIMITED ANNuAL REPORT 2018
41
INDEPENDENT AUDITOR’S REPORT
42
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
CANN GROuP LIMITED ANNuAL REPORT 2018
43
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
44
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
CANN GROuP LIMITED ANNuAL REPORT 2018
45
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
46
SHAREHOLDER INFORMATION
Equity security holders
As at 17 August 2018 the Company had 139,546,632 ordinary shares on issue. Further details of the Company’s equity
securities are as follows:
17 Aug 2018
% of Issued
Capital
31,956,347
22.90
Largest Holders
Rank Name
AURORA CANNABIS INC
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
7,530,396
ALLAN McCALLUM/MULLACAM PTY LTD
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