BUILDING
COMMERCIAL
MOMENTUM
Annual Report 2020
About Cann Group
Established in 2014, Cann Group is the first company in Australia to be
issued with a cannabis research licence by the Federal Department of Health’s
Office of Drug Control (ODC) in February 2017. This licence authorises Cann to
cultivate cannabis (in association with a relevant permit) for research purposes.
In addition, in March 2017, Cann Group was issued Australia’s first medicinal
cannabis licence, which authorised Cann to produce Australian‑grown cannabis
(in association with a relevant permit) for medicinal purposes.
Cann has established R&D and cultivation facilities in Australia and is pursuing
a fully‑integrated business model with collaboration agreements, resources and
capabilities that will enable it to establish a leading position in plant genetics,
breeding, cultivation, production, manufacturing, and clinical evaluation to facilitate
the supply of medicinal cannabis for a range of diseases and medical conditions.
Cann Group listed on the Australian Stock Exchange (ASX) in 2017 with a vision
to become Australia’s leading developer and supplier of cannabis, cannabis resin
and medicinal cannabis products.
Contents
1
2
FY20 Highlights
Cann – a leading medicinal cannabis
producer and global supplier
is underpinned by our vertically
integrated business model
4 Multiple pillars of growth
5
6
Expanding offtake opportunities
Commercial products launched
7 Mildura remains a critical
component of expansion plans
8 Message from the Chairman
and Chief Executive Officer
10 Operations review
14 Directors’ report
32 Consolidated Statement
of Changes in Equity
33 Consolidated Statement
of Cash Flows
29 Auditor’s independence declaration
34 Notes to the financial statements
30 Consolidated Statement
of Profit or Loss and other
Comprehensive Income
31 Consolidated Statement
of Financial Position
60 Directors’ declaration
61
Independent auditor’s report
65 Shareholder information
IBC Corporate directory
Corporate Information
These are the full financial statements
of Cann Group Limited (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 2020. 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 attached Directors’ Report.
Directors
Mr Allan McCallum AO (Chairman)
Mr Philip Jacobsen (Deputy Chairman)
Mr Douglas Rathbone AM
Mr Geoffrey Pearce
FY20 Highlights
Building commercial
momentum by signing
six new supply agreements
in domestic and foreign
markets.
Focused on delivery
of our immediate goals
of completing sales and
producing revenue.
Continuing to progress
our growth opportunity
of funding and completing
the Mildura project.
Committed to the fully
integrated business
model that differentiates
us and leads us to
maximise profitability.
1
Building momentum by strengthening our business model
Cann – a leading medicinal cannabis producer
and global supplier, underpinned by our vertically
integrated business model
1 2
Cultivars
Testing, identifying &
focusing on strains with
suitable attributes for
cultivation at scale.
Collaborations
R&D capabilities
bolstered by work
alongside Agriculture
Victoria, the CSIRO
& La Trobe University.
3 4
Production
Existing facilities
currently provide
1,200kg p.a. in capacity
with Cann’s cultivation
team leveraging its
learnings from Aurora
Cannabis – over 70
harvests completed
to date.
Manufacturing
Arrangements with
IDT Australia Ltd to
manufacture Active
Pharmaceutical
Ingredients (resin
& oils) and finished
products under GMP.
Consolidating our leadership position
Cann is now established as a
vertically-integrated medicinal
cannabis company with strong
capabilities and partnerships
across its research, cultivation,
manufacturing, product develop-
ment and distribution activities.
We have strong commercial
momentum and we are confident
of generating meaningful near-term
sales while we continue to develop
new and exciting medium and
longer term market opportunities.
Cann has executed supply and
offtake agreements with customers
in Australia and overseas and we
are in discussions with additional
potential customers.
2
Cann Group Limited Annual Report 2020
5Distribution
National distribution
agreement with
Symbion to deliver
Cann finished product
through pharmacies
and hospitals
across Australia.
6 7
Supply
Agreements in place
to supply customers
in Australia & overseas
markets including
New Zealand, Canada,
the UK, and Germany.
Products
Expanding range
of value-added locally
produced & imported
products launched
to Australian patients.
The Company’s commitment to genetics research and
thorough clinical evaluation will help ensure Australian
patients – and patients in overseas markets – have access
to safe, innovative and high‑quality medicinal cannabis
treatment options.
3
Building momentum through a multi-pronged growth strategy
Multiple pillars of growth
Cann continues to pursue its objectives for growth
and consolidate its market leadership position
by executing on four core strategic pillars:
PILLAR 1
PILLAR 2
Revenue growth
• Cann continues to execute on a B2B strategy
Product pipeline
• Cann is developing a range of value-added
• Cann has multiple supply/offtake
agreements in place with both Australian
domestic and overseas based medicinal
cannabis companies
• Seven executed contracts including
most recently a publicly listed Australian
B2B customer
• Cann is currently pursuing additional contracts
• Five further contracts under negotiation
• Based on customer forecasts, Cann is
projecting meaningful revenues in FY21.
finished product formulations
• Cann’s extensive genetics program aims
to develop multiple cannabis strains that
potentially address specific indications
• Cann’s manufacturing arrangements
with IDT Australia give it a proven
capability to produce products to
GMP standards.
PILLAR 3
PILLAR 4
Mildura expansion
• Cann remains committed to
Mildura expansion plans
• Mildura facility will provide substantial
technology and efficiency gains
• Expansion provides scale and
cost base to enable Cann to be
globally competitive
• Substantial uplift in margins as
Cann transitions from imported
biomass to Mildura cultivation.
Strategic M&A
• Cann Group continues to review strategic
M&A opportunities that drive near term
revenues and consolidate an industry
leadership position
• Future industry consolidation may lead
to additional M&A and/or partnership
opportunities that are consistent
with Cann’s growth strategy
• Cann’s integrated business model
provides opportunities to participate
in all levels of the value chain.
4
Cann Group Limited Annual Report 2020
Expanding offtake opportunities
ü
ü
üü
ü
ü
ü
ü
Legalised medicinal
cannabis markets
ü
agreementsü
Cann supply
Additional offtake arrangements currently being pursued
in markets including Australia, Germany and Poland.
ü
ü
MILDURA EXPANSION
5
Commercial products launched
• Large scale production
runs of Australian grown
& manufactured value-
added GMP products
have been completed
• Cann has commenced sales
• Cann has a manufacturing
agreement with IDT Australia
to produce finished product
formulations under
GMP conditions
– via the Special Access Scheme
(SAS) in Australia – of several
product formulations
• Current products /
formulations include:
– Finished oil products
– Bulk extract (API)
– Finished dose dried flower
– Bulk dried flower
6
Cann Group Limited Annual Report 2020
Mildura remains a critical
component of expansion plans
• Cann continues to progress
funding options to proceed
with a staged Mildura expansion
– timing impacted by COVID-19
• Discussions continue regarding
a proposed bank loan facility
and other funding alternatives
• Cann has existing capacity
– supplemented by imported
biomass – to meet growing
sales demand and targeted
revenues in FY21
• Cann is confident that
sustainable revenues and
growing demand will support
both the business case for
Mildura and help secure the
support of its financiers to
fund the project
• The Victorian Government
is supporting the project via
its Regional Jobs Fund
• $50m invested to date:
Site works, service
connections, super
structure complete
• Stage 1a to
provide capacity
of 12,500 kgs p.a.
• Total potential capacity
of 70,000 kgs p.a.
• Incorporates
state-of-the-art,
controlled-environment
greenhouse technology
• Combination of
technology, efficiencies
and scale deliver globally
competitive cost position
This plan provides a low risk pathway to near‑term positive
cash flows & a platform to expand the business as global
demand continues to grow.
7
Message from the Chairman
and Chief Executive Officer
The past year has clearly established Cann Group at the forefront
of the Australian medicinal cannabis industry – as a leader in cultivating,
manufacturing and supplying medicinal cannabis for use here in
Australia as well as for export markets.
Our company has responded to several
challenges and we have finished the year with
strong momentum, well positioned for ongoing
growth over the coming 12 months and beyond.
Global market conditions in the first six months
of the year led us to review our strategy in
January 2020. As a result of that review,
we are now focused on building a resilient
‘business-to-business’ (B2B) model meeting
Australian domestic demand, while also taking
advantage of export markets which continue
to develop. We also committed to a staged
development of our new cultivation facility
in Mildura, in north-west Victoria. This will allow
us to better manage the capital investment
requirements associated with expanding our
production capacity and help ensure the timing
of that expansion coincides with growing
demand for our products.
During the 2020 financial year, we were not able
to finalise external funding options for proceeding
with Mildura. This was in part due to COVID-19
related impacts on the financing environment.
We remain confident, however, that a growing
revenue base supported by an expanding
number of supply agreements will considerably
strengthen our position in relation to funding
options and this will be our clear focus during
this new financial year.
To reflect that confidence, we have forecast
revenues of $15 million in FY21.
We have implemented
cost reduction initiatives
to preserve cash and
redirected our near‑term
investment priorities into
the development and
pursuit of further supply
agreements which will
underpin sustainable
revenue growth and
future profitability.
Post year-end, we have secured additional
working capital for the coming year through
a Share Placement to sophisticated and
institutional investors to raise $14.3 million
and a Share Purchase Plan (SPP) offered to
existing eligible shareholders, initially to raise up
to a further $10 million, offered on the same terms
as the Placement. The SPP was oversubscribed
following strong support from retail shareholders
and the Company increased the size of the SPP
by $15.9 million, to a total SPP of $25.9 million.
We thank new and existing shareholders for their
support in these activities.
8
Cann Group Limited Annual Report 2020
Our decision to move to a B2B model
has allowed us to diversify our customer
base and the markets into which we supply
our products. We have secured several
important agreements with partners both in
Australia as well as legalised medicinal cannabis
markets in the UK, Europe and New Zealand.
These include a distribution agreement with
Symbion Health, and supply agreements with
Australian-based healthcare company Entoura;
a five-year supply agreement with NZ-based Zalm
Therapeutics (formerly Pure Cann NZ) in which
we have an 8.4% investment; UK-based specialist
importer and distributor Astral Health; as well
as a three-year agreement with iuvo Therapeutics,
a leading independent importer and distributor
in Germany.
These new partnerships are in addition to our
existing five-year offtake agreement with Aurora
Cannabis Inc. That offtake agreement enables
Cann to sell several varieties of cannabis products
to Aurora until 2024, leveraging on Aurora’s far
reaching marketing arrangements that capture
more than 25 markets globally, including in
Europe and South America.
During the year, our manufacturing partnership
with Melbourne-based IDT Australia Ltd has
progressed. We produced our first batches
of cannabis resin along with dried cannabis
flower and cannabis oil from our Australian
grown cannabis, manufactured under IDT’s
Good Manufacturing Practices (GMP) certification.
Our ability to supply high quality GMP standard
product is an important differentiator which is
giving us access to more customers and markets.
Cann Group’s position as a vertically integrated
medicinal cannabis company allows us to
build competitive strengths and value-adding
partnerships across research, cultivation,
manufacturing, product development and
distribution. We remain strongly committed
to leveraging those strengths and partnerships
to ensure that patients in Australia and in overseas
markets have access to safe, innovative and
high-quality medicinal cannabis treatment options.
We thank our shareholders
and partners for their support
during FY20 and look forward
to further building on these
relationships in the year ahead,
as we extend our reputation
as an industry leader.
Allan McCallum AO
Chairman
Peter Crock
Chief Executive Officer
9
Operations review
Strategy
During the year, the Company reviewed its near-term
growth strategy in response to demand-supply
disruptions in the global medicinal cannabis market.
The revised strategy involves developing a robust
B2B model which can focus on meeting Australian
demand and build export opportunities as overseas
markets continue to develop. Cann also decided
to stage the construction of its new state-of-the-art
cultivation facility in Mildura, Victoria, with the
timing of construction subject to funding and
the necessary approvals.
Stage 1a of Mildura will involve the commissioning
of 12,500kg of annual dry flower production, with
stage 1b proposed to increase capacity to 25,000kg
per annum, with timing subject to volume demand
growth that provides confidence in capacity utilisation.
Cann has developed a vertically integrated business
that enables it to generate value from multiple points
in the value chain. The Company is committed to
supplying medicinal cannabis products that meet
GMP standards.
Cann will also target production towards value-
added downstream formulations and products,
which have the potential to generate strong
margins and revenues.
Facilities
During the September quarter, Cann Group
finalised the design for its large-scale state-of-the-art
greenhouse facility in Mildura. This facility will operate
in conjunction with its two existing Melbourne facilities.
Cann collaborated with its construction partner,
Aurora Larssen Projects, to improve space utilisation
and efficiencies with the plant production systems,
which increased capacity of the design.
Works commenced at the Mildura site, following
acquisition of the land and buildings in June 2019,
and subsequent acquisition of the two vacant lots
adjacent to the property in October 2019. Acquisition
of the existing land and buildings and construction
of the glasshouse structure was completed during
1H20, with $50 million expended on the project
to date.
10
Cann Group Limited Annual Report 2020
The Mildura expansion remains a critical component
of Cann’s growth strategy. COVID-19 impacts have
contributed to a delay in finalising potential funding
options for Mildura, and the ability to access
European-based specialist contractors on the project.
Cann’s Northern and Southern cultivation facilities
operated throughout the year, with 33 harvests
successfully completed during the 12-month period.
Regulation
In July 2019, Cann Group received approval from
the ODC for manufacturing licences for the Company’s
existing Northern and Southern medicinal cannabis
facilities in Melbourne. The licences relate to the
manufacturing, packaging, storage, transport and
disposal of medicinal cannabis in final dose
and intermediate forms. The ability to undertake
these activities at both the Northern and Southern
facilities gives the Company flexibility as it progresses
the development of the Mildura facility.
These approvals gave Cann Group all requisite
cultivation, production and manufacture licences
under the Narcotics Drugs Act 1967, along with import
and export licences under the Customs Act 1901.
Commercial partnerships
The ODC manufacturing licences for Cann’s
Melbourne facilities received in July 2019
complemented its manufacturing arrangements
with IDT Australia Ltd (ASX:IDT), which received
an ODC manufacturing licence in May 2019. Cann
and IDT have a manufacturing agreement for IDT to
provide manufacturing support in relation to medicinal
cannabis-based product formulations for patients
in Australia and overseas. IDT has GMP approved
facilities which offer Cann Group immediate access
to proven expertise in pharmaceutical manufacturing.
Cann signed a manufacturing agreement in
August 2018 with IDT for production of medicinal
cannabis formulations.
Stability testing of Cann’s first locally sourced and
manufactured formulations was undertaken in the
March quarter of 2020. Results from this work paved
the way for commercial launch under the Special
Access Scheme (SAS) and B2B sales, with
the potential for export of the product.
Cann signed a number of significant agreements
with other commercial partners during the year.
In November, the Company announced the
execution of a distribution agreement with Symbion
Pty Ltd as well as the launch of a range of imported
medicinal cannabis products for supply to approved
SAS patients.
Cann signed a supply agreement with Entoura Pty
Ltd, an Australian operated healthcare company,
developing and supplying high quality medicinal
cannabis products. Cann Group is supplying its
whole plant extract product range to Entoura for
distribution to Australian patients via the TGA’s
Special Access Scheme.
Cann Group also executed a five-year supply
agreement with New Zealand based Zalm
Therapeutics Ltd (formerly Pure Cann NZ Limited),
which is building a patient-centric medicinal cannabis
business focused on supplying cannabinoid-based
medicines to patients in New Zealand and other key
global markets. New Zealand’s medicinal cannabis
regulations came into effect on 1 April 2020.
Cann Group, through its wholly owned subsidiary
Botanitech Pty Ltd (Botanitech), initially held 3.9%
of the issued capital of Zalm Therapeutics, for which
it paid NZ$1 million (out of a previously committed
total amount of NZ$6 million on a staged basis,
as announced to the market on 26 April 2019).
In August 2020, Cann Group increased its holding
to circa 8.4% in exchange for an issue to Zalm
Therapeutics of new shares in Cann Group having
a value of NZ$1 million. Cann Group is no longer
obligated to invest the unpaid balance of
NZ$4 million into Zalm Therapeutics given
these new arrangements.
In May, Cann signed two new supply agreements
involving the export of medicinal cannabis products
and dried flower material for sale in UK and
European markets.
The first agreement was with Astral Health Limited,
a UK-based specialist importer and distributor
of medicinal cannabis products. Astral Health is
a subsidiary of LYPHE Group, a European leader
in medicinal cannabis solutions across distribution
channels, including medicinal cannabis clinics,
online pharmacies, and healthcare practitioner
training. The UK’s medicinal cannabis market
continues to expand, with the lifting of import
restrictions in March allowing licenced wholesalers
to build inventory for future supply needs. The Astral
Health supply agreement is a multi-year agreement
with options to extend. Cann Group will supply a
range of formulated oils, including high THC, high
CBD and a balanced formulation. The agreement
provides for additional products to be developed
and supplied to Astral Health over time.
Cann Group also executed an agreement with
Germany-based iuvo Therapeutics GmbH for the
supply of medicinal cannabis oil formulations and
dried flower material for sale within Germany and
other European countries. Germany is Europe’s
largest medicinal cannabis market with 2019 sales
exceeding all other European markets combined.
iuvo Therapeutics GmbH is a leading independent
GMP certified importer and distributor in Germany,
and a subsidiary of Wundr Co., a pharmaceutical
company focused on providing a diversified portfolio
of medical cannabis products for European patients.
The agreement with iuvo is for a period of three years,
with the option to extend. Supply will commence when
all relevant regulatory approvals are received from the
Australian and European authorities.
Cann Group also has a five-year offtake agreement
with Aurora Cannabis Inc. The offtake agreement
enables Cann to supply GMP-processed dry flower,
extracted resin and manufactured medicinal cannabis
products to Aurora until 2024. Aurora has marketing
arrangements in 25 medical cannabis markets,
including in Europe and South America.
It was under this partnership with Aurora that
Cann Group took receipt of product from Aurora
in late September. Cann obtained multiple import
licences issued by the ODC, with accompanying
export permits issued by Health Canada, which allow
the company to establish a reliable and consistent
supply of cannabis-based medicines for Australian
patients, without the risk of product shortages.
11
Production and manufacturing
GMP extraction activities were transitioned from
Agriculture Victoria to IDT in January 2020 for the first
commercial scale batches of medicinal cannabis
resin, paving the way for formulation and packaging
activities to produce a wide range of GMP medicinal
cannabis finished dosage form products.
On 1 April 2020, Cann Group reported the first
of its GMP-manufactured product formulations,
dried cannabis flower and cannabis oil from its
Australian-grown cannabis, completed initial shelf
life stability testing and was ready for release to
the market to fill specific customer orders.
Cann subsequently supplied cannabis oil
product to Entoura in April 2020 for distribution
to Australian patients.
In the June quarter, Cann commenced manufacturing
a new high CBD oil-based formulation. This product
is a combination of Active Pharmaceutical Ingredient
(API) from Cann’s locally grown CBD dominant cultivar,
supplemented with an externally sourced GMP quality
CBD isolate. The product has commenced stability
studies and is expected to be available for release
and sale in Q2 FY21, for domestic supply and export.
Research
During the period, Cann maintained its commitment
to quality research, in particular with respect to the
Company’s genetics program.
Important research partnerships were maintained
with a number of external organisations, including
Agriculture Victoria and CSIRO, and Cann
continued its involvement with LaTrobe MedAg
Hub and the NSW DPI CRCP.
Impact of COVID‑19
As with many other businesses, Cann Group
implemented changes in order to comply with
Government-imposed COVID-19 restrictions and
guidelines in 2H 20, safeguarding the Company’s
commitment to the health and welfare of its
employees and business partners. Cann Group
implemented a business continuity plan which
included moving to a shift-based operation for
its cultivation facilities and all other staff working from
home. As a supplier of medical products to Australian
patients, Cann Group’s operations are an essential
service and the Company expects to continue
operating throughout the COVID-19 pandemic.
Industry representation
Cann Group is a founding member of Medicinal
Cannabis Industry Australia (MCIA), which is the peak
industry organisation for Australia’s licensed medicinal
cannabis industry. Cann CEO, Peter Crock, was
elected inaugural Chairman of MCIA, which launched
an industry Code of Conduct during the year and
hosted a successful industry conference.
Corporate
Funding and capital raising
On 7 February, the Company secured institutional
funding support for working capital via the issue
of convertible notes, raising $8 million, less costs.
Full details of these notes were released to the ASX
at the time of issuance. 100,000 of the convertible
notes were converted to 147,500 ordinary shares on
8 April 2020 and, on 29 July 2020 (subsequent to a
capital raising referenced below), a further 5,600,000
notes were converted to 17,185,723 ordinary shares.
Subsequent to the end of the financial year, on
17 July 2020, Cann Group announced a placement
(Placement) and Share Purchase Plan (SPP) to raise
a total of $40.2 million (Capital Raising), less costs.
Proceeds from the Capital Raising will be used to
provide working capital to support the Company’s
near-term growth plans and provides additional equity
that will strengthen the Company’s position in terms
of securing external debt funding to proceed with the
first stage of the Mildura expansion.
The Company accepted applications for 35,750,000
new fully paid ordinary shares (New Shares)
amounting to total subscriptions of $14,300,000 under
the Placement. In identifying investors to participate
in the Placement, the Company looked to approach
existing shareholders whose holdings were of a
size where participation under the SPP would be
insufficient to maintain their pro-rata ownership.
In addition to this, the Company approached
a broad range of institutional investors.
Due to significant interest received in the offer,
significant scale back was required when allocating
available securities. The allocation policy sought
to provide existing shareholders who bid into
the Placement with their pro-rata allocation.
Beyond this, remaining securities available
under the offer were allocated to new shareholders,
with a focus on investors who had expressed a
desire to be long term supporters of the Company.
2,796,080 New Shares to raise $1,118,432 under
12
Cann Group Limited Annual Report 2020
the Placement were subscribed for by related
parties (Directors) of the Company and their
issue will be subject to shareholder approval
under ASX Listing Rule 10.11, to be sought at an
extraordinary general meeting of the Company
scheduled to be held on 7 September 2020.
In addition to the Placement, a further 64,744,452
new fully paid ordinary shares were issued
to shareholders who participated in the SPP.
The Company initially only sought to raise up
to a further $10 million under the SPP, with shares
being offered on the same terms as the Placement.
The SPP was oversubscribed following strong
support from retail shareholders and the Company
increased the size of the SPP by $15.9 million,
to a total SPP of $25.9 million.
Victorian Government
Regional Jobs Fund grant
In June 2020, Cann Group was awarded a grant for
up to $1.975 million under the Regional Jobs Fund
established by the Victorian Government. The grant
will assist with funding of electricity upgrades at
Cann’s proposed Mildura facility in regional Victoria.
Board & management changes
Aurora Cannabis’ representative Neil Belot
resigned as a non-executive director of Cann
on 14 December 2019 in conjunction with his
resignation from Aurora.
In December 2019, Geraldine Farrell was
appointed Company Secretary of Cann Group
and Reena Dahiya as acting Chief Financial Officer,
replacing Richard Baker who resigned as Company
Secretary and Chief Financial Officer. Greg Bullock
later replaced Ms Dahiya as Chief Financial Officer
following her resignation. Mr Bullock transitioned
from a previous short-term contract as Cann
Group’s Strategy and Planning Manager.
Post year-end, Cann announced the proposed
appointment of Ms Jenni Pilcher to its Board of
Directors. This appointment will take effect once
clearance of the appointment is provided by
the ODC. Ms Pilcher has extensive senior executive
experience in the medical and biotechnology
sectors and is currently the Chief Financial Officer
and Company Secretary of Mach7 Technologies
(ASX:M7T). She has previously held executive roles
with Alchemia Limited (ASX:ACL) and Mesoblast
Limited (ASX:MSB).
Outlook
A key priority for management going into FY21
is to secure additional supply agreements and to
work closely with new offtake customers to finalise
their specific product and volume requirements and
complete related regulatory approvals. The Company
expects initial shipments for overseas-based supply
customers to occur from September 2020.
The Company is otherwise continuing to operate
within the COVID-19 restrictions, ensuring that the
health and wellbeing of its employees are maintained.
The Mildura expansion remains a critical
component of Cann’s growth strategy. COVID-19
impacts have slowed progress of potential funding
options for Mildura as well as the practical timing
of any construction, due to the need to engage
European-based specialist contractors.
All funding options for the Mildura expansion
continue to be pursued, including a bank debt facility.
The Company is forecasting revenues of $15 million
in FY21, underpinned by existing supply contracts,
and is confident that a proven track record of
sustainable revenues will support both the business
case for Mildura and help secure the support
of financiers.
MILDURA EXPANSION
13
Directors’ report
Your directors present their report on the Group for the year ended 30 June 2020.
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 AO
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 prawns. His previous board roles include Medical Developments International Ltd
(ASX:MVP) from 27 October 2003 to 17 December 2018, 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 the Remuneration and
Capital Committees.
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 marketplace.
Philip is also an Associate of Chartered Institute of Secretaries ACIS.
Director since 30 January 2015.
Special Responsibilities – Chairman of Audit and Risk Committee and Member of the Remuneration Committee.
Interest in Shares – 4,094,518 Ordinary Shares.
14
Cann Group Limited Annual Report 2020
Douglas John Rathbone AM
FATSE, FI ChemE, ARMIT B Comm, TTC
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. He is 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, Remuneration and Capital Committees.
Interest in Shares – 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 held the role of Chairman of Probiotec Ltd (ASX:PBP) from
November 2016 until 30 June 2020 and has been a Director of McPherson’s Limited (ASX:MCP) since
20 February 2018.
Director since 11 April 2016.
Special Responsibilities – Member of Audit and Risk, Remuneration and Capital Committees.
Interest in Shares – 1,554,195 Ordinary Shares.
Neil Belot
Resigned 14 December 2019.
15
Directors’ report Continued
Chief Executive Officer
Peter Crock
CEO, B.Ag.Sci (Hons); MBA
Peter Crock joined Cann Group as CEO in 2016 and led the company through its successful initial public offering
and listing on the Australian Stock Exchange. An experienced executive across marketing, business and technology
development, as well as mergers and acquisitions, Peter has overseen the growth and advancement of Cann
Group to be a vertically integrated business with strong capabilities across genetics, cultivation, manufacturing
and supply and a leader in the Australian medicinal cannabis industry. Peter previously held senior management
roles during a three decade long career at global agribusiness company Nufarm Limited (ASX:NUF). Peter is also
the inaugural Chairman of Australia’s peak industry Group, Medicinal Cannabis Industry Australia, where he has
led the development of an industry Code of Conduct and helped represent industry‑related interests and issues
to Government.
Company Secretary
Geraldine Farrell
B.Sc., LLB, LLM (Intellectual Property), GAICD, Grad Dip ACG, FGIA, FCIS
A senior executive, lawyer and Company Secretary in listed environments (ASX and NASDAQ), with over 25 years’
working as a corporate and technology/intellectual property lawyer (in private practice and in‑house), seven years
of Company Secretary experience, and more than 12 years of non‑executive director experience. Gerry is a Fellow
and Graduate of the Governance Institute of Australia, and a Fellow of the Institute of Chartered Secretaries and
Administrators. She has an extensive background in corporate governance, capital raisings, and risk and compliance
in the education and biotechnology sectors.
Chief Financial Officer
Greg Bullock
MAppFin, MPA, CFTP
A senior executive and finance professional, with over 30 years’ experience, including 10 years in consumer
durables and commodity products. Greg’s recent experiences include Group Treasury Manager at Wilmar Sugar
Australia Limited as part of the Executive Finance Team, P&O Maritime Services and Pacific Brands Holdings
Limited (ASX:PBG).
Company Secretary and Chief Financial Officer
Richard Baker
M.Commrcl Law, B.Ec., FGIA, CPA
Resigned from the Company 6 December 2019.
Dividends
No dividends have been paid or have been recommended during the year.
16
Cann Group Limited Annual Report 2020
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 licences and permits issued to the Company; the development and
manufacture (via third party arrangements) of finished product formulations; and the pursuit and execution of
various supply and offtake agreements with third parties.
Operating results for the year
The Group made an operating loss of $16.94 million for the year ended 30 June 2020 (2019: $10.93 million).
The Group’s basic and diluted loss per share is $0.119 (2019: $0.078). The Weighted Average number of Shares
used to calculate the basic and diluted earnings per share is 142,187,418 (2019: 139,689,868).
The net assets of the Group are $61.07 million as at 30 June 2020 (2019: $77.30 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.
Significant changes in the state of affairs
Agreement signed with new counterparties
Cann signed a number of significant agreements with other commercial partners during the year.
In November, the Company announced the execution of a distribution agreement with Symbion Pty Ltd as well
as the launch of a range of imported medicinal cannabis products for supply to approved SAS patients.
Cann signed a supply agreement with Entoura Pty Ltd, an Australian operated healthcare company, developing
and supplying high quality medicinal cannabis products. Cann Group is supplying its whole plant extract product
range to Entoura for distribution to Australian patients via the TGA’s Special Access Scheme.
Cann Group also executed a five‑year supply agreement with New Zealand based Zalm Therapeutics Ltd (formerly
Pure Cann NZ Limited), which is building a patient‑centric medicinal cannabis business focused on supplying
cannabinoid‑based medicines to patients in New Zealand and other key global markets. New Zealand’s medicinal
cannabis regulations came into effect on 1 April 2020.
Cann also executed supply agreements with Astral Health Limited, a UK‑based specialist importer and distributor
of medicinal cannabis products, and with Germany‑based iuvo Therapeutics GmbH.
The Company is forecasting revenues of $15 million in FY21.
Mildura facility
All funding options for the Mildura expansion continue to be pursued, including a bank debt facility.
Stage 1a of Mildura will involve the commissioning of 12,500kg of annual dry flower production, with stage 1b
proposed to increase capacity to 25,000kg per annum, with timing subject to volume demand growth that provides
confidence in capacity utilisation.
There were no other significant changes in the state of affairs of the Group during the year.
17
Directors’ report Continued
Future developments, prospects and business strategies
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.
Environmental regulation and performance
The Group’s operations comply with all relevant environmental standards and regulations.
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 2020 and the number of meetings attended by each
Director/member were:
Board
Meetings
Audit and Risk
Committee Meetings
Remuneration
Committee Meetings
Capital
Committee Meetings
Number
eligible
to attend
Number
attended
Number
eligible
to attend
Number
attended
Number
eligible
to attend
Number
attended
Number
eligible
to attend
Number
attended
11
11
11
11
5
11
11
11
11
5
2
2
2
2
0
2
2
2
2
0
2
2
2
2
0
2
2
2
2
0
2
2
2
2
0
2
2
2
2
0
Name
Allan McCallum
Philip Jacobsen
Douglas Rathbone
Geoff Pearce
Neil Belot
18
Cann Group Limited Annual Report 2020
Remuneration Report (Audited)
1. Introduction
This Remuneration Report outlines the Company’s remuneration strategy for the financial year ended 30 June 2020
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 2020. 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. Key Management Personnel
The following changes are noted to the KMP for the year ended 30 June 2020:
• Mr Richard Baker resigned 6 December 2019 as Company Secretary and Chief Financial Officer
• Ms Reena Dahiya appointed 6 December 2019 as Acting Chief Financial Officer, subsequently appointed
Chief Financial Officer on 19 February 2020, and resigned from the role 28 April 2020
• Ms Geraldine Farrell appointed 6 December 2019 as Company Secretary
• Mr Neil Belot resigned 14 December 2019 as Non‑Executive Director
• Mr Greg Bullock appointed 28 April 2020 as Chief Financial Officer
• Mr Shane Duncan appointed 12 June 2020 as Chief Operating Officer
• Mr Geoff Aldred appointed 12 June 2020 as Chief Projects & Information Officer
• Mr Neil Gripper resigned 12 June 2020 as General Manager, Operations
The KMP whose remuneration is disclosed in this year’s report are:
Non‑executive Directors – Current
Name
A. McCallum
P. Jacobsen
D. Rathbone
G. Pearce
Non‑Executive Directors (NEDs) – Former
Name
N. Belot
Title
Chairman
Deputy Chairman
Non‑executive Director
Non‑executive Director
Title
Non‑executive Director
19
Directors’ report Continued
Chief Executive Officer (CEO) and Disclosed Executives – Current
Name
P. Crock
S. Duncan
G. Aldred
G. Farrell
G. Bullock
Disclosed Executives – Former
Name
R. Baker
R. Dahiya
N. Gripper
3. Remuneration philosophy
Title
Chief Executive Officer
Chief Operating Officer
Chief Projects & Information Officer
Company Secretary and Chief Compliance Officer
Chief Financial Officer
Title
Company Secretary and Chief Financial Officer
Chief Financial Officer
General Manager, Operations
The Remuneration Committee is responsible for making recommendations to the Board on remuneration policies
and packages applicable to Directors, the CEO and other Key Management Personnel and consisted of four of
the five members of the Board. The Remuneration Committee is subject to the Company’s Remuneration Policy,
with that policy having the objectives to provide a competitive, benchmarked and flexible structure, being tailored
to the specific circumstances of the Company and which reflect 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 best market 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.
4. Relationship between the Remuneration Policy and Company performance
Currently, 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) will be tailored to align at‑risk remuneration and performance hurdle thresholds to the
delivery of operational and future financial objectives and sustained shareholder value growth.
20
Cann Group Limited Annual Report 2020
5. 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 $500,000 per annum as approved
by shareholders at the AGM held on 14 November 2018. 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 2020 financial year inclusive of superannuation contributions
were as follows:
Chairman
Each other non – executive Director
$
120,000
60,000
6. 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.
21
Directors’ report Continued
(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 assess 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, 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.
Chief Executive Officer (CEO) and Disclosed Executives – Current
Name
P. Crock
S. Duncan
G. Aldred
G. Farrell
G. Bullock
Disclosed Executives – Former
Name
R. Baker
STI range calculated on
fixed annual remuneration
20% – 40%
10% – 20%
10% – 20%
10% – 20%
10% – 20%
STI range calculated on
fixed annual remuneration
10% – 20%
For the financial year ended 30 June 2020, required performance achievements for the STI Plan were not obtained
and therefore no STI payments were awarded.
(d) 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.
(e) Contract for services – senior executives
The terms on which the senior executives are engaged provide for termination by either the executive or the
Company on notice periods ranging from three to four months’ notice, or the minimum entitlements contained in
the National Employment Standards – whichever is greater.
22
Cann Group Limited Annual Report 2020
7. Remuneration of Key Management Personnel
Details of the nature and amount of each major element of remuneration of each Key Management Personnel and
the Group 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 are a Key Management Personnel of the Company.
Short‑term
employment benefits
Post‑
employment
Benefits
Share‑based
remuneration
Salary and
Fees
$
STI cash
bonus
$
Super‑
annuation
$
Performance
Rights
$
2020 Financial Year
Non‑Executive Directors
A. McCallum
P. Jacobsen
D. Rathbone
G. Pearce
N. Belot
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
109,589
83,059
54,795
43,830
54,795
43,196
54,795
43,196
29,090
46,667
Other Key Management Personnel and Executive Officers
P. Crock
S. Duncan
G. Aldred
G. Farrell
G. Bullock
S. Notaro
Total
Disclosed Executives – Former
R. Dahiya (Resigned
28 April 2020)
R. Baker (Resigned
6 December 2019)*
N. Gripper (Resigned
12 June 2020)
Total
2020
2019
2020
2019
2020
2020
2020
2019
2020
2019
2020
2020
2019
2020
2019
2020
2019
277,769
231,677
267,885
123,077
196,023
148,204
76,535
156,285
1,269,480
770,987
115,868
303,522
156,285
292,463
184,615
711,853
340,900
*
Includes eligible termination payment to R. Baker of $180,863.
–
–
–
–
–
–
–
–
–
–
21,199
105,600
6,060
–
8,200
–
–
7,201
35,459
138,480
–
7,201
32,880
8,760
–
15,961
32,880
Total
$
120,000
90,950
60,000
47,300
60,000
47,300
60,000
47,300
29,090
46,667
–
–
–
–
–
–
–
–
–
–
10,411
7,891
5,205
3,470
5,205
4,104
5,205
4,104
–
–
25,387
22,009
24,499
11,692
18,622
14,079
7,309
14,847
167,710
492,065
1,232,500
1,591,786
–
–
–
–
–
–
298,444
134,769
222,845
162,283
83,844
204,012
115,922
167,710
1,588,571
68,117
1,232,500
2,210,084
10,392
8,045
14,847
25,350
17,538
43,787
32,385
–
–
–
–
–
–
–
126,260
318,768
204,012
326,573
202,153
771,601
406,165
23
Directors’ report Continued
During the course of the year the Key Management Personnel was defined as the Directors, Chief Executive Officer,
Chief Operations Officer, Chief Financial Officer, Chief Compliance Officer and Chief Projects & Information Officer.
A member of last year’s KMP, being S. Notaro, does not have their details disclosed for the financial year ending
2020 as they no longer meet the definition of a KMP for the Group.
Equity holdings
2020
Directors
Balance
as at
1 July 2019
Balance at
appointment
date
(if applicable)
On conversion
of
performance
rights
Acquisitions,
disposal or
transfers*
Balance at
resignation
date
(if applicable)
Balance
as at
30 June 2020
Balance held
nominally
Number
Number
Number
Number
Number
Number
Number
A. McCallum
5,580,000
P. Jacobsen
D. Rathbone
G. Pearce
N. Belot
4,094,518
2,331,185
1,554,195
–
Other Key Management Personnel
P. Crock
S. Duncan
G. Aldred
G. Farrell
G. Bullock
340,395
–
–
–
–
Total
13,900,293
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,580,000
4,094,518
2,331,185
1,554,195
–
–
–
–
–
–
340,395
1,000,000
–
–
–
–
–
–
–
–
– 13,900,293
1,000,000
* The purchases, disposal or transfers of shares are in compliance with the Company’s Securities Trading Policy.
Disclosed Executives – Former
R. Baker
N. Gripper
Total
110,464
2,957
113,421
–
–
–
–
–
–
(46,500)
(63,964)
–
(2,957)
(46,500)
(66,921)
–
–
–
–
–
–
24
Cann Group Limited Annual Report 2020
Long‑term Incentive Plan – Performance Rights
Balance
as at
1 July 2019
Balance at
appointment
date
(if applicable)
Granted
Vested
Lapsed
Net other
change
Balance
as at
30 June 2020
Balance held
nominally
2019
Number
Number
Number
Number
Number
Number
Number
Number
P. Crock
1,000,000
Total
1,000,000
–
–
–
–
–
–
–
–
–
1,000,000
– 1,000,000
–
–
For the financial year ended 30 June 2020, no performance rights under the LTI Plan were granted to any employees.
^ 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 final commissioning of the first stage of the Company’s Mildura facility.
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. The total vested value as at 30 June 2020 for Class C Performance Rights is $2,143,087. The change in
performance rights value against comparative period reflects the cumulative impact of periodic adjustments
to the Share Based Payments Reserve for the Class C Performance Rights as applicable service period hurdles
are satisfied.
This is the end of the Remuneration Report.
25
Directors’ report Continued
Shares under option
Unissued ordinary shares of Cann Group Limited under option at the date of this report are as follows:
Grant date
8 April 2020
Expiry date
31 March 2022
29 July 2020
31 March 2022
Exercise
Price ($)
Number
under option
0.945
0.460
145,007
17,185,723
17,330,730
Indemnifying officers or auditor
No indemnities have been given, however a Directors and Officers insurance premium totalling $83,250 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
On 17 July 2020, the Company announced a capital raising of $24.3 million to support near‑term growth. The Company
raised $14.3 million (before costs) by way of a private placement (Placement). Under the Placement, Cann has
issued 32,953,920 million fully paid ordinary shares at an issue price of $0.40 per New share.
Cann Group announced on 24 July 2020 that the following Directors, incoming Director and related parties
participated in the Placement in relation to a further 2,796,080 new shares:
• Allan McCallum – Chairman, applied for 500,000 new shares
• Philip Jacobsen – Deputy Chairman, applied for 1,750,000 new shares
• Doug Rathbone – Director, applied for 221,080 new shares
• Geoff Pearce – Director, applied for 200,000 new shares
• Jenni Pilcher – Incoming Director, applied for 125,000 new shares
The Company intends to hold an extraordinary general meeting on 7 September 2020 to obtain approval in
accordance with ASX Listing Rule 10.11 to issue the New Shares to the related parties listed above.
The capital raising also included a SSP to eligible shareholders, initially seeking to raise up to $10 million. Eligible
shareholders had the opportunity to apply for up to $30,000 worth of New Shares. The issue price under the SSP
was $0.40, the same as the Placement. The SPP was oversubscribed following strong support from retail shareholders
and the Company increased the size of the SPP by $15.9 million, to a total SPP of $25.9 million. On 20 August 2020,
64,744,452 new fully paid ordinary shares were issued to shareholders who participated in the SPP.
26
Cann Group Limited Annual Report 2020
On 29 July 2020, the Company announced that 5,600,000 convertible notes were converted to securities resulting
in the issue of 17,185,723 ordinary shares at a conversion price of $0.34. On the same day the Company issued
to those note holders 17,185,723 options with an exercise price of $0.46.
On 11 August 2020, Cann Group increased its holding in Zalm Therapeutics Limited to circa 8.4% of Zalm’s issued
capital, in exchange for an issue to Zalm of 1,983,890 shares in Cann Group having a value of NZ$1 million.
This share exchange was in accordance with share subscription between Cann Group and Zalm.
On 11 August 2020, the Company announced that it had issued 178,686 fully paid ordinary share by way
of placement to Commonwealth Scientific and Industrial Research Organisation as part payment of invoices
for services provided under an umbrella services agreement.
Non‑audit services
The Company’s Audit and Risk Committee (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
• 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 7.
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 29.
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.
27
Directors’ report Continued
Corporate Governance Statement
In accordance with Listing Rule 4.10.3 and the Appendix 4G lodged by the Company, the Company’s
2020 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 AO
CHAIRMAN
Date: 27 August 2020
28
Cann Group Limited Annual Report 2020
Auditor’s independence declaration
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001 TO THE DIRECTORS OF CANN GROUP LIMITED
I declare that, to the best of my knowledge and belief during the year ended 30 June 2020
there have been:
— no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
— no contraventions of any applicable code of professional conduct in relation to the
audit.
William Buck Audit (VIC) Pty Ltd
ABN: 59 116 151 136
A. A. Finnis
Director
Melbourne, 27 August 2020
29
Consolidated Statement of Profit or Loss
and other Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2020
Revenue
Other income
Administration and corporate costs
Research and development costs
Fair value adjustment of biological assets
Loss before transaction costs, finance costs
and income tax expense
Finance costs
Loss before income tax expense
Income tax expense
Note
3
3
4
2020
$
2019
$
647,222
2,347,668
1,215,735
1,904,975
(16,007,484)
(13,466,524)
(1,283,128)
(1,047,608)
(640,701)
(465,919)
(16,068,356)
(10,727,408)
(869,031)
(198,909)
(16,937,387)
(10,926,317)
–
–
Loss attributable to members of the Group
(16,937,387)
(10,926,317)
Other comprehensive income
Total comprehensive loss attributable
to members of the Group
–
–
(16,937,387)
(10,926,317)
Basic and diluted (loss) per share (cents)
5
(11.91)
(7.82)
The accompanying notes form part of these statements.
30
Cann Group Limited Annual Report 2020
Consolidated Statement of Financial Position
AS AT 30 JUNE 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables
Prepayments
Inventories
Biological assets
TOTAL CURRENT ASSETS
NON‑CURRENT ASSETS
Property, plant and equipment
Intangible assets
Financial assets at fair value through profit or loss
Rental bonds
Right of use assets
TOTAL NON‑CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Unsecured trade and other payables
Lease liabilities
TOTAL CURRENT LIABILITIES
NON‑CURRENT LIABILITIES
Convertible Notes
Lease liabilities
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.
Note
2020
$
2019
$
1,553,995
46,388,192
91,642
1,115,436
841,806
722,197
8
9,433,838
3,088,624
609,855
391,138
12,531,136
51,705,587
9
10
11
12
13
14
13
15
16
60,890,390
29,010,258
827,636
112,594
1,009,841
1,200,570
85,000
85,000
1,057,964
–
63,870,831
30,408,422
76,401,967
82,114,009
6,004,950
4,815,530
485,255
–
6,490,205
4,815,530
8,194,661
642,194
8,836,855
–
–
–
15,327,060
4,815,530
61,074,907
77,298,479
97,137,199
96,502,220
2,143,087
1,975,377
(38,205,379)
(21,179,118)
61,074,907
77,298,479
31
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2020
Issued
equity
$
Performance
Rights
reserve
$
Accumulated
losses
$
Total
equity
$
Balance at 1 July 2019
96,502,220
1,975,377
(21,179,118)
77,298,479
Impact of AASB 16 – Right of use assets &
liabilities arising under property rental leases
(refer Note 2)
–
–
(88,874)
(88,874)
Restated Balance on 1 July 2019
96,502,220
1,975,377
(21,267,992)
77,209,605
–
–
(16,937,387)
(16,937,387)
96,502,220
1,975,377
(38,205,379)
60,272,218
Comprehensive loss for the period
ended 30 June 2020
Transactions with owners
in their capacity as owners
Issue of shares
Vesting of Class C Performance Rights
–
167,710
634,979
–
–
–
634,979
167,710
Balance at 30 June 2020
97,137,199
2,143,087
(38,205,379)
61,074,907
Balance at 1 July 2018
95,081,758
1,043,877
(10,252,801)
85,872,834
Issued
equity
$
Performance
Rights
reserve
$
Accumulated
losses
$
Total
equity
$
–
–
(10,926,317)
(10,926,317)
95,081,758
1,043,877
(21,179,118)
74,946,517
Comprehensive loss for the period
ended 30 June 2019
Transactions with owners
in their capacity as owners
Issue of shares
Issue and vesting of Class C
performance rights
1,119,462
–
–
1,232,500
–
–
–
1,119,462
1,232,500
–
Conversion of Class D Performance Rights
301,000
(301,000)
Balance at 30 June 2019
96,502,220
1,975,377
(21,179,118)
77,298,479
The accompanying notes form part of these statements.
32
Cann Group Limited Annual Report 2020
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 30 JUNE 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Revenue from customers
Other income received
Payments to suppliers and employees
Interest received
Note
2020
$
2019
$
1,671,016
1,475,795
951,561
258,086
(20,504,509)
(10,763,368)
263,358
1,606,941
Net cash flows (used in) operating activities
20
(17,618,574)
(7,422,546)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Acquisition of intangible assets
Withdrawal of/(Investment in) term deposits
Acquisition of investments
(33,122,199)
(25,325,174)
(1,240,209)
(53,256)
–
–
30,082,849
(1,200,570)
Net cash flows provided by/(used in) investing activities
(34,362,408)
3,503,849
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of Convertible Notes
Costs of issuing Convertible Notes
Repayment of Lease Liability
Net cash flows provided by financing activities
Net (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.
8,000,000
740,000
(442,559)
(410,656)
–
–
7,146,785
740,000
(44,834,197)
(3,178,698)
46,388,192
49,566,890
1,553,995
46,388,192
33
Notes to the financial statements
1. Corporate information
These are the financial statements of Cann Group Limited (Company) and its subsidiaries, including Cannproducts
Pty Ltd, Cannoperations Pty Ltd, Cann IP Pty Ltd and Botanitech 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 2020. 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‑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 AASB that are mandatory for the current reporting period.
New and amended accounting standards and interpretations commencing 1 January 2019
The Group has adopted AASB 16 Leases at 1 July 2019. AASB 16 replaces AASB 117 Leases and is effective for
reporting periods on or after 1 January 2019. The standard was adopted using the modified retrospective approach
as such the comparatives have not been restated.
Policies applicable from 1 July 2019
Payments associated with short term leases and leases of low value assets are recognised on a straight‑line basis
as an expense in the Consolidated Statement of Comprehensive Income. Short‑term leases are leases with a
lease term of 12 months or less. Low‑value assets comprise IT equipment and small items of office furniture.
34
Cann Group Limited Annual Report 2020
Lease liabilities
Lease liabilities are initially measured at the present value of the lease payments discounted using the interest
rate implicit in the lease. If that rate cannot be determined, the Consolidated Group’s incremental borrowing rate
is used.
Lease liabilities are subsequently measured by:
• increasing the carrying amount to reflect interest on the lease liabilities;
• reducing the carrying amount to reflect the lease payments made; and
• remeasuring the carrying amount to reflect any reassessment or lease modifications.
Interest on the lease liabilities and any variable lease payments not included in the measurement of the lease
liabilities are recognised in the Consolidated Statement of Comprehensive Income in the period in which
they relate.
Right‑of‑use assets
Right‑of‑use assets are measured at cost less depreciation and impairment and adjusted for any remeasurement
of the lease liability.
The cost of the asset includes:
• the amount of the initial measurement of the lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs.
Right‑of‑use assets are depreciated on a straight‑line basis from the commencement date of the lease to the
earlier of the end of the useful life of the right‑of‑use asset or the end of the lease term.
The Group tests right‑of‑use assets for impairment where there is an indicator that the asset may be impaired.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount.
The Group determines the lease term as the non‑cancellable period of a lease together with both:
• the periods covered by an option to extend the lease if it is reasonably certain to exercise that option; and
• periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
Management considers all the facts and circumstances that create an economic incentive to exercise an extension
option or not exercise a termination option. This assessment is reviewed if a significant event or a significant
change in circumstances occurs which affects this assessment and that is within the control of the lessee.
35
Notes to the financial statements Continued
The impact of adoption of the opening retained earnings at 1 July 2019 was as follows:
Description
Operating lease commitments as at inception (AASB 16)
Operating lease commitments discount based on weighted
average incremental borrowing rate of 6%
Accumulated depreciation as at 1 July 2019 (AASB 16)
Right‑of‑use assets (AASB 16)
Lease liabilities – current (AASB 16)
Lease liabilities – Non‑current (AASB 16)
Tax effect on the above adjustments
Reduction in operating retained earnings as at 1 July 2019
1 July 2019
$
2,847,563
(423,325)
(891,377)
1,532,861
(494,207)
(1,127,528)
–
(88,874)
(b) Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all the subsidiaries of the Group as
at 30 June 2020 and the results of all its subsidiaries for the reporting period.
Subsidiaries refer 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. Subsidiaries are fully consolidated from the date on which control is transferred to the
Group. They are de‑consolidated from the date that control ceases.
The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are
prepared for the same reporting date as the Group. Consistent accounting policies are applied to like transactions
and events in similar circumstances.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated
entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group.
The Group has four wholly owned subsidiaries as at 30 June 2020 as follows:
Subsidiary Name
Date Acquired
Cannproducts Pty Ltd (ACN 600 887 189)
27 February 2015
Cannoperations Pty Ltd (ACN 603 323 226) 27 February 2015
Cann IP Pty Ltd (ACN 169 764 407)
27 February 2015
Botanitech Pty Ltd (ACN 604 834 488)
18 March 2015
Number of
Shares held
Percentage
Shareholding
2020
Percentage
Shareholding
2019
100
100
100
100
100%
100%
100%
100%
100%
100%
100%
100%
36
Cann Group Limited Annual Report 2020
(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) Revenue recognition
The Group recognises the Revenue as follows:
Revenue from contract with customers
The Group generates revenue primarily from the sale of medicinal cannabis products as well as from the provision
of services. The Group uses the following five‑step contract‑based analysis of transactions to determine whether,
how much and when revenue is recognised:
1.
Identify the contract with a customer;
2.
Identify the performance obligation(s) in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligation(s) in the contract; and
5. Recognise revenue when or as the company satisfies the performance obligation(s).
Revenue from the sale of cannabis is generally recognised when control over the goods has been transferred to
the customer. Payment for medicinal cannabis products is due within a specified time period as permitted by
the underlying agreement and the Group’s credit policy upon the transfer of goods to the customer. The Group
satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the
customer. Revenue is recorded at the estimated amount of consideration to which the Company expects
to be entitled.
Interest income
Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating
the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective
interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of
the financial asset to the net carrying amount of the financial asset.
37
Notes to the financial statements Continued
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Government grants
Government grants are recognised when they are received.
(e) Inventory
Inventory is valued depending upon the specific purpose of that inventory class. Costs incurred for inventory held
as research and development expenses are expensed as incurred.
Biomass 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, whichever is less.
Resin inventory is valued at cost or net realisable value, whichever is less.
Oil inventory is valued at cost or net realisable value whichever is less.
(f) Fair value of financial instruments
A financial asset is classified and measured at amortised cost or at fair value. The classification and measurement of
financial assets is based on the Group’s business models for managing its financial assets and whether the
contractual cash flows represent solely payments of principal and interest (SPPI). Financial assets are initially
measured at fair value and are subsequently measured at either (i) amortised cost; (ii) fair value through other
comprehensive income (FVTOCI), or (iii) at fair value through profit or loss (FVTPL).
Financial assets that are held for the purpose of collecting contractual cash flows that are SPPI are classified
as amortised cost. Amortised cost financial assets are initially recognised at their fair value and are subsequently
measured at amortised cost using the effective interest rate method. Transaction costs of financial instruments
classified as amortised cost are capitalised and amortised in profit or loss on the same basis as the
financial instrument. Cash and cash equivalents compromises cash at bank and on hand. Term deposits with
maturity of less than three months are also classified as cash and cash equivalents.
Equity instruments are measured at fair value with changes in fair value recognised through profit and loss (FVTPL).
Dividends received on these investments are recognised in profit or loss unless the distribution clearly represents
a recovery of part of the cost of the investment (e.g., a return of capital).
Financial liabilities include – a contractual obligation to deliver cash or another financial asset to another entity, or
to exchange financial assets or financial liabilities with another entity under conditions that are potentially
unfavourable to the entity; or a contract that will or may be settled in the entity’s own equity instruments and is:
• a non‑derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity
instruments; or
• a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of the entity’s own equity instruments.
38
Cann Group Limited Annual Report 2020
The following table summarizes the classification of the Company’s financial instruments under AASB 9:
Financial Assets
Cash and Cash Equivalents
Trade and other receivables excluding GST
Marketable securities
Equity interest in other entities
Classification as per AASB 9
Amortised cost
Amortised cost
FVTPL
FVTPL
Financial Liabilities
Classification as per AASB 9
Accounts Payable and accrued liabilities
Loans and Borrowings
Convertible Note/Debentures
Amortised cost
Amortised cost
FVTPL
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets which are either measured
at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance
depends upon the consolidated entity’s assessment at the end of each reporting period as to whether the financial
instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable
information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12‑month
expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses
that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become
credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based
on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the
basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted
at the original effective interest rate.
(g) Biological assets
The Group defines the biological assets as cannabis plants up to the point of harvest. Biological assets are
measured at fair value less cost to sell at the end of each reporting period.
The valuation methodology of biological assets relates 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.
(h) 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.
39
Notes to the financial statements Continued
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.
(i) Property, Plant and Equipment
Each class of property, plant and equipment is carried at cost less any accumulated depreciation and
impairment losses.
The carrying amount of property, 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 property, 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 property, plant and equipment is depreciated on a straight‑line 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 2020, the Group’s asset classes had effective useful lives as follows:
Asset Class
Cultivation plant and equipment
Manufacturing plant and equipment
Computer and network equipment
Other plant and equipment
Buildings
Land
Useful Life
(years)
1 to 7
2 to 7
1 to 3
1 to 3
20
N/A
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) Intangible assets
Intangible assets are carried at cost less any accumulated amortisation and impairment losses.
The carrying amount of intangible assets is reviewed annually by management 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 intangible assets are amortised over economic benefits recoverable period of the intangible assets
(refer Note 10).
40
Cann Group Limited Annual Report 2020
(k) Impairment of non‑financial 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.
(l) Share based payments
The Group 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 Group 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.
(m) Operating segments
Determination and presentation of operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s
other components. An operating segment’s results are regularly reviewed by the CEO to make decisions about
resources to be allocated to the segment and assess its performance, and for which discrete information
is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses,
and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment,
and intangible assets other than goodwill.
The Group operates in one operational sector and has identified only one reportable segment being cultivation
of medicinal cannabis and further processing into manufactured medicinal cannabis products, as well as the
corporate office.
41
Notes to the financial statements Continued
(n) Borrowings policy
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction
costs. They are subsequently measured at amortised cost using the effective interest method.
The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the
statement of financial position, net of transaction costs.
On the issue of the convertible notes the fair value of the liability component is determined using a market rate for
an equivalent non‑convertible bond and this amount is carried as a non‑current liability on the amortised cost
basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is
recognised as a finance cost. The remainder of the proceeds are allocated to the conversion option that
is recognised and included in shareholders equity as a convertible note reserve, net of transaction costs.
The carrying amount of the conversion option is not remeasured in the subsequent years. The corresponding
interest on convertible notes is expensed to profit or loss.
(o) Critical accounting estimates and judgments
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 judgments – non‑recognition of carry‑forward tax losses
The balance of future income tax benefit estimated as $4,807,802 (2019: $2,050,237) arising from current year tax
losses of $16,937,387 (2019: $10,926,317) and timing differences has not been recognised as an asset because
it is not clear when the losses will be recovered. The cumulative future income tax benefit estimated to be $9,495,657
which has not been recognised as an asset, will only be obtained if:
(i)
the Group derives future assessable income of a nature and an amount sufficient to enable the benefit to
be realised;
(ii) the Group 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 judgments – 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 judgments – leases
In determining the lease term, management considers all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after
termination options) are only included in the lease term if the lease is reasonably certain to be extended
(or not terminated).
Incremental borrowing rate of 6% (comparable industry rate) per annum is used to calculate the present value of
future lease payments.
42
Cann Group Limited Annual Report 2020
The Group has two existing leases for premises as follows:
Northern facility
The term of the lease is three years finishing on 31 March 2023. The lease started in April 2017 for three years and
an option was exercised in March 2020 to extend the lease for a further three years. It is probable that the Group
will renew the lease again when it comes up for renewal.
Corporate office
The term of the lease is one year commencing 1 July 2020. The lease started in July 2018 for two years and
an option was exercised to extend the lease for one year in June 2020. It is probable that the Group will renew
the lease.
All the leased premises are located in Melbourne, Victoria. Lease commitments for the Group are:
Lease Liability – Current (within 12 months)
Lease Liability – Non‑Current
2020
$
2019
$
485,255
642,194
1,127,449
–
–
–
Key judgments – non‑recognition of research and development tax incentive benefits
The balance of research and development tax incentive arising from operations of the Group has not been
recognised as an asset because receipt at this stage cannot be reliably calculated. The research and development
tax incentive, which has not been recognised as an asset, will only be obtained if:
(i)
the Group’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;
(ii) the Group 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 Group realising the tax incentive from research
and development.
Key judgments – impact of COVID‑19
As with many other businesses, the Group implemented changes in order to comply with Government‑imposed
COVID‑19 restrictions and guidelines in 2H FY20, safeguarding the Group’s commitment to the health and welfare
of its employees and business partners.
The Group implemented a business continuity plan which included moving to a shift‑based operation for its
cultivation facilities and all other staff working from home. As a supplier of medical products to Australian patients,
the Group’s operations are an essential service and the Group expects to continue operating throughout the
COVID‑19 pandemic.
43
Notes to the financial statements Continued
Key judgments – convertible notes (refer Note 14 – for details)
The Group issued 8,000,000 convertible notes to six investors (Noteholders) at a face value of $1.00 per convertible
note on 10 February 2020, in respect of which the Group received net funds of $7,560,000 (after costs) in aggregate
at the time of issue. These convertible notes are unsecured and will be converted to ordinary equity shares at the
time of maturity (along with applicable interest as per the agreement) which is 24 months from the date of issue
being 10 February 2022 at the lower of:
• $0.70 per share
• the volume weighted average price of Cann’s ordinary shares during the five trading days following the most
recent capital raise of more than $5 million; or
• the issue price of a capital raise of more than $5 million, multiplied by 0.85 (Conversion Price).
The convertible notes will not be quoted or tradable on the Australian Securities Exchange (ASX). to the extent
that the convertible notes issued to a holder have been converted between the issued date and up to 30 business
days after a capital raise, or raises, in aggregate, of more than $20 million, the Company will issue to the holder
one (1) option for each share issued on conversion. The options are exercisable on or before 31 March 2022 at
an exercise price calculated at a 35% premium to the Conversion Price.
100,000 convertible notes were converted in April 2020, which along with applicable interest, resulted in the
allotment of 145,007 ordinary equity shares to the relevant Noteholders. As per the agreement between the Group
and Noteholders, along with the conversion of convertible notes into equity, Noteholders will also be issued one
option for each equity share issued. Accordingly, 145,007 options were granted at the time of the conversion of
100,000 notes and had not yet been exercised as at 30 June 2020.
The Group received a valuation of the convertible notes in accordance with professional standard APES 225
Valuation Services from an external counterparty. Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date as per AASB 13 Fair Value Measurement.
3. Revenue and other income
Revenue from customers contracts
Other Income
Interest
Research and development tax incentive
Other revenue
2020
$
2019
$
647,222
2,347,668
263,358
1,644,702
937,925
14,453
257,786
2,487
1,862,958
4,252,643
44
Cann Group Limited Annual Report 2020
4. Expenses
Corporate and Administration expenses include the following:
Depreciation and Amortisation
Employee salaries
Employee superannuation
Share‑based payments
2020
$
2019
$
(2,160,006)
(1,475,318)
(6,961,146)
(4,519,784)
(662,228)
(422,303)
(167,711)
(1,611,962)
(9,951,091)
(8,029,367)
5. 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)
Weighted average number of ordinary shares
for the purpose of earnings per share
2020
$
2019
$
(16,937,387)
(10,926,317)
Number of
shares
Number of
shares
142,187,418
139,689,867
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.
45
Notes to the financial statements Continued
6. 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
Position
Chairman
Deputy Chairman
Non‑Executive Director
Non‑Executive Director
Mr Neil Belot (resigned 14 December 2019)
Non‑Executive Director
Mr Peter Crock
Mr Shane Duncan
Chief Executive Officer
Chief Operating officer
Mr Richard Baker (resigned 6 December 2019)
Chief Financial Officer
Mr Greg Bullock (from 28 April 2020)
Chief Financial Officer
Ms Geraldine Farrell (from 6 December 2019)
Chief Compliance Officer & Company Secretary
Ms Reena Dahiya (from 6 December 2019,
resigned 28 April 2020)
Chief Financial Officer
Mr. Geoff Aldred
Chief Projects & Information Officer
Mr. Neil Gripper (resigned 12 June 2020)
General Manager, Operations
(b) Remuneration paid to Key Management Personnel
Short‑term employee benefits
Post‑employment benefits
Share‑based payments
2020
$
2019
$
2,032,753
1,283,247
159,709
100,502
167,710
1,232,500
2,360,172
2,616,249
46
Cann Group Limited Annual Report 2020
7. 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
Consulting fees regarding tax services
Total remuneration for consulting services
Total remuneration of William Buck
8. Inventories
Finished goods – biomass
Finished goods – oil
Finished goods – resin
Cultivation materials and work‑in‑progress
2020
$
2019
$
73,500
5,011
78,511
25,320
14,200
39,520
58,200
620
58,820
31,745
15,000
46,745
118,031
105,565
2020
$
2019
$
1,835,987
3,034,431
451,362
6,915,152
–
–
231,337
54,193
9,433,838
3,088,624
47
Notes to the financial statements Continued
9. Property, plant and equipment
(a) Property, plant and equipment
As at 30 June 2020
Land and
buildings
$
Cultivation
plant and
equipment
$
Manu‑
facturing
plant and
equipment
$
Other
plant and
equipment
$
Capital
work in
progress
$
Total
$
13,852,155
6,837,528
530,857
344,971
43,158,325
64,723,836
(99,416)
(3,483,429)
–
(250,601)
–
(3,833,446)
Cost
Accumulated
depreciation
Closing Balance
13,752,739
3,354,099
530,857
94,370
43,158,325 60,890,390
As at 30 June 2019
Land and
buildings
$
Cultivation
plant and
equipment
$
Manu‑
facturing
plant and
equipment
$
Other
plant and
equipment
$
Capital
work in
progress
$
Total
$
11,404,084
6,750,332
447,610
302,699
12,442,699
31,347,424
–
–
(2,049,050)
(132,229)
–
–
(149,557)
(6,330)
–
–
(2,198,607)
(138,559)
Cost
Accumulated
depreciation
Loss on disposal
Closing Balance
11,404,084
4,569,053
447,610
146,812
12,442,699
29,010,258
(b) Movements in property, plant and equipment
As at 30 June 2020
Land and
buildings
$
Cultivation
plant and
equipment
$
Manu‑
facturing
plant and
equipment
$
Other
plant and
equipment
$
Capital
work in
progress
$
Total
$
Opening Balance
11,404,084
4,569,053
447,610
146,812
12,442,699
29,010,258
Additions
Depreciation
2,448,071
219,425
83,247
48,602
30,715,626
33,514,971
(99,416)
(1,434,379)
–
(101,044)
–
(1,634,839)
Closing Balance
13,752,739
3,354,099
530,857
94,370
43,158,325 60,890,390
48
Cann Group Limited Annual Report 2020
As at 30 June 2019
Land and
buildings
$
–
–
Cultivation
plant and
equipment
$
4,136,550
(1,166,771)
Manu‑
facturing
plant and
equipment
$
–
–
Other
plant and
equipment
$
1,095,969
Capital
work in
progress
$
Total
$
–
5,232,519
(889,136)
2,055,907
–
11,404,084
2,304,970
447,610
61,641
11,147,752
25,366,057
–
–
–
760,960
(1,334,427)
(132,229)
–
–
–
–
(760,960)
–
(115,332)
(6,330)
–
–
(1,449,759)
(138,559)
Opening Balance
Reclassifications
Additions
Transfers
Depreciation
Loss on disposal
Closing Balance
11,404,084
4,569,053
447,610
146,812
12,442,699
29,010,258
During the year the Group spent AUD $30,715,626 in Mildura for construction of a greenhouse facility and support
building. Materials to construct the greenhouse and to modify the existing building plus preliminary design and
other services are classified as capital‑work‑in‑progress until such time as the facility is completed and
commissioned for use.
As at 30 June 2020 the Directors conducted an impairment test of the cultivation plant and equipment which
was applied as at 30 June 2020 whereby the Directors compared the carrying values of all of the cultivation plant
and equipment to the selling values of comparable assets and concluded that no impairment existed relating to
these assets.
10. Intangible assets
The Group entered into manufacturing agreement with IDT Australia during the year for production of GMP extracted
locally manufactured resin with a CO2 extraction process and for production of GMP‑formulated locally manufactured
oil. The initial cost of development of the production lines were one‑off set‑up costs at IDT facilities, and have been
recognised as intangible assets. In the opinion of management these costs will be recovered over a period of
three years.
Costs
Accumulated Amortisation
2020
$
2019
$
918,569
153,257
(90,933)
(40,663)
827,636
112,594
49
Notes to the financial statements Continued
11. Financial assets at fair value through profit or loss
Subscription shares Zalm Therapeutics Limited
(formerly Pure Cann NZ Limited)
Shares in Emerald Clinics Limited
2020
$
2019
$
934,841
75,000
950,570
250,000
1,009,841
1,200,570
The financial assets listed above are valued at the fair value at the end of the reporting period. The gains/(losses)
on the financial assets have been recognised in a profit and loss account.
The Group, through its wholly owned subsidiary Botanitech, initially held 3.9% of the issued capital of Zalm
Therapeutics, for which it paid NZ$1 million (out of a previously committed total amount of NZ$6 million on a
staggered basis, as announced to the market on 26 April 2019). In August 2020, the Group increased its holding
to circa 8.4% in exchange for an issue to Zalm Therapeutics of new shares in the Group having a value of
NZ$1 million. The Group is no longer obligated to invest the unpaid balance of NZ$4 million into Zalm Therapeutics
given these new arrangements.
12. Right of use assets
As at 1 July 2019
Accumulated depreciation
As at 30 June 2020
2020
$
1,532,861
(474,897)
1,057,964
2019
$
–
–
–
The Group leases land and building for its offices and greenhouse under agreements of between three to five
years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of
the leases are renegotiated.
50
Cann Group Limited Annual Report 2020
13. Lease liability
In determining the lease term, management considers all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods
after termination options) are only included in the lease term if the lease is reasonably certain to be extended
(or not terminated).
The Group has two existing leases for premises as follows:
Northern Facility
The term of the lease is three years finishing on 31 March 2023. The lease started in April 2017 for three years and
an option was exercised in March 2020 to extend the lease for a further three years. It is reasonably certain that the
Group will renew the lease again.
Corporate Office
The term of the lease is one year commencing 1 July 2020. The Lease started in July 2018 for two years and an
option was exercised to extend the lease for one year in June 2020. It is reasonably certain that the Group will
renew the lease again.
All the leased premises are located in Melbourne, Victoria. Lease commitments for the Company are:
Period
Lease liability – current (within 12 months)
Lease liability – non‑current
2020
$
2019
$
485,255
642,194
1,127,449
–
–
–
14. Convertible notes
The Group issued 8,000,000 convertible notes to six investors (Noteholders) at a face value of $1.00 per convertible
note on 10 February 2020, in respect of which the Group received net funds of $7,560,000 (after costs) in aggregate
at the time of issue. These convertible notes are unsecured and will be converted to ordinary equity shares at the
time of maturity (along with applicable interest as per the agreement) which is 24 months from the date of issue
being 10 February 2022 at the lower of:
• $0.70 per share
• the volume weighted average price of Cann’s ordinary shares during the five trading days following the most
recent capital raise of more than $5 million; or
• the issue price of a capital raise of more than $5 million, multiplied by 0.85 (Conversion Price).
The convertible notes will not be quoted or tradable on the Australian Securities Exchange (ASX). to the extent
that the convertible notes issued to a holder have been converted between the issued date and up to 30 business
days after a capital raise, or raises, in aggregate, of more than $20 million, the Company will issue to the holder
one (1) option for each share issued on conversion. The options are exercisable on or before 31 March 2022 at
an exercise price calculated at a 35% premium to the Conversion Price.
51
Notes to the financial statements Continued
100,000 convertible notes were converted in April 2020, which along with applicable interest, resulted in the
allotment of 145,007 ordinary equity shares to the relevant Noteholders. As per the agreement between the Group
and Noteholders, along with the conversion of convertible notes into equity, Noteholders will also be issued one
option for each equity share issued. Accordingly, 145,007 options were granted at the time of the conversion of
100,000 notes and had not yet been exercised as at 30 June 2020.
The Group received a valuation of the convertible notes in accordance with professional standard APES 225
Valuation Services from an external counterparty. Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date as per AASB 13 Fair Value Measurement.
Convertible notes issued – February 2020
Convertible notes exchanged to equity
Interest on convertible notes @ 9.5%
Total
2020
$
2019
$
8,000,000
(100,000)
294,661
8,194,661
–
–
–
–
Value of embedded derivative
The key assumptions used in valuing the embedded derivative were as follows;
Assumptions
Convertible
Notes
Rationale
Historic volatility
85%
Based on 24 months’ historical volatility data for the Company
Conversion/Exercise price
0.59
25% discount on the closing share price at 30 June 2020
Share price
Risk‑free interest rate
0.79
0.27%
Fair Value
$4,812,000
Closing share price on valuation date from external market source
Based on 2‑year Australian Government Bond Benchmark Yield
Determined using Monte Carlo Simulation model with the
inputs above
An initial fair value of the embedded derivative liability (equity conversion feature) was determined based on the
above inputs and assumptions has been separate from proceeds received from the issue of the convertible notes
to determine the amount of initial value of host debt component of the convertible notes.
Initial values of both the embedded derivative liability and host debt component have been further adjusted for
transaction costs that were incurred to raises funds via convertible notes.
After initial recognition, the host debt component of the convertible notes has been measured at amortised
cost using the effective interest method as required by AASB 9. The effective interest rate applied is 9.5%.
The embedded derivative liability component of the convertible notes has been measured at fair value as required
by AASB 9 and fair value movements have been recorded directly in the statement of profit & loss and other
comprehensive income.
Balance as at 30 June 2020
52
Cann Group Limited Annual Report 2020
Host
Debt‑
Liability
$
Embedded
Derivative
Liability
$
3,382,661
4,812,000
15. Issued capital
30 June 2020
Number of
Shares
30 June 2019
Number of
Shares
30 June 2020
30 June 2019
$
$
Ordinary shares – fully paid
142,892,342
141,804,247
97,137,199
96,502,220
Total issued capital
142,892,342
141,804,247
97,137,199
96,502,220
Ordinary shares participate in dividends and the proceeds on winding up of the Group 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 2019
4 October 2019 – settlement of invoice for services
24 December 2019 – settlement of invoice for services
8 April 2020 – conversion of convertible notes
15 June 2020 – settlement of invoice for services
Issue Price
$
Number of
Shares and
Options
2020
$
141,804,247
96,502,220
2.08
0.46
0.70
0.43
67,538
550,278
145,007
325,272
140,480
253,127
101,505
139,867
Total issued capital as at 30 June 2020
142,892,342
97,137,199
Movements in issued capital:
Issue Date
Balance 1 July 2018
7 September 2018 – settlement of invoices for services
21 December 2018 – employee share purchase plan
24 December 2018 – settlement of invoices for services
4 May 2019 – conversion of performance rights
13 June 2019 – exercise of options
21 June 2019 – exercise of options
25 June 2019 – exercise of options
27 June 2019 – exercise of options
Issue Price
$
Number of
Shares and
Options
2019
$
139,546,632
95,081,758
2.86
2.19
2.20
3.01
0.37
0.37
0.37
0.37
50,000
16,451
91,164
100,000
100,000
350,000
1,000,000
550,000
142,901
36,000
200,561
301,000
37,000
129,500
370,000
203,500
Total issued capital as at 30 June 2019
141,804,247
96,502,220
53
Notes to the financial statements Continued
16. Performance rights
PERFORMANCE RIGHTS CLASS C
Date
Balance 1 July 2019
Vesting of performance rights
Balance 30 June 2020
Date
Balance 1 July 2018
Vesting of performance rights reserve
Balance 30 June 2019
Number of
Performance
Rights
2020
$
1,000,000
1,975,377
–
167,710
1,000,000
2,143,087
Number of
Performance
Rights
2019
$
1,000,000
742,877
–
1,232,500
1,000,000
1,975,377
^ 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 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; and
• 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.
The final commissioning of the first stage of the Group’s Mildura facility.
The grant date was 21 November 2017.
17. Related party information
Transactions between the Group and related parties are on normal commercial terms and conditions no more
favourable than those available to other parties unless otherwise stated. There were no related party transactions
not otherwise disclosed in these financial statements during the period ended 30 June 2020.
54
Cann Group Limited Annual Report 2020
18. Contingent liabilities and commitments
The Group has a bank guarantee of $50,000 for the operating premises lease of the Company’s Northern Facility.
As at the end of the reporting period, the Group had an obligation to issue NZ$1 million worth of Cann Group
shares to Zalm Therapeutics (formerly known as Pure Cann) whenever a capital raising of a minimum of A$10 million
occurred (as part of a new agreement in April 2020 between the companies). As a result of that new arrangement,
Cann Group was no longer required to invest NZ$4 million into Zalm Therapeutics, an investment which was
required under the old arrangement.
Except for the bank guarantee and investment in Zalm Therapeutics, as at the end of the reporting period, the
Group had no contingent liabilities or commitments. As a result of events occurring after the end of the reporting
period (noted below), Cann Group’s obligations to issue shares to Zalm Therapeutics have been fulfilled. Accordingly,
except for the bank guarantee, the Group has no contingent liabilities or commitments as at the date of signing
this report.
19. Events after the end of the reporting period
On 17 July 2020, the Group announced a capital raising of $24.3 million to support near‑term growth. The Group
raised $14.3 million (before costs) by way of a private Placement. Under the Placement, the Group has issued
32,953,920 million fully paid ordinary shares at an issue price of $0.40 per New share.
The Group announced on 24 July 2020 that the following Directors and related parties participated in the Placement
in relation to a further 2,796,080 new shares:
• Allan McCallum – Chairman, applied for 500,000 new shares
• Philip Jacobsen – Deputy Chairman, applied for 1,750,000 new shares
• Doug Rathbone – Director, applied for 221,080 new shares
• Geoff Pearce – Director, applied for 200,000 new shares
• Jenni Pilcher – Incoming Director, applied for 125,000 new shares
The Group intends to hold an extraordinary general meeting on 7 September 2020 to obtain approval in accordance
with ASX Listing Rule 10.11 to issue the New Shares to the related parties listed above.
The capital raising also included a SPP to eligible shareholders, initially seeking to raise up to $10 million. Eligible
shareholders had the opportunity to apply for up to $30,000 worth of New Shares. The issue price under the share
purchase price was $0.40, the same as the Placement. The SPP was oversubscribed following strong support from
retail shareholders and the Company increased the size of the SPP by $15.9 million, to a total SPP of $25.9 million.
On 20 August 2020, 64,744,452 new fully paid ordinary shares were issued to shareholders who participated
in the SPP.
On 29 July 2020, the Group announced that 5,600,000 convertible notes were converted to securities resulting in
the issue of 17,185,723 ordinary shares at a conversion price of $0.34. On the same day the Group issued to those
note holders 17,185,723 options with an exercise price of $0.46.
On 11 August 2020, the Group increased its holding in Zalm Therapeutics Limited to circa 8.4% of Zalm’s issued
capital, in exchange for an issue to Zalm of 1,983,890 shares in Cann Group having a value of NZ$1 million.
This share exchange was in accordance with share subscription between the Group and Zalm.
On 11 August 2020, the Group announced that it had issued 178,686 fully paid ordinary share by way of placement
to Commonwealth Scientific and Industrial Research Organisation as part payment of invoices for services provided
under an umbrella services agreement.
55
Notes to the financial statements Continued
20. 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
Equity settled trade payables (R&D)
Cost of issuing convertible notes (financing costs)
Vesting of performance rights
Interest on convertible notes
Reduction in the value of financial assets
2020
$
2019
$
(16,937,387)
(10,926,317)
533,475
442,559
–
–
167,710
1,232,500
294,661
190,729
–
–
Depreciation, Amortisation and loss on sale of assets
2,160,006
1,694,639
Movements in working capital
(Increase)/decrease in trade receivables and other assets
(Increase)/decrease in prepayments
(Decrease)/increase in trade and other payables
1,023,794
(1,115,436)
(119,609)
(584,504)
1,189,419
3,754,611
(Increase)/decrease in stock on hand and biological assets
(6,563,931)
(1,478,039)
Net cash outflows from operating activities
(17,618,574)
(7,422,546)
21. Capital commitments
The Group has not yet entered into formal contracts with material suppliers and construction contractors for the
specialty components of the Mildura Facility construction however it has provided funds to those suppliers and
contractors for materials subject to a longer lead time for production and classified as capital work‑in‑progress
(refer Note 9).
22. Financial risk management
The 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 2020 were accounts payable with due terms from 0 – 45 days. Subsequent
to the end of the reporting period, the Company undertook a capital raising from the market to finance its working
capital requirements and near term growth requirements.
56
Cann Group Limited Annual Report 2020
Interest rate risk exposure
The Group’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
$
Fixed interest rate maturing
1 year
or less
$
1 to 5
years
$
over 5
years
$
Non‑
interest
bearing
$
Total
$
2020
From 1 July 2019 to 30 June 2020
0.00
0.00
1.50
0.00
Assets:
Cash and bank balances
Receivables
Rental bonds
Financial assets
at fair value
Total financial assets
Liabilities:
Trade and other creditors
Lease liability
Convertible Notes
9.50
Total financial liabilities
Net financial
assets (liabilities)
–
–
–
–
–
–
–
–
–
–
–
–
85,000
–
85,000
–
–
–
–
–
–
–
–
–
–
–
8,194,661
8,194,661
– 1,553,995 1,553,995
–
–
91,642
–
91,642
85,000
– 1,009,841 1,009,841
– 2,655,478
2,740,478
– 6,004,950 6,004,950
–
–
–
1,127,449
1,127,449
–
8,194,661
7,132,398 15,327,059
85,000 (8,194,661)
– (4,476,920) (12,586,581)
Weighted
average
effective
interest
rate
%
Floating
interest
rate
$
Fixed interest rate maturing
1 year
or less
$
1 to 5
years
$
over 5
years
$
Non‑
interest
bearing
$
Total
$
2019
From 1 July 2018 to 30 June 2019
Assets:
Cash and bank balances
Receivables
Rental bonds
Investments
1.49
0.00
2.19
0.00
9,501,570 27,236,325
–
–
–
–
85,000
–
Total financial assets
9,501,570 27,321,325
Liabilities:
Trade and other creditors
Total financial liabilities
Net financial
assets (liabilities)
–
–
–
–
9,501,570 27,321,325
–
–
–
–
–
–
–
–
–
–
–
–
9,650,297 46,388,192
1,115,436
1,115,436
–
85,000
1,200,570
1,200,570
– 11,966,303 48,789,198
–
4,815,531
4,815,531
– 4,815,531 4,815,531
–
7,150,772 43,973,667
57
Notes to the financial statements Continued
Market risk
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.
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.
22. 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 2020 the Group held no material commercial borrowings
(except for the convertible notes – which will get converted into equity at the latest by February 2022, if not converted
earlier by Noteholders) 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 Company to conduct its capital raising activities in an orderly
fashion at a dilutive cost to existing shareholders that is appropriate and reasonable.
58
Cann Group Limited Annual Report 2020
23. Parent entity disclosures
Financial position
Assets
Current assets
Non‑current assets
Total assets
Liabilities
Current liabilities
Non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Financial performance
Loss for the year
Other comprehensive income
Total comprehensive loss
2020
$
2019
$
85,329,907
84,346,795
1,937,246
1,732,016
87,267,153
86,078,811
(1,491,718)
(295,232)
(8,194,661)
–
(9,686,379)
(295,232)
77,580,774
85,783,580
97,137,199
96,502,220
2,143,087
1,975,377
(21,699,512
(12,694,017)
77,580,774
85,783,580
2020
$
2019
$
(9,005,495)
(6,490,255)
–
–
(9,005,495)
(6,490,255)
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.
59
Directors’ Declaration
1. The Directors declare that the financial statements and notes set out on pages 30 to 59 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 2020 and of the performance for the year
ended 30 June 2020 of the consolidated Group.
2. The Chief Executive Officer and the Chief Financial Officer have each declared that:
(a) the financial records of the Company for the year ended 30 June 2020 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 AO
Chairman
Date: 27 August 2020
60
Cann Group Limited Annual Report 2020
Independent Auditor’s Report
Cann Group Limited
Independent auditor’s report to members
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Cann Group Limited (the Company) and its
controlled entities (the Group), which comprises the consolidated statement of financial
position as at 30 June 2020, the consolidated statement of profit or loss and
comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory
information, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group, is in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional
and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial report of the current period. These matters were
addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
61
Independent Auditor’s Report Continued
PROPERTY, PLANT AND EQUIPMENT
Area of focus
Refer also to notes 2 and 9
During the financial year the Group
significantly invested in its cultivation capacity
through the enhancement of its Southern and
Northern growth facilities, through the
acquisition of plant and equipment.
The Group has also continued its development
at a site in Mildura for construction of an
additional greenhouse and support buildings.
The works have been classified as capital-
work-in progress until such time as the facility
is completed.
Finally, the Group also acquired the Southern
facility land and buildings, which was leased in
prior periods.
The Group’s accounting policy for depreciating
such property, plant and equipment is over the
term of the useful life of the asset, from when it
is held ready for use. During the year
management has not changes its estimation of
useful life of its assets.
INVENTORY
Area of focus
Refer also to notes 2 and 8
The Group’s inventory of $9.4 million; is
significant to the financial report and has
increased by $6.3 million from the prior year.
The Groups inventory primary consists of
biomass and resin. The biomass is valued at
fair value less costs to sell as at the date of
harvest and resin is valued at the lower of cost
or net realisable value.
The valuation of inventory involves judgment
by management in particular when determining
the value per gram of biomass. In addition,
consideration is given to directly attributable
costs which can be capitalised to the into cost
of inventory.
How our audit addressed it
Our audit procedures included:
— Vouching material purchases of property, plant and
equipment to support documentation;
— Examining the underlying material plant and
equipment costs which have been capitalised in
the year to determine whether or not such plant
and equipment is held and ready for use and
therefore subject to depreciation;
— Assessing the classification of property, plant and
equipment between categories, including capital-
work-in progress;
— Recalculating the arithmetic accuracy of the
depreciation charge expensed in the financial
report; and
— Reviewing for impairment triggers in relation to the
carrying value of property, plant and equipment.
We have also assessed the adequacy of disclosures in
relation to property, plant and equipment in the Notes
to the financial report.
How our audit addressed it
Our audit procedures included:
— Performing inventory stock verification procedures
in respect of inventory held at the Northern and
Southern facilities;
— Evaluating management’s judgments and
assumptions used in calculation cost per gram of
biomass;
— Verifying that the carrying value of resin inventory
has been calculated appropriately including
verification of third-party manufacturing costs to
supporting documentation; and
— Evaluating management’s judgments and
assumptions used in determining the need for
inventory provisions and inventory write downs.
We have also assessed the adequacy of disclosures in
relation to inventory in the Notes to the financial report.
62
Cann Group Limited Annual Report 2020
CONVERTIBLE NOTE
Area of focus
Refer also to notes 2 and 14
The Group issued convertible notes to a range
of investors during the current financial year.
Accounting for these transactions is complex,
as the Group’s accounting policy requires the
separation at initial recognition, where
material, of an embedded derivative,
representing the option to convert the note to a
variable number of shares, from the underlying
host (principal) contract. Both the embedded
derivative and host contract are reflected in the
value of the convertible note in the financial
report.
The accurate recording of the transactions
associated with the convertible notes is
dependent on the following:
— The share price as at the date of the issue
of the convertible notes;
— Inputs associated with the features of the
notes (interest rate, maturity, security); and
— Share price volatility priced into the
embedded derivative.
Other Information
How our audit addressed it
Our audit procedures included:
— understanding the terms of the convertible note
agreements, including an assessment of
classification between current and non-current for
the underlying host contract and a determination
that the instrument meets the definition of a
financial liability under accounting standards;
— verifying the assumptions applied to the value of
the embedded derivative are appropriate;
— Performed a cross check against our own findings
in comparison to the independent valuation
commissioned by management; and
— Verifying that shares issued in respect of
convertible notes converted prior to 30 June 2020
has been appropriately treated.
We have also assessed the adequacy of disclosures in
relation to the convertible notes in the Notes to the
financial report.
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 June 2020 but does not include the financial
report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to fraud
or error.
63
Independent Auditor’s Report Continued
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted
in accordance with the Australian Auditing Standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of this financial report.
A further description of our responsibilities for the audit of these financial statements is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our independent auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors’ report accompanying these financial
statements for the year ended 30 June 2020.
In our opinion, the Remuneration Report of Cann Group Limited, for the year ended 30 June 2020,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
William Buck Audit (Vic) Pty Ltd
ABN: 59 116 151 136
A. A. Finnis
Director
Melbourne, 27 August 2020
64
Cann Group Limited Annual Report 2020
Shareholder information
Equity security holders
As at 12 August 2020 the Company had 195,194,561 ordinary shares on issue. Further details of the Company’s
equity securities are as follows:
Largest holders
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
AURORA CANNABIS INC
FLAG CAPITAL PTY LTD
MULLACAM PTY LTD
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