One of the best performers on the All Ordinaries on Tuesday has been the Cann Group Ltd (ASX: CAN) share price.
In morning trade the medicinal cannabis company's shares are up 11% to $1.86.
Why is the Cann share price rocketing higher?
This morning Cann announced that it has entered into a non-binding heads of agreement to purchase a site located within the Mildura region, in North West Victoria, for $10.75 million (plus GST).
According to the release, the company intends to construct a state-of-the-art greenhouse on the site for large scale cultivation and production of medicinal cannabis to service both domestic and export markets.
Management advised that the new greenhouse facility is expected to have a production capacity of up to 50,000 kilograms of dry flower per annum and is expected to be fully commissioned in the third quarter of calendar year 2020. The construction cost is estimated to be a sizeable $130 million and will be funded with a mix of debt and equity.
In addition to this, Cann announced that it has entered into a five-year agreement with Aurora Cannabis for the offtake of medicinal cannabis produced by Cann at its existing and planned expansion facilities until 2024.
The agreement with Aurora Cannabis, a C$13.5 billion Canadian cannabis giant, covers Cann's current and future capacity subject to satisfaction of Australian domestic demand.
In light of this, Cann has reaffirmed its previous guidance for annual revenues of approximately $160 million to $200 million when its expanded production facilities are fully operational. This estimate is based on the current wholesale price of cannabis dry flower.
Should you invest?
If Cann can deliver on its guidance then it could have a bright future ahead of it. But there's still a lot of work to do before that happens.
In light of this, I would suggest investors restrict Cann and fellow cannabis companies Auscann Group Holdings Ltd (ASX: AC8) and Althea Group Holdings Ltd (ASX: AGH) to their watchlists for now and wait to see how things develop over the next 12 months.
