Medical cannabis producer Hellenic Dynamics Plc (LSE:HELD) shares bounced back slightly on the announcement of the first deal since flagging its "adapted" business strategy a week earlier.
The specialist cultivator of medical cannabis flowers, which owns a near-200,000 sq m facility in Greece, has signed an agreement to cultivate and supply to Demecan Holding, a German medical cannabis producer and distributor.
Demecan, like many producers, has moved from cultivation into distribution and works to secure product from other medical cannabis cultivators to ensure reliable and continuous supplies for patients in its home country.
Part of Hellenic's strategic tweak last week was to expand its contract cultivation strategy so medical cannabis distributors, such as Demecan, will be able to reserve a dedicated area of the Hellenic facility for a 'white label' cultivation facility, under what it is calling a product outsourcing development or 'POD' agreement.
The London-listed company plans to add more such contracts while continuing to also focus on cultivating its own crop of medical cannabis plants.
Instead of investing more funds and time into the construction and certification of its facility under the EU-GMP (good manufacturing practice) rules, Hellenic said it will instead focus its cultivation and supply of GACP (good agricultural and collecting practices) flowers to distributors that have the EU-GMP certification themselves.
As such, last week's announcement, said chief executive Davinder Rai, was less a change of strategy that an adaptation to the evolution of the medical cannabis industry over the past year and a half into what he calls Cannabis 2.0.
"The industry has moved from a cultivators market to very much a distributors market. And distributors are far closer to the end patient and know what the patients want, having built up over the past five years a great understanding of patient demand.
"We've reacted to that market. I've spoken to 30 distributors last six months, not one single one of those wants to buy EU GMP flowers, where the wholesale price is marginally higher than the GACP price. So building a GMP facility didn't really make sense for us."
Instead, he said Hellenic's focus "will simplify our lives so much - we can control that vertical by saying we are a cannabis cultivator that cultivates cannabis, we sell cannabis and we don't need to get involved with the other parts of the business because our customers already doing that."
Such contracts also have no cost of sales, he points out.
By allowing distributors Demecan and others to "move one step up the vertical" by allocating them some cultivation space with the aim of allowing Hellenic to pre-sell its products two years in advance, the board thinks this will create more value for our shareholders.
"D distributor in a specific region, growing a specific product that they know sells well, which we're growing from them on a white label cultivation branded process, dare I say I think it might be the future of cannabis."