Medicinal cannabis company Althea Group (ASX: AGH) has withdrawn from a potential vape contract worth almost the same as a whole quarter of its revenue, citing regulatory, ethical, financial, and strategic concerns with the category.

In its December quarter result today in which it received $9.01 million worth of receipts, up 20 per cent on the previous quarter, Althea notes it had previously budgeted the production of cannabis vapes for FY25 but pulled out of a potential $8.2 million contract in the interests of "responsible risk management, financial discipline, and corporate integrity".

Althea claims evolving Canadian regulations and public health concerns posed compliance challenges and reputational risks, especially regarding youth appeal.

"Declining consumer trust and volatile demand made vapes an unattractive investment with uncertain returns," Althea added.

"The company is prioritising high-growth, lower-risk categories, such as the burgeoning cannabis beverages sector, which more closely aligns with long-term objectives."

Earlier this month Althea's Canadian subsidiary Peak Processing Solutions reached a multi-year manufacturing agreement with The Boston Beer Company (BBC) for the production of its cannabis beverage portfolio in Canada.

Peak has agreed to reserve BBC capacity in its state-of-the-art facility, beginning with a minimum in excess of 800,000 units for the 2025 calendar year.

"This partnership solidifies Peak’s role as a leading global manufacturer in the cannabis beverage space and ensures we can deliver exceptional products that resonate with consumers’ sophisticated tastes," Althea's CEO and founder Josh Fegan said at the time.

"Peak Processing makes the highest-quality cannabis beverages in the country, and we’re excited to build on our shared success to drive further growth in this dynamic category," added The Boston Beer Company head of cannabis Paul Weaver.

Peak was the leading source of customer receipts for Althea at $6.25 million over the three months, with the December quarter typically being its weakest period due to winter seasonality. In December, Peak USA successfully completed its inaugural commercial manufacturing run, leveraging its Florida-based emulsion manufacturing facility.

The group's global medicinal cannabis business achieved $2.75 million in cash receipts from customers. This represents a year-on-year increase of 19 per cent as the group recovers from prolonged stock shortages in late 2023 caused by the transition to new product suppliers, with Althea claiming "stock availability now returning to normal levels, ensuring consistent delivery to patients and healthcare professionals".

In October, the group also sold its MyAccess Clinics business in the UK and Ireland to the European arm of fellow Melbourne-based medicinal cannabis group Montu for $1 million.

The sale follows a series of right-sizing initiatives over the past 10 months including $1.5 million worth of staff cutbacks made in March last year. The group conducted another round of redundancies this month, delivering approximately $1.4 million in annualised cost savings.

"This quarter demonstrates Peak’s position as a global leader in the development and manufacturing of cannabis beverages," says Fegan.

"The successful launch of Peak USA’s first commercial manufacturing run and commencement of key Canadian facility upgrades highlight our ability to execute in this rapidly growing market.

"With Althea stabilising and delivering efficiencies in an evolving market, we are poised to accelerate growth and create exceptional value for our shareholders as we enter 2025 with strong momentum."

Trading in Althea shares is currently suspended as in December the group sought Federal Court relief for historical administrative lapses in lodging Cleansing Notices under the Corporations Act.

"The company is actively working to rectify these issues through a court-approved remediation process with the Federal Court hearing scheduled for 31 January 2025," Althea states.

"To address the corporate governance lapses, the company has appointed Adam Gallagher as AGH company secretary. Adam is a seasoned governance and compliance professional with over 25 years of experience. His leadership will strengthen oversight and improve the AGH governance frameworks to ensure these lapses do not occur again.

"These corrective measures ensure AGH remains well-positioned for sustainable growth, reinforcing investor confidence while maintaining strict regulatory adherence. With stronger governance structures now in place, AGH is focused on operational execution and value creation."

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