Hemp food producer ECS Botanics has implemented a number of cost-cutting measures in response to the pandemic, but its expansion plans show no sign of slowing down.
The COVID-19 pandemic may be exerting tremendous downward pressure on the global cannabis market, but some Australian companies—such as the agribusiness and hemp food company ECS Botanics (ASX:ECS)—are already starting to bounce back.
The company currently operates out of Tasmania, Australia, and is focused on the cultivation and production of hemp for the wholesale market, as well as its own branded retail food range.
Dare I say the agribusiness and food sector is somewhat insulated during this tough economic period, our ability to do commerce has not been materially impacted and we are seeing increased demand for our products. Despite this we are taking preventive measures to cut non-essential costs. This year we will also have a strong inventory position of hemp and will continue to develop our innovative low-cost medicinal cannabis project. ECS Botanics Managing Director Alex Keach
Aside from holding the full set of licenses needed to cultivate, supply, and manufacture industrial hemp in Tasmania, ECS also holds a growers licence in Queensland, along with import and export licences from the Australian Office of Drug Control (ODC)
Additionally, ECS owns a strategic stake in TapAgrico—which provides logistics, drying, and storage services for hemp seed—and has secured the licenses needed to cultivate and manufacture medicinal cannabis, as the company is discussing plans to construct a medicinal cannabis facility at its Tasmania hemp cultivate site.
Luckily, ECS Botanic's supply chain has yet to be effect by the worldwide coronavirus outbreak—as stated in its most recent market update—and at this time the company does not expect to experience any significant impact on its important harvest.
Furthermore, ECS has also chosen to implement multiple non-essential cost cutting measures—due to the current "market share turmoil" and unclear end-date for the quarantine lockdowns—to ensure that the company remains in a strong cash position as it enters 2021. As a result, the company will also be able to maintain its focus on its "key business drivers", which should allow it to emerge in a stronger position than the previous year.
"The Company is also alive to the opportunities within our sector that arise from a crisis like COVID-19 and the response to it, and we are actively investigating a number of them," ECS Botanics Managing Director Alex Keach said.
Disclaimer: Past performance is not an indicator of future performance.
Earlier this year the company also announced that its hemp oil and soup range was officially available at Woolworths grocery stores across the country, following a distribution deal with Just Foods Australia that was signed in November 2019.
The company has explained that the initial order placed by Just Foods was valued at approximately $120,000, with the first cash receipts from the rollout being expected by the company "during the current quarter".
News of the announcement caused shares in ECS to spike in value by more than 6%, while the company revealed that it is collaborating with its manufacturer, Flavour Makers, on the development of "several new flavours" of hemp soup.
"Our Fast Moving Consumer Goods (FMCG) soups are unique in the market place and this latest deal is testament to the products branding and positioning towards a growing retail segment," Keach said.
"The deal also signifies the immense capability of Just Foods Australia, underpinned by the close working relationship we share."
Hemp Oil Market Continues to Grow
ECS Botanics received another boost in May 2020, after it locked down a partnership with the Tasmania-based natural products company, Essential Oils of Tasmania (EOT), aimed at developing new commercial opportunities in the hemp and medicinal cannabis sector.
The non-binding agreement officially lays out a strategic framework for the two companies to engage in future research opportunities, while also developing products for the consumer market that make use of Tasmania hemp biomass or ECS Botanics oil formulations.
We are in the midst of a huge consumer shift toward using botanical extracts, including cannabis, for nutrition, medicine, supplements, cosmetics, flavouring, sanitiser and cleaning applications and we are seeing strong growth in both the cannabis extract market as well as essential oils, which is an US$8 billion market. Cannabis is no longer viewed as a 'one trick pony', containing an abundance and array of cannabinoids, essential oils, terpenes and flavonoids ECS Botanics Managing Director Alex Keach
ECS also believes that the carbon dioxide extraction, distillation, and fractionation equipment held by Essential Oils of Tasmania will provide significant synergistic advantages for its industrial hemp operations and planned medicinal cannabis venture.
According to the managing director of ECS Botanics, Alex Keach, the partnership between the two companies came about as both parties had, "complementary skill sets that can be mutually beneficial to de-risk and fast-track industry development."
"Essential oils as well as hemp seed oil are known for their strong anti-microbial and anti-bacterial properties."
"We expect to see greater emphasis on the use of plant extracts in cleaning products to take advantage of these properties, as well as complementing hand sanitisers and hygiene products in order to provide a softer and less drying impact on the skin," he said.
And it's not hard to see why, as a recent report published by market analysis firm, GrandView Research, found that the essential oils market is expected to expand at a CAGR of 7.5% from 2020 to 2027.
This expansion is expected to be driven by the increasing adoption of hemp oil by various major end-use industries, such as personal care and cosmetics, food and beverages, and aromatherapy.
At the same time, the increasing awareness of hemp's numerous health benefits is expected to drive additional demand from the wellness and pharmaceutical fields.
Another key factor influencing the growing popularity of hemp is the rising demand for organic products, along with an increased focus from consumers on health and wellbeing.
This has caused the industry to witness a substantial increase in the demand for 100% plant-based oil products, which hemp producers like ECS Botanics are well-placed to take advantage of.
However, the company is not content to just rest on its laurels, and its current expansion strategy should ensure that ECS Botanics will continue to increase its market share into 2021 and beyond.
"While the success we've achieved in the short term is pleasing, most importantly we are setting the foundation and capability to leverage the first-mover opportunity in an exciting, high growth and evolving industry," Keach said.
This pot stock could reach new heights in 2020 due to Coronavirus
The COVID-19 pandemic is showing no signs of slowing down, and as global markets enter meltdown many cannabis companies are feeling the effects of capital crunch.
While the market crash will continue for some time, it represents a golden opportunity for investors who are capable of riding out the volatility until share prices rally.
Luckily, one pot stock has developed antimicrobial drug that can already treat two superbugs while limiting their ability to develop antibiotic resistance.
Investors can also start picking up shares at rock bottom prices, as global investor sentiment continues to dampen thanks to COVID-19.
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