ECS Botanics – The Next Creso Pharma

Creso Pharma (ASX:CPH) may be on the way out but a new pot stock is coming to replace them: Tassie hemp farmer ECS Botanics.

The company is backdoor listing into tech shell Axxis Technology, raising between $4.5m and $6.5m at 4c a share, with the raise closing on June 21 and an expected listing date of July 12.

ECS (ASX:ECS) started in February last year, a mere four months after industrial hemp was legalised in Australia.

In its prospectus, ECS said it had harvested its first successful crop in Tasmania and planted a crop in Queensland, where it leases land, which is expected to be harvested in August.

"ECS will seek to benefit from escalating consumer demand for vegan and plant based proteins, omega 3 & 6 and more alkaline foods," the prospectus said.

The company has chosen to list to provide more working capital for the business, which is still in its infancy.

Hemp is a low-THC variety of the cannabis plant. Depending on state laws, farmers are allowed to harvest the seeds of the plant and the stem fibre as well but they do need a licence.

ECS has Tasmanian licences to grow, supply and manufacture industrial hemp for non-therapeutic commercial purposes and research, and a grower licence in Queensland. It's also applied for cultivation and manufacturing medical cannabis licences, but says if they are granted it'd be a side hustle rather than the main business.

The hemp sector is rapidly coming into its own in Australia, as hemp products are more easily sold than medical cannabis which is highly regulated.

Hemp products are restricted to vanishingly low levels of 75mg/kg of cannabidiol (CBD) in hemp seed oil or less, and 50mg/kg of THC.

ECS already has a line of hemp products available on its website, made via hemp bought from third party contractors.

For the year to January 31, 2019, ECS made $3,620 in revenue and a $296,224 loss, largely due to administration costs.

It had $1.4m in cash.

They plan on making money from selling wholesale bulk hemp products, from dehulled hemp, oil, protein powder and hemp flour, as well as retail ready-to-use products such as hemp oil capsules, curry sauces and soups.

Risks include existing Axxis shareholders not giving the deal their OK — their holdings will be diluted by 91 per cent as the share base rises from 48m to 508m. However, the company was suspended in 2016 so if they do not approve the backdoor listing, the company is likely to be delisted come September.

The prospectus also pointed to water issues being a risk, but said in Tasmania the farm lease includes two 32 million litre water licences from the Cressy Longford Irrigation Scheme and two new centre pivot irrigation systems.

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Louis O'Neill
Louis O'Neill

Louis is a writer based in Sydney with a focus on social and political issues. Having interviewed local politicians and entrepreneurs, Louis now focuses on cannabis culture, legislation & reform.

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