Ecofibre Ltd (ASX: EOF) recently listed on the S&P/ASX 200 (INDEXASX: XJO) index at an issue price of $1.00 per share. The company comprises three businesses:
- Ananda Health provides high quality hemp derived nutraceutical products to the United States (US) market. Sales efforts focus on the highly regulated US Independent Pharmacy market and leverage the company's strengths in compliance, transparency and education.
- Ananda Food provides guaranteed 100% Australian grown hemp food to the Australian market. Its processing facility in New South Wales has received provisional HACCP certification and is capable of processing upwards of 15m kg of hemp food annually across a range of products.
- Hemp Black will provide sustainable hemp-based solutions that improve the technical properties of existing consumer and industrial products across a range of industry segments. This business is in its pre-commercial phase and will begin introducing prototypes of its products in Q2/Q3 FY20.
In a recent quarterly report on 11 July, the company cited an unaudited revenue of $12.3 million. By comparison, its quarterly revenue was up 23% on the prior quarter, H2 FY19 revenues were up 68% on the prior half and FY19 revenues up an astonishing 525% on the prior year. The company is announcing its FY19 results on 29 July and expects to deliver a profit before tax of approximately $4.5 million.
Is it a buy?
The marijuana sector is in its early days but presents a land grab opportunity for new players. Ecofibre is showing capabilities in revenue and profit growth through its established Ananda Health and Food businesses, as well as a speculative side through Hemp Black.
Ecofibre's CEO Eric Wang stated that the company's recent growth was "primarily driven by growth in the independent pharmacy segment. Ananda Professional products are sold in over 3,200 US retail pharmacies, an increase of more than 200% in the six months (1,500 as at December 2018)."
I believe Ecofibre may follow a similar trajectory to Elixinol Global Ltd (ASX: EXL). However, the stock is incredibly volatile. The share price has rocketed some +300% to a recent high of $3.60 in a mere three months before falling more than 20% in the past four days. While the opportunity and reward is there, so is the risk, and a lot of it.
