ASX cannabis shares are struggling to gain momentum in FY19. Interest in the sector has dwindled and sentiment is waning.
This could be explained by the short-sighted nature of the market. When there isn’t any groundbreaking news released within a speculative sector, the hype dies down and people move on to the next big thing.
Investors have witnessed the likes of the Cann Group Ltd (ASX: CAN) share price tumbling 25%, despite no recent announcements that could have triggered such a sell off. Althea Group Holdings Ltd (ASX: AGH) and Elixinol Global Ltd (ASX: EXL) have both raised capital to support their growth stories. However, this has created tailwinds for any share price gains.
In the midst of these struggling ASX cannabis shares, enter Ecofibre Ltd (ASX: EOF).
A closer look at Ecofibre
Ecofibre can be broken down into 3 business segments – Ananda Food, Ananda Professional/Health and Hemp Black.
Ananda Food is a large producer of food-grade hemp seed oil, protein and hemp seeds grown from industrial hemp crops across Tasmania. In 2018, it produced more than 360 tons of hemp seed for food in the Australian market.
Ananda Professional/Health is a line of hemp-based products available through independent pharmacies. It uses the hemp flower to ensure the full-spectrum benefits that cannabinoids provide. This business segment is currently focused on expanding its distribution network and training pharmacists in product prescription.
Hemp Black is still in its pre-commercial phase, looking to produce hemp-based materials for use in apparel and footwear. It will begin producing prototypes of its products in Q2–3 FY20.
Ecofibre’s Ananda Health and Food businesses represent evolving capabilities in distribution and production, while Hemp Black adds a speculative, high risk/reward element to the mix.
Why is Ecofibre a top ASX cannabis stock?
What makes Ecofibre more attractive than many of its cannabis peers, in my opinion, is that it is already generating a profit while achieving greater production scale, margin expansion and cost management.
In FY19, the company highlighted a 170% increase in net profit after tax, bringing its loss down from $8.6 million to $6 million. Meanwhile, its revenues soared 519%, from $5.7 million to $35.6 million.
The company also maintained a strong outlook for FY20 in its FY19 full-year report. It cited that Ananda Health should “continue to experience strong quality growth as we do not expect any market share or size limitations for the foreseeable future.” Ecofibre also indicated that it expects Ananda Food will continue to experience steady sales growth, as awareness of hemp products grows.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.