The Elixinol Global Ltd (ASX: EXL) share price has tumbled lower this afternoon following the release of its third quarter update.
In afternoon trade the cannabis company’s shares are down 2.5% to $1.63. This leaves its shares trading within a whisker of their 52-week low.
How did Elixinol Global perform in the third quarter?
During the third quarter Elixinol Global achieved group revenue of $9.6 million. This represents a 3% decline on the second quarter and a 9% decline on the prior corresponding period.
Though, if you exclude discontinued private label revenue, it would be up 12% on the same period last year.
Earlier this year the company made a strategic decision to reduce focus on its lower margin private label business in the United States. This was done to allow for an increase in capacity for the expected future growth of higher margin branded products.
Speaking of which, during the quarter the company’s inventory on hand increased by $6 million to $26 million. Management appears convinced that there will be a significant increase in global demand in the hemp derived CBD market, hence why it is building up inventory.
This has come at a cost, though. Elixinol Global spent $11.7 million on product manufacturing and operating costs during the quarter.
Combined with advertising and marketing costs and a jump in staff costs, the company posted a net cash outflow from operating activities of $11.4 million.
This left Elixinol Global with a cash balance of $34.3 million, down from $48.1 million at the end of the previous quarter. Whilst this is still a hefty sum, it certainly won’t be able to sustain this level of cash burn for long.
But that isn’t stopping the company from spending big again in the fourth quarter. According to the release, it estimates that its cash outflows will be $24.3 million this quarter.
Elixinol Global’s CEO, Stratos Karousos, appears to believe it will be worth it.
He said: “We continue to diversify our business across a variety of channels and have made significant investments in people and operations within a number of key geographies globally, including strong headway in Europe. We remain very confident in our future growth strategy as we continue to diversify our branded product mix through a multi-channel sales approach.”
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Motley Fool contributor James Mickleboro 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.