ASX cannabis shares have fallen out of favour recently, with the Althea Group (ASX: AGH), Cann Group Ltd (ASX: CAN) and Elixinol Global Ltd (ASX: EXL) share prices all tumbling to new lows. However, there is one cannabis share that has seen its share price appreciate, alongside strong revenue growth, positive cash flow and diverse operations.
Enter, Ecofibre Ltd (ASX: EOF)
Ecofibre possesses diverse business operations from plant cultivation, manufacturing and patient-related services including doctor networks, research and clinics. The company can be divided into three core businesses – Ananda Health, Ananda Food and Hemp Black.
Ananda Health brings to market the first fully compliant and legal CBD oil product line created specifically for the needs of independent pharmacies and healthcare professionals. This end-to-end business value provides customers with full traceability from cultivation. The focus for this business is to further capture the US retail pharmacy market and onboard its products within practitioner and pharmacy channels.
Ananda Food provides customers with guaranteed 100% Australian grown and processed hemp-based foods. Again, Ecofibre owns the whole value chain, from seed to shelf, that ensures customers receive the highest quality products with full traceability. The business has witnessed steady sales growth underpinned by quality clients and growing product awareness. Ananda Food is expected to deliver its maiden profit in FY20.
Hemp Black is Ecofibre’s industrial use business that focuses on innovative solutions across a wide spectrum of consumer markets to include fashion, leisure wear, healthcare, composites and building materials. This business segment is still in its prototype phase, but aiming to revolutionalise and commercialise the use of high-tech hemp in many consumer and business settings.
Why will Ecofibre succeed when its peers have failed?
I believe a positive cash flow with a slice of speculative growth is what will drive shareholder value. In the company’s Q1 FY20 highlights, it cited that revenues had increased 140% pcp and 17% on last quarter, to $14.4 million. Cash from operating activities was positive, up 22% on last quarter to $3.9 million. CEO Eric Wang stated: “This result was primarily driven by continued growth in the independent pharmacy segment. Ananda Professional products are now sold in over 3,800 US retail pharmacies, up from 3,200 as at June, 2019.”
While other cannabis players continue to burn cash or are engaged in only one part of the value chain (e.g. only plant cultivation or patient-treating activities), Ecofibre is part of the full process. Ananda Health and Food continue to drive revenue momentum, while Hemp Black provides a highly speculative side of the business that could disrupt the way hemp is used.
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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.