The Ecofibre Ltd (ASX: EOF) share price has plummeted in mid-morning trade following the company's release of a first quarter update. At the time of writing, the Ecofibre share price has dropped 24.49% to $1.85.
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What's pushing the Ecofibre share price lower?
The Ecofibre share price is in freefall today after the company reported disappointing results marked by severe impacts of COVID-19 for the quarter ending 30 September.
The company said that cash flow and revenue are on track, however a loss is expected to be incurred in H1 FY21. Ecofibre advised the setback is due to the pandemic causing political and social disruption to retail in the United States.
Revenue for the first three months of FY21 came in at $7.1 million, down 51% on the prior corresponding period. As trading conditions remain difficult, the company is forecasting to break even in FY21.
On a positive note, Ecofibre said that it is starting to see early signs of recovery in its US independent pharmacy segment. The company is further developing its relationship with customers through its Ananda Health business, supporting a return of normal operations. Engagement and education to its customers are seen as key pillars to drive future growth.
The company recorded cash on hand of $15.6 million, as compared to $18.3 million at the end of June. Limited further investment is expected in FY21 to preserve capital until the business can see improvements in the economic climate.
New developments
At the end of the quarter, shipping commenced of Ecofibre's batch of Balans Labs products to CVS Health Corp (NYSE: CVS) stores. The range of topical hemp products will be distributed to over 4,000 retail locations across the United States. Additional expansion plans are underway to provide more items.
Completed acquisition
The company stated that the acquisition of TexInnovate in August 2020 has been completed and is progressing well. TexInnovate, now renamed to Hemp Black, produced revenues of $2.6 million for the quarter. The sales were split between face mask sales and revenues from the original TexInnovate business.
Hemp Black said it has customers in segments including medical yarns, high performance polymers, outdoor turf, furniture applications and personal protective equipment (PPE). The company is focused on supplying a target segment that will exist over the medium term.
Management commentary
Ecofibre CEO, Eric Wang, commented on the poor performance encountered for the quarter. He said:
Trading conditions remain difficult in the US CBD market and the demand for PPE has reduced. As discussed last quarter, we are reshaping our business priorities to adjust for changes in purchasing behaviours with our distributors and independent pharmacies.
We are working to ensure we retain and grow our leadership position in the US retail pharmacy channel. There is strong confidence in the long-term future of hemp-derived CBD in this channel as it will be the preferred channel for patients with health conditions that are advised by pharmacists and medical practitioners.
