Elixinol Global Ltd (ASX: EXL) shares are plummeting today, going for just 18.5 cents a share at the time of writing, down 11.09%. The Elixinol share price closed at 21 cents on Friday and opened at 19 cents this morning before dropping to its current level.
At this share price, Elixinol is just 4 cents away from its all-time low of 14 cents a share, and a whopping 87% from its 52-week high. Since the start of 2020 alone, the company's shares are down 63%.
So what's going on here for the hemp products producer?
Why the Elixinol share price is going up in smoke
Today's share price plunge appears to be connected to an ASX market announcement the company made this morning before market open. In this announcement, Elixinol told investors that an agreement it has with another company by the name of Pet Releaf has been terminated.
Elixinol and Pet Releaf have been in a manufacturing and supply arrangement since August 2019. Under this agreement, the two companies would be "long-term partners".
But according to Elixinol:
The contributions from the Agreement have not been material to Elixinol Global's operations and given the global COVID-19 pandemic has created challenging trading conditions for the industry, the parties agreed to formally terminate the Agreement on 18 December 2020 [US Pacific Standard Time] with a mutual release.
A contributing factor to this breakdown was also a shift in focus for Elixinol. The company stated that:
Elixinol entered into the Agreement with a strategic view at that time of Pet Releaf being a long-term partner of Elixinol. Since that time, Elixinol Global has revised its commercial strategy by focusing on the distribution of higher margin Elixinol-branded products, rather than supporting private labelled products to which the Agreement relates.
However, Elixinol assured investors it will continue to "focus on the strong relationship with Pet Releaf". It notes that Elixinol still maintains a 25% equity interest in Pet Releaf. It stated, "the Company continues to look forward to supporting Pet Releaf's strategic focus on increased product offerings and distribution of high quality hemp-derived CBD pet products in the market".
Investors light up SPP
Elixinol has also made a separate announcement to the ASX today regarding its recent share purchase plan (SPP). Last week, Elixinol told investors its SPP had been heavily oversubscribed. Applications totalled $27.2 million, well over the initial $2 million expected. As a result, the company expanded the SPP size by an additional $12.3 million.
Today's announcement confirms management's belief that the company is well capitalised as a result of the SPP. But the "strong third quarter" the company has recently had will not be spilling over. Elixinol included some remarks from its chief executive officer Mark Horn on the matter:
The fourth quarter certainly is not the quarter that we expected to have… simply because COVID has had a significant impact on our businesses in the UK and Europe. We had more head winds than we expected, so I certainly see that the Q4 quarter is for us one of the more challenging ones compared to the previous quarter. But the reality is that we are really well positioned given that we are a wellness product with great distribution and new growth catalysts.
