The company’s latest quarterly update confirmed its standing as a market leader in Australia’s medicinal cannabis sector.
Leading medicinal cannabis and hemp supplier ASX ECS Botanics (ASX:ECS) went from strength to strength in 2021, building out a strong pipeline of domestic and international clients as it scales up to meet demand.
And that growth was confirmed with its latest trading update this morning, where ECS booked another increase in quarterly revenue to $1.434m
Demonstrating its strong momentum, December quarter revenues rose by a robust 58% from the September quarter, and a massive 308% from the prior year comparative period.
ECS’s market leadership is being driven by the market aligning to its long term consistent strategy. Customers are demanding affordable, high quality and sustainable hemp and medicinal cannabis products which ECS farms, manufacturers and distributers. With the local and global market beginning to grow very strongly ECS is uniquely positioned in Australia to be a major beneficiary.
Up and away
ECS reported similarly strong revenues in its Q4 cash receipts, which rose to $1.49m – up 41% from the September quarter and 289% from the PCP.
The results prove that ECS Botanics has established its business model with the successful execution of a B2B-focused seed to GMP strategy that’s seen the company post new q/q revenue beats every quarter since listing.
And as it looks ahead to 2022, the company expects those trends to continue as it builds out capacity and focuses on meeting demand for its suite of products.
ASX ECS Botanics: Scaling for growth and beyond
Commenting on the trading update, ECS Botanics MD Alex Keach said the results have “laid a strong foundation for the remainder of the financial year and beyond”.
Of particular note, Keach highlighted that the ECS management team has been able to consistently grow quarterly revenues while also keeping operational costs under control – part of a consistent trend towards its market leadership position as a scalable, profitable enterprise.
“Importantly our customers are ordering greater than the minimum order value in contracts, this is a strong sign of the market demand and we anticipate robust growth from the long term strategic agreements we signed this quarter,” Keach said.
ASX ECS Botanics: Operational highlights
Among many highlights in the quarter, ECS successfully executed a material supply deal with Sun Pharma – the Australian subsidiary of global pharma giant Sun Pharmaceutical Industries which generates annual revenues of ~$4.5bn.
The deal will see ECS supply GACP (Good Agricultural and Collection Practices) compliant cannabis biomass to Sun Pharma, as a key input for the development of the multinational group’s medicinal cannabis product range.
Under the terms of the agreement, Sun Pharma has also agreed to purchase “no less than 55% of its annual cannabis biomass requirements” from ECS, the company said.
That agreement alone “has the potential to generate revenue between $6.6m and $9.8m over the next five years”, ECS said.
Along with that marquee announcement, also secured a separate supply deal with Australian cannabis company Cannvalate, which is expected to generate revenue of $592,000 over the next 12 months.
Longer term, Cannvalate has committed to a minimum purchase obligation of $4,906,000, upon the instillation of the carbon-dioxide extraction at Sun Pharma’s facility.
Taken in aggregate, the deals “reinforce the quality and sustainability of ECS’s long-term cultivation strategy, and highlight the increasing demand for Australian sourced medicinal cannabis products for local and export markets”, ECS said.
To meet that additional demand, ECS also applied with Australian regulators to increase the scope of its GMP-compliant practices to include export of dry cannabis flower. The audit returned an A1 rating and “ECS has subsequently successfully listed a number of oil and dried flower products on the Australian Register of Therapeutic Goods (ARTG), thus facilitating exports which will commence in the January quarter,” the company said.
During the quarter, ECS also secured a distribution deal through major grocery chain Metcash, which saw Richies Supa IGA — Australia’s largest independent supermarket chain (84 stores) — choosing to stock ECS’s hemp seed oil.
ASX ECS Botanics: Capital markets
Accompanying the strong growth in deal flow, ASX ECS Botanics also successfully nailed a $6.6m capital raising in the quarter to a network of institutional, professional, and some very sophisticated investors.
A key rationale for the placement was to finance the company’s key strategic priority – scaling up its operations in order to meet increased demand.
The company will also allocate capital towards its organic farming and ESG-focused regenerative farming practices, as it moves towards becoming a net-zero cannabis producer.
As it scales up for growth, the cap raise left ECS well-capitalised at quarter end with more than $7m cash in the bank.
And after booking yet another consecutive quarter of revenue growth, Keach said ECS is now positioned to expand its business even faster in 2022.
“We expect to continue this trend through the recently secured agreements with both Sun Pharma and Cannvalate, as well as other pending orders from local and international customers,” Keach said.
“Our business model which spans from seed to GMP product for the B2B market, continues to resonate very well with a growing base of customers.”
“It provides us with a large addressable market both locally and overseas which continues to grow strongly.”
This article was developed in collaboration with ECS Botanics, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
Written by: Stockhead