Australian dried cannabis flower high: ECS shares jump on massive Q3 revenue update

Growing demand is boosting revenue for medicinal cannabis and hemp company ECS Botanics, which is on track for a massive revenue increase this quarter and a bumper outdoor harvest.  

Shares in ECS Botanics (ASX:ECS) rose ~4% to 0.026 cents today on news the company was on track to deliver $2 million in revenue for Q3 FY22.

Driven by sales of its high-quality dried flower and cannabinoid oil products, the forecast revenue increase will be a ~40% jump on the previous quarter, and a handy 440% beat on the prior corresponding period.

Achieving $2m Q3 revenue would also mark another consecutive quarter of growth for ECS, which is riding a wave of ongoing demand from local and international customers.

Medicinal cannabis underpins revenue growth

Medicinal cannabis revenue growth continues to outpace hemp food and wellness, with medicinal cannabis securing a much greater share of ECS’s sales with the company expecting this trend to continue.

During the same period last year, ECS generated all of its revenue from hemp food and  wellness sales, while it expects current quarter hemp revenue to be ~20% of group revenue.

The company said this reflects its strategy and transition to a medicinal cannabis dominant business, which provides greater margins and long-term value for shareholders.

ECS exports first dried flower shipment

ECS has completed shipments of Australian dried cannabis flower to Lyphe Group, the largest distributor of medicinal cannabis in the UK.

Purchase orders from Lyphe total more than $500k, to be delivered as current harvest produce becomes available now and over the coming months.

ECS is working closely with Lyphe and is expecting further orders throughout CY22.

ECS is also continuing with registration of cannabis oil products for the German market, with the supply of these oil products to Armour Group facing delays due to COVID-19 delaying the audit of its Victorian facility.

New Post-Harvest Production Manager

To assist in optimising scale, quality, and cost management, ECS appointed cannabis industry veteran Jason Overfors as Post-Harvest Production Manager at its Victorian Facilities.

Overfors has extensive expertise in the cannabis industry having previously undertaken the  role as Harvest Manager with Canadian cannabis giant, Hexo Corp (NASDAQ: HEXO, TSX: HEXO).

Overfors led Hexo’s team of more than 100 employees and managed all aspects of its harvest progression, including field harvest, bucking, trimming, and processing.

His work was integral in Hexo slashing its cost per gram during cultivation through several innovative measures.

At ECS, Overfors will assist increasing production at scale and ensuring the company’s  high-quality standards are maintained.  He will also support ECS’ ongoing  cost management initiatives, implementation of efficient automated technology and sustainable farming  protocols.

The appointment coincides with additional drying room capacity to be completed this month ahead of a large outdoor harvest.

Positive H1 FY22 results

ECS recently revealed a 312% increase in first half revenue for H1 FY22 to ~$2.4m, on pcp.

The rise in revenue was driven by strong demand for ECS’s cannabis oils and dried flowers in Australia and globally, along with increased sales through its hemp food and wellness division.

Loss after income decreased 10% on pcp to ~$2.7m, while costs of goods sold increased to ~$1.65m from ~$578k on pcp due to the scale up in production of medicinal cannabis products.

Greater marketing to drive growth

To target new local and international customers, ECS has completed filming new introductory videos which further highlight the company’s established operations,  manufacturing practices, product benefits and management team.

The company website updated this quarter, just as the team expect several purchase orders to materialise over the coming months.

ECS Managing Director, Alex Keach said its seed to GMP product business model for the B2B market continues to resonate with a range of customers, enabling the company to unlock value accretive opportunities to underpin revenue growth.

“The sector is going through a shakeout and period of consolidation of which ECS is benefiting with onboarding of new customers.”

“As sales continue to increase, we remain focused on cost management, product quality,  harvest and production optimisation.

He said Overfor’s knowledge of the cannabis sector will be instrumental in ECS’s growth trajectory.

“Jason has an extensive skillset, which we look forward to leveraging for our current harvest post-harvest production,” he said.

“I  invite  shareholders  to  view  our  new  marketing  collateral, which we plan to leverage  in the coming weeks to drive further value and capitalise on several near-term opportunities.”

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