ECS Botanics: Why Australia for Medicinal Cannabis

Dear shareholders,

FY21 has been a defining year for the company as we start to leverage assets that we have established in proceeding years. These include our production base, industry leading team and culture, intellectual property and systems. As a result, the company is at a major inflection point. We are now in a position to significantly grow revenues, progress towards profitability and take advantage of substantial growth in demand for medicinal cannabis and other cannabis-based products in Australasia and Europe.

The company is on track to deliver significant revenue growth and increase its market share. We continue to supply high quality and affordable products under a strategic B2B business model, ensuring that we utilise multiple channels to access a ready market.

The integration of Murray Meds has expedited our business considerably and led to several cost savings, synergies and new market opportunities. This will benefit both our current and future customers. Following this transaction ECS is now positioned among and elite group of medicinal cannabis companies globally. It is exceptionally well placed to meet the surging demand for a variety of THC and CBD products, particularly as Australia is becoming increasingly known as the pathway to Europe for high quality (GMP) and regulated cannabis pharmaceuticals.

We are looking forward to planting our maiden medicinal cannabis crop in Tasmania. This will occur towards the end of 2021. We will also continue to research and implement the best genetics and processing techniques. This will further support lowering of production costs and scaling up production of broad-acre CBD and other non-psychoactive cannabinoids. As the business develops we are creating job opportunities in rural Victoria and Tasmania, as well as up-skilling existing labour and attracting specialised candidates in manufacturing, science and agriculture.

As early movers in the production of medicinal cannabis outdoors and at scale, ECS is building know how associated with chemovars suited to our local climate and patient requirements. The research and development in genetics under our research license provides valuable insights into optimising the selection of chemovars best suited to our local climate. Another key component of our R&D process is understanding patient needs. By combining these two objectives our goal is to provide the best medicinal cannabis outcomes at the lowest cost.

ECS has prized land and water assets on the Murray River in Victoria and in Northern Tasmania. We utilise organic inputs and regenerative agriculture to add value to the land and to ensure that we produce a superior product for patients, in the manner that nature intended. ECS’ production is substantially less energy intensive than typical cannabis producers. ECS Botanics utilises both hydro and solar as renewable energy sources and will continue to invest towards a carbon neutral status. Diversity, our third core value, has been shown to amplify the generation of innovation and solutions and enhance teamwork. The company is proud to have this across cultural, age and gender.

ECS’ hemp food and wellness business consistently grew revenue quarter on quarter. The company launched a range of terpene blend products in cannabis sativa seed oil (Sleep, Calm, Relief) along with four distribution agreements to broaden reach across Australia. Subsequent to year end we also announced a national supply deal with Coles for hemp seed oil, with ECS now supplying both Australia’s major retailers. This division is transitioning to have a greater focus on hemp wellness products in order to capture higher margins, increase efficiencies and with the view to target the overlap in Europe between wellness (novel foods) and pharmaceuticals. Hemp products are becoming more broadly accepted in the market and also becoming increasingly used as an additive into plant-based foods, cosmetics, skin care, pet food and pet care. The acceptance and use of hemp is also driving demand for ECS’ range of wholesale products.

ECS Botanics has made major advances in a very short period of time. We are now beginning to reap the rewards of commitment to our forward-thinking business model, which is unique to the Australian marketplace. ECS’ strategy and competitive pricing model is resonating strongly with local and overseas customers. This has instigated a shift away from Canadian imports and developed a strong local market for ECS’ premium dry flower, oils and biomass. Moreover, demand will continue to grow as it is anticipated that the TGA will ultimately require all imported cannabis to be GMP manufactured. Both these points have major upside implications for the demand of our products and earnings outlook.

From a macro level there continues to be several developments, which will also underpin interest in the sector. During the year the deregulation of cannabis at the United Nations level will make it easier for nations to implement their own medicinal cannabis schemes. Furthermore, the level of research and acceptance by governments and the general public is continually increasing. The capacity to capture market share from pharmaceutical companies was evident when Irish pharmaceutical giant Jazz Pharmaceuticals agreed to buy cannabis company GW Pharmaceuticals for USD$7.2 billion. Locally, Australia’s Therapeutic Goods Administration (TGA) agreed to reduce the schedule of CBD from 4 to 3 and allow a maximum daily dose of 150mg per day. This has opened the door for registered CBD products to be sold over the counter in pharmacy and will present an opportunity for ECS Botanics to supply the raw materials into another high growth vertical market.

The company raised capital during the year and this was invested in accelerating growth and commercialising the business towards medicinal cannabis revenue generation. This strategy included purchasing Murray Meds, investing in new product development, key hires and building six new protected cropping enclosures to take advantage of surging demand for ECS’ premium dry flower.

We wish to thank all our shareholders, partners and employees for their support during FY21. Over the course of the coming year, ECS Botanics intends to further build upon its market leading and respected industry position. Our differentiated business model is both disruptive and innovative and holds us in good stead as we enter the next phase. We intend on leveraging our production capacity and pharmaceutical expertise to capture increasingly significant market share in Australia and Europe.