Every cannabis stock has its story. Ecofibre (ASX: EOF) experienced an 88% YTD increase since listing at $1.70 back in March 2019. Unlike, your traditional cannabis company EOF operates under a unique business model. EOF’s cannabis footprint covers medicinal cannabis, plant-based protein and HEMP. EOF strives to use cannabis to change people’s lives.
First, by providing safe CBD medicinal treatments for suffering US patients = Ananda Health
Second, by providing plant-based protein (HEMP) products to improve the nutritional diet of Australia = Ananda Food
Lastly, through producing industrial HEMP textile products such as vegan leather, nanofilm and water-based ink in a sustainable fashion = HEMP BLACK
Over 2019, EOF took a step further in positioning Ananda Health as the market leader in the US by;
- Launching ingestible CBD products to meet market needs
- Significantly increased investment in CBD 360, an online training program to supports pharmacists
- Achieving a 2H gross margin greater than 75% = Market leader of CBD products across US pharmacies based on sales
Also, 2019 saw EOF strategically bolster Ananda food’s Australian reputation by;
- Planting and harvesting 900 tons of hemp across Tasmania, New South Wales and Queensland
- Began supplying Woolworths Marco Brand with HEMP since August 2019
Lastly, throughout 2019 EOF increased HEMP BLACK’s global image as a leader in sustainable HEMP by;
- Filing IP patents with Thomas Jefferson university
- Establishing a supply chain for each core product line in fashion, healthcare, composites, building materials and athleisure wear.
Financial summary of FY2019
Unlike, your traditional cannabis company, Ecofibre’s has excellent financials.
To kickstart, EOF transformed its -$8.6 million profit loss into a $6 million profit yield in FY2019. That’s right, a cannabis company is profitable would have thought?
On top of profit surges, EOF’s revenue skyrocketed from $5.7 million to $35.6 million. Resulting in 519% revenue growth. Demonstrating EOF’s ability to present cannabis products that are successful in generating revenue.
Moreover, cash & equivalents escalated by 817% from $2.8 million to $25.7 million FY18 – FY19. Allowing EOF to possibly expand into other countries or reinvest into the technology driving HEMP BLACK.
Despite the eye-watering financials, we must analyse the risks. Why? Because YIG believes in providing investors with a balanced perspective on stocks. Especially, on speculative cannabis stocks.
“Ecofibre experienced a high level of non-cash earnings in 2019” (Simply wall street). Non-cash earnings are calculated when you deduct non-cash expenses (such as depreciation) from the non-cash revenues (such as accounts receivable). High-noncash earnings means non-cash revenues were higher than non-cash expenses.
High non-cash earnings impact future profitability. Why? Well if a company reports a profit increase that was backed by non-cash earnings (high accounts receivable for example) the profit increase would be based on the promise of repayment from customers. Instead, cash earnings should be the driving force behind profit increase.
What does EOF’s 2020 direction look like?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The story behind Ecofibre so far is nothing short of remarkable. Ecofibre’s future is forecasted to have significant upside potential. Especially with:
- Ananda Health striking potential partnerships with some of the 22,000 independent pharmacies in the US during 2020
- The commercialisation of HEMP BLACK products beginning early in 2020
EOF displays healthy financials and at a price of $3.04 a nice entry is possible. However, investors should carry out their own research on the impact of EOF’s dilution and high noncash earnings on future profits, before committing to the stock.
Why not broaden your knowledge on the cannabis market by reading our uncomplicated articles on the bearish trend in 2019, why ECS (ASX: ECS) is a hot pot stock and a clear breakdown of Creso Pharma (ASX: CPH)
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG.