Elixinol Global Limited (OTCQX: ELLXF), through its businesses has a global presence in the cannabis industry including hemp-derived CBD dietary supplements, food and wellness products, as well as the cultivation and manufacture of medicinal cannabis products.

 

The key milestones in the company and the industry:

 

On 29 August 2018, the company reported financial results for 1H FY2018. Elixinol reported a solid first half-yearly result for EXL as an ASX listed company. The company delivered exceptionally strong top-line growth, which has seen the Company more than double its size and enabled it to report its first profit position.

 

As per management, since listing in January 2018, the business has continued on its strong growth trajectory. Significant business building initiatives have been put in place to increase cultivation and manufacturing capability for Elixinol in the US, including the NCHPP JV supply agreement and relocation to a new production facility to come on stream later this year in Colorado. The management expects growth in the Hemp Foods Australia business to be supported by launches of the company’s own finished food products and penetration in the cosmetics segment through its SATIVA Skincare range.

 

Key highlights of the financial results:

• Strong Group revenue growth to $14.9m, up 110% on 1H FY2017 driven by strong sales in Consumer Products
• Maiden Group profit, highlights the growing profitability of Consumer Products Division Underlying EBITDA of $0.8m, an improvement of $0.9m (1H FY2017 of ($0.1m) loss)
• Entered NCHPP joint venture with Kersey Ag Company LLC to supply and produce high cannabidiol (CBD) hemp
• Expansion of Elixinol USA production capacity from 8,700 square foot to 20,700 square foot and is on track for completion in late FY2018
• 2018 Farm Bill progressed through the US Senate with presidential sign off expected before the end of 2018, opportunity to accelerate growth for Elixinol USA
• Elixinol Australia (medicinal cannabis) license applications for cultivation and manufacturing submitted and progressing

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Investment highlights of Elixinol:

• Elixinol Global (ASX: EXL) listed in January 2018 with strong institutional support
• EXL is a diversified business with two established consumer product brands in fast-growing markets:
• Elixinol – US based seller of cannabidiol-based dietary supplements (FMCG products with significant consumer following.) Elixinol exported into 40 countries
• Hemp Foods Australia – Australia’s largest supplier of hemp-derived foods (seeds, flours, oils, protein powder for direct to consumer and food manufacturing channels)
• Pharmaceutical business under development which can leverage expertise and knowledge from Elixinol. Progressing license application with the Australian Office of Drug Control for the cultivation of medicinal cannabis
• Positioned internationally within significant and rapidly evolving markets of hemp-derived CBD, hemp-derived foods and medicinal cannabis – key investment themes and areas of legislative change and consumer interest
• Maiden profit of $0.6m and record revenues of $14.9m reported in 1H FY2018
• Raised $40m in October 2018 to accelerate international growth
• Seeking a global market-leading position through a mix of organic and acquisitive growth: scaling up to take strategic advantage of emerging markets

 

 

Upcoming milestone and outlook over the near to medium term:

 

Following the recent financial closure and the rating upgrades by several analysts covering the stock, the company is in a favorable risk-reward position, and value investors should consider exposure in this sector as the backdrop remains favorable.

 

About the Group: Elixinol Global’s businesses include:

• Elixinol USA, which was founded in 2014, is a manufacturer and global distributor of industrial hemp-based dietary supplement and skin care products, with operations based out of Colorado, USA;
• Hemp Foods Australia, which was founded in 1999, is a leading hemp food wholesaler, retailer, manufacturer and exporter of bulk and branded raw materials, and finished products;
• Elixinol Australia, which was founded in 2014 to participate in the emerging Australian medicinal cannabis market and submitted license applications for cultivation and manufacture to the Office of Drug Control in early 2018. These applications are currently pending approval.

 

Products at a glance:

 

 

Well diversified divisions:

Financial Results –

 

• Strong revenue growth was reported for EXL of $14.9m, up 110% on 1H FY2017. This was driven by a strong increase in sales within its Consumer Products division. Underlying EBITDA of $0.8m was up on 1H FY2017 of ($0.1m) resulting in a maiden profit for the Group
• Liquidity and Financial Flexibility – At 30 September 2018, the Company held a pro forma cash balance of A$48.6m which comprised A$10.7m cash at bank and net proceeds of A$37.9m received from the capital raising on 3 October 2018.

 

Outlook: The Company is closely monitoring ongoing 2018 Farm Bill legislative changes in the US which, if passed will strengthen the Elixinol USA business considerably and open up its ability to trade nationally and accelerate growth. In Hemp Foods Australia, new product offerings will continue to be launched with the support of its enhanced sales and marketing function. Elixinol Australia is awaiting approval from the Office of Drug Control for its submitted cultivation and manufacturing licenses which are steadily progressing through the approval progress, and the company remains hopeful of a positive outcome.

 

Key risk factors and potential stock drivers:

• Continuing growth in the cannabis sector could act as a catalyst for the company shares.
• The company operation is still at an early stage and burning cash. Therefore, its ability to maintain liquidity and financial flexibility to fund its incremental capital requirements will remain a critical challenge for the company.
• The company’ business is exposed to risk related to competitive pressure, and its revenues may suffer from competitive pressure.
• Marijuana remains illegal under federal law. It is a Schedule I controlled substance. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription is a violation of federal law.
• The company’s business is exposed to regulatory risk and its adverse impact on the overall business risk profile.

 

 

Stock Performance

Comments:

• On Monday, December 10^th, 2018, ELLXF was at $1.71, on traded volume of 349K shares exchanging hands. Market capitalization is $186.15 million. The current RSI is 66.12
• At $1.71, shares of ELLXF are trading above its 50-day moving average (MA) at $1.43
• The present support and resistance levels for the stock are at $1.47 & $1.82 respectively.

 

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