ASX stock of the day: This ASX cannabis share jumped 10% today as it cracked the US market

Shares in Ecofibre Ltd (ASX: EOF) have jumped 10% today after the cannabis company announced an exclusive distribution agreement. Under the agreement, Ecofibre’s topical hemp-derived products will be offered for sale through CVS pharmacies in the US. 

What does Ecofibre do?

Ecofibre is a biotechnology company which produces and sells hemp-derived products in Australia and the US. The company owns one of the largest and most diverse collections of genetics with over 300 landraces of cannabis from more than 25 countries. 

Ecofibre’s Ananda Hemp business processes hemp into nutraceutical products that promote health and wellness. The Ananda Food business provides customers with Australian grown and processed hemp-based foods.

Hemp Black is Ecofibre’s industrial use business that focuses on solutions across a spectrum of markets including fabrics, healthcare, composites, and building materials. 

New distribution agreement

Under the distribution agreement with CVS, Ecofibre will initially supply 10 products for sale exclusively at CVS pharmacy locations. Products will be manufactured at Ecofibre’s US headquarters in Georgetown, Kentucky. The products are expected to be available for purchase at select CVS locations from December 2020. The agreement is ongoing and covers future purchases with no minimum or maximum value. 

Ecofibre’s David Neu said, “we are very pleased to have been selected to supply this brand of products to be offered exclusively at CVS, and are excited at the long-term prospects of providing high-quality hemp-derived products to a broad range of consumers.”

Recent performance

Ecofibre reported revenue of $14.2 million in the March quarter, a 42% increase on the prior corresponding period, but down 4% on the previous quarter. The quarterly result was influenced by the dislocation in US hemp-derived cannabidiol (CBD) companies and the onset of COVID-19. 

Standards of professionalism and quality required by distributors and customers have continued to increase, causing significant industry disruption. Many low-quality manufacturers involuntarily exited the industry during the March quarter. 

Ecofibre has shifted to a wholesale distribution model with 2 significant buying groups added during the quarter. The shift is based on the expectation that the CBD industry must align with the existing US health care wholesale distribution model in the long term. Ecofibre expects to gain access to more pharmacies and practitioners over time. 

The balance sheet remains debt-free and capable of supporting working capital requirements for all 3 business lines. CEO Eric Wang said, “Ecofibre remains very positive over the medium-term . . . in the short-term we are acting on opportunities to accelerate growth where they are aligned to our strategy.”

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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