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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In afternoon trade the Commonwealth Bank of Australia (ASX: CBA) share price is down 2.5% to $59.22.

This means the banking giant’s shares are now down 38% from their 52-week high.

Unfortunately for shareholders, one leading broker still believes they could be heading lower from here.

Who is bearish on Commonwealth Bank?

This morning analysts at Goldman Sachs retained their sell rating but lifted the price target on the company’s shares slightly to $56.40.

According to the note, Commonwealth Bank’s third quarter cash earnings of $1.3 billion is running well short of the broker’s second half expectations.

Though It acknowledges that this weakness has been driven entirely by higher provisions for bad and doubtful debts because of the coronavirus pandemic.

Excluding one offs, its profits were running ahead of its estimates. This was driven by better than expected net interest income (NIM) growth and partly offset by higher expenses.

So why is Goldman Sachs bearish?

Goldman Sachs’ main issue with Commonwealth Bank is its valuation. It doesn’t believe the bank deserves to trade at such a premium to National Australia Bank Ltd (ASX: NAB) and the rest of the big four.

Goldman notes that Commonwealth Bank’s pro-forma CET1 ratio, adjusted for announced but not yet completed asset sales, will fall 45 basis points half on half. This will bring its pro-forma CET1 advantage over its peers to <1%, from >1.5% at the end of the first half.

“Therefore, while we remain of the view that the CBA balance sheet looks the most defensive of the major Australian banks (provisions, capital, funding etc), we cannot justify the 25% 12-mo forward PER premium it trades on versus peers (vs. 14% 15-yr av.) and we stay Sell,” it explained.

Its preferred pick in the sector remains NAB. Goldman has a conviction buy rating and $17.50 price target on its shares.

More reading

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Motley Fool contributor James Mickleboro 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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We all know the S&P/ASX 200 Index (ASX: XJO) market crash that we saw in March was both brutal and filled with extreme volatility. After all, the ASX 200 went from over 7,100 points to under 4,500 points in just over 1 month – a ~40% turnaround which quickly wiped out years’ worth of gains.

But research from ASX fundie Allan Gray actually proves what we were all thinking – the March market crash was the most brutal the ASX has seen since Black Monday in 1987. Not in terms of sheer losses – the GFC still comes out on top there, but in terms of market volatility.

According to Allan Gray, March 2020’s intraday stock market volatility was:

“Greater than at any other time [since 2000] and significantly exceeded the peaks during the Global Financial Crisis (GFC) between 2007 and 2009. In March this year there were nine trading days with volatility above 10%, seven of them consecutive. During the GFC there were only four days in total with greater than 10% intraday volatility and no consecutive trading days.”

Despite these extraordinary statistics, Allan Gray’s Chief Investment Officer, Simon Mawhinney, stated it wasn’t all bad news during March and investors should take advantage of volatility when it does happen:

“Volatility is your friend when investing for the long term, with the at times extreme fluctuations in price presenting excellent long-term buying opportunities. The causes of the current bout of volatility are certainly different . . . but in each of the previous bouts of market volatility, significant opportunities were presented to long-term, patient investors. It is hard to believe that this will be any different today.”

How do we invest if the ASX crashes again?

I think Allan Gray makes some great points. Yes, volatility can be extremely scary when it does occur, but it also gives us a chance to invest in ASX shares at great prices. Volatility often indicates emotion and irrationality in the markets, which is usually when shares become detached from their intrinsic value. Warren Buffett wouldn’t be nearly as rich as he is today if it weren’t for these kinds of periods.

Just think, anyone who took advantage of the volatility in the Afterpay Ltd (ASX: APT) share price over March would be sitting on gains close to 400% today.

Volatility never lasts, but the decisions you make during those times of high volatility do. Make them count!

More reading

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• How to invest $1,000 like Warren Buffett today

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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