Elixinol Wellness returns to growth in June quarter as it seeks to expand existing markets and new growth drivers

Elixinol Wellness Ltd has returned to revenue growth, finishing the quarter with the best revenue recorded in June since October 2020, led by its Hemp Foods Australia business, up 19% from the previous quarter.  The company ended the June quarter well-funded with A$19 million in cash to support its growth strategy.  With revenue growth returning, a steadily reducing cost base and further optimisation initiatives on foot, it is well-positioned to take advantage of an improving outlook in its key market.  Going forward, the company plans to shift its focus to driving growth in the Americas and Australia as well as continue to seek merger and acquisition opportunities. Investing in new growth drivers   Due to a changed German market outlook and rapidly intensifying competition, the mutual decision was made to terminate the acquisition of CannaCare during the quarter. With the A$5.5 million cash that would otherwise have been invested into this transaction, the company now has the option to invest into new growth drivers. Q2 numbers In the quarter, Elixinol reported revenue of A$2.5 million, led by Hemp Foods Australia, despite continued COVID-19 impacts in key markets. Operating cash used during the second quarter, excluding non-recurring costs was A$3.3 million, down 8% from the previous quarter, and improved compared to the A$6.2 million recorded in the second quarter of 2020. Hemp Foods Australia’s growth trajectory was led by newly gained national distribution, growth in export sales and solid ongoing e-commerce performance. In the quarter, a second HFA product was listed in Costco for distribution and a new Asian export customer for HFA’s Hemp Gold Seed Oil has been onboarded, further contributing to the quarter’s growth profile. On the back of continued investment in its digital capability, HFA’s e-commerce channel has also experienced continued growth, up 8% for the quarter and up 50% year-on-year. The appointment of Health House International in June as exclusive distributor for its medicinal cannabis products formulated for the Australian pharmacy channel delivers on the company’s strategy to create a global wellness business by accessing the growing Australian market and utilising the Hemp Foods Australia business and corporate head office capabilities to grow the local business.  In light of the Health House Agreement, Elixinol decided to terminate its distribution agreement with PharmaCann Pty Ltd. June best revenue month Elixinol global chief executive officer Oliver Horn said: “Having worked hard to improve our business fundamentals, we are very pleased to return the business to growth during the June quarter. “Importantly, we finished the quarter strong, with June being the best revenue month since October 2020. “Our group-wide focus on servicing digital consumers via our growing e-commerce channel has progressed well and continues to contribute to our growth and profitability." Elixinol Americas returns to growth “We are also seeing the American CBD market conditions improving with retail footfall and consumer acceptance of CBD increasing," Horn said. “Having focused extensively on building new capabilities and right-sizing our cost base, we are pleased to see the Elixinol Americas return to growth, reporting a 4% growth over the March quarter.” Factors driving growth included the opening of bricks and mortar retail distribution and e-commerce performance. E-commerce represented 59% of Americas' revenues and delivered robust performance improvements throughout the quarter. Significant progress was also made in further reducing operating costs throughout the quarter, with a new organisational structure expected to generate a further $1.6 million of annualised savings over the recent major cost-out program. Throughout the quarter, the Americas' business also progressed the transition towards a fully outsourced supply and capital-light model, which is expected to be completed by the first quarter of  FY22. Elixinol Americas is now operating on a much lower cost base with increased margins leading to significant profitability improvements. The reset Americas' business is now under new leadership, has a robust e-commerce baseline trend emerging, and further supply chain optimisation initiatives are on foot to contribute to an overall improving outlook. Although the CBD category has not yet returned to pre-pandemic levels,  recent market data shows an improving market and category outlook. The company Is seeing an increasing consumer acceptance and use of CBD products, combined with improving retail foot traffic, with multiple congressional bills are in process to accelerate positive regulatory change. Hope for regulatory clarity in UK Horn continued: “Although not yet material to our group revenues, Elixinol Europe disappointed and lagged due to continued impacts of COVID-19 on footfall into physical venues. “CBD continues to be a high-priced novel purchase and UK consumers have curtailed discretionary spending in favour of essential staples. “Furthermore, major UK retailers are reluctant to engage with the category until the Food Safety Authority publishes a list of CBD products, which are supported by valid novel foods applications. “As a result of these long-suppressed UK trading periods and the lack of regulatory clarity, a glut of competitor products is now available at clearance pricing. “We hope to see the regulatory landscape become clearer in the near term." Under its European Industrial Hemp Association (EIHA) Novel Food consortium membership, Elixinor successfully submitted its Novel Food Application, which allows products to remain in distribution whilst the UK Food Safety Authority (FSA) processes applications. However, despite industry expectations, the FSA has not been able to process Novel Food Application submissions, leaving brands and retail customers uncertain which products will be able to remain in distribution. Due to COVID-19 and the lack of regulatory clarity in the UK, the European business reported lower revenues for the quarter of $117,000, down from $215,000 in the first quarter. The company will continue to engage with the FSA through this process via the EIHA consortium. In the meantime, Elixinol Europe is reducing consumer price points and lowering operating costs to navigate through this challenging period.