Hempco Reports Q3 2018 Results

Published: July 26, 2018

Hempco Reports Q3 2018 Results

Hempco Food and Fiber Inc. announced its results for the third quarter fiscal 2018 period ended May 31, 2018.

“We are very encouraged by the early successes of our strategy to expand our product offering, access new revenue streams and develop additional distribution channels across the globe,” said Diane Jang, CEO. “The momentum we are experiencing with our consumer packaged goods lines under the PLANET HEMP and PRAISE brands, we believe, will continue to strengthen throughout the year and contribute towards accelerated revenue growth. The shift in product mix towards product offerings with higher added value is starting to positively impact our margin profile. Completion of our Nisku facility, further diversification, differentiation, and channel development, as well as the implementation of the New Cannabis Act, we believe, positions Hempco well to deliver sustainable growth and profitability.”

Q3 2018 and Subsequent Operational and Strategic Highlights

  • Aurora Partnership: Aurora now holds 31,872,294 Hempco shares, or 52.5% of the issued and outstanding Hempco common shares, as at May 31, 2018. The partnership positions Hempco exceptionally well to capitalize on the opportunities for whole-plant utilization, including the extraction of CBD, under the new Cannabis Act from October 17, 2018 onwards, among others through Aurora`s strategic extraction partner Radient Technologies.
  • Revenues: Q3 2018 revenues more than doubled as compared to Q3 2017 due to the successful execution on the Company’s growth strategy related to the introduction of new products under the PLANET HEMP and PRAISE brands and the development of new distribution channels.
  • Capacity: Construction of the Company’s new processing facility in Nisku, AB, is nearly complete, Management anticipates the new facility to be operational this summer, which will add 240,000 kg per month in capacity. The added capacity and quality assurance programs and certifications will enable Hempco to pursue additional revenue streams, as well as target larger customers to drive revenue growth.
  • Diversification: During the year, the Company launched a number of new product lines, such as hemp supplements for the equine and canine market. The Company anticipates these products to become a material contributor to growth in 2018.
  • Sales Channel Development: The Company continued its initiatives to develop new sales channels for its retail product line PLANET HEMP. Significant initiatives include:
    • PLANET HEMP brand launched on Amazon.com and Well.ca,
    • New listings of the PLANET HEMP CBD oil product line with the largest natural foods distributor in the UK,
    • Secured new listings at Kane Vet., Canada’s largest and fastest growing animal/pet supplier,
    • New VP Sales started at the end of April; and
    • Continued new product development for the PLANET HEMP and PRAISE brands.
  • Balance Sheet Strengthened: Working capital of $6.2 million at May 31, 2018, providing liquidity for the implementation of Hempco’s strategic growth initiatives.

Financial Review

Net loss for the 3-month period ended May 31, 2018 came in at $1.0 million, a $0.2 million increase related to organizational investments to support and deliver growth going forward, as well as construction of the Nisku facility. Revenues of $1.1 million for the quarter ended May 31, 2018 increased by $0.6 million compared to the quarter ended May 31, 2017, due mainly to growth of sales in the United States and strong early growth across the Company’s new product lines PLANET HEMP and PRAISE.

The cost of sales for the three-month period ended May 31, 2018 came in at $0.8 million, resulting in a gross profit of $0.3 million. In comparison, cost of sales for the same period in the prior year was $0.4 million with a gross profit of $0.1 million. Overall operating expenses increased to $1.3 million for the three-month period ended May 31, 2018, as compared to $0.9 million for the same quarter in the prior year, related predominantly to staffing increases to execute the Company’s growth strategy and expenses related to the completion of Hempco’s new Nisku processing facility.  Non-cash stock-based compensation were higher, reflecting grants to incoming officers and directors.

Outlook

Hempco continued executing on its strategy to reposition the Company in the three months ended May 31, 2018, by focusing on three key initiatives:

  • Become a major supplier to the retail market of a well-diversified portfolio of health-related products through its premium brand PLANET HEMP, as well as to the animal feed supplement market through its newly launched brand PRAISE
  • Expand its bulk wholesale business through the development of a new facility in Nisku, Alberta
  • Become a supplier of CBD-based raw material upon the introduction of the new Cannabis Act, which received Royal Assent in June 2018, with commencement of adult consumer use sales on 17 October 2018.

The PLANET HEMP Consumer Packaged Goods (CPG) brand is growing steadily in Canada since its launch in fiscal 2017, with the product line currently carried by over 70 retail stores. Further retail expansion and new product innovations are expected in 2018. Expansion of distribution channels, targeting natural/specialty food and grocery retailers, is expected to deliver greater market penetration. Implementation of the Company’s CPG e-commerce strategy, commenced in 2018 with product launches on Amazon.com and Well.ca, two of the most heavily visited sales channels for natural health products, is anticipated to be another revenue driver.

The Company continues to work on the completion of its new hemp hurd processing capacity.  Once operational, this facility will extract fibers from the hemp “stalk” for sale into a ready market.  Hurd processing is anticipated to provide an additional revenue stream for both the Company and the farmers Hempco deals with.

One of the biggest recent developments for the hemp market is the anticipated ability under the new Cannabis Actto start processing hemp for the extraction of CBD oils. The Act was granted Royal Assent in June 2018. The Company will be able to source chafe for potential sale through its farmer contacts, which would benefit the Company, as well as hemp farmers and the Company`s partners, Aurora and Aurora`s extraction partner Radient Technologies.

The strategic partnership with Aurora provides Hempco with significantly increased visibility. Leveraging Aurora`s expanding infrastructure and growing constellation of trusted partners, management expects, will enable the Company to accelerate its commercial development by entering into new markets and generating new revenue streams.

The potential addition of hurd and chafe processing is part of Hempco’s strategic vision for whole plant utilization, which the Company believes will benefit of consumers, farmers and shareholders.

Overall, the Company is well positioned to capitalize on the numerous opportunities present in the various bulk and consumer packaged goods segments of the hemp market. Hempco is well-capitalized to execute on its strategy, and management anticipates that continued positive momentum in its various markets will contribute towards accelerated revenue growth and positive margin development.