Motley Fool Opinion: Why Ecofibre is my top ASX cannabis pick for 2020

Motley Fool  write…….ASX cannabis shares are difficult to gauge as they sit somewhere in between rigorous innovation in product development, an emerging ‘landgrab’ opportunity and the struggle of translating growing revenues into a profit.

I believe Ecofibre Ltd (ASX: EOF) finds the right blend of translating revenues into profit, growing distribution channels and innovation. Here’s more on the company and what might be in store for 2020.

A closer look at Ecofibre Ltd

The company recently listed on the ASX at an issue price of $1.00 per share and comprises of three business segments – Ananda Health, Ananda Food and Hemp Black.

Ananda Health provides high quality hemp derived nutraceutical products to the US markets. Ananda Food provides guaranteed 100% Australian grown hemp food to the Australian market. And finally, Hemp Black is in its prototype stage and will provide sustainable hemp-based clothing and textiles to consumer and industrial segments.

What makes Ecofibre exciting is that it combines the aspects of a solid growing business through Ananda Health and Ananda Food, but also a more R&D, speculative side of the business through Hemp Black.

Ananda Health is investing in scale to develop a quality network of distribution partnerships to provide operational leverage. This segment is also focused on its own Ananda education platform to provide online training and observational studies to support pharmacists and practitioners. The company’s 2017/18 investment in production capabilities is paying dividends for the business, with over 50,000 kg of hemp processed for CBD oil in FY19. In the company’s FY19 full year results, it commented that “we have existing capacity to supply product to achieve multiples of our FY19 sales and expect further scale benefits. The regulatory environment is favourable and is expected to remain stable.”

Ananda Food has planted 705 hectares across Tasmania, New South Wales and Queensland with more than 900 ton of hemp seed available to support growth of the business. Ananda Food is currently supplying Woolworths Macro Brand with 100% Australian grown hemp food. The business commented that Ananda Food “will deliver its maiden profit as the awareness of hemp as a high-quality food grows. The business’ infrastructure can support much higher growth and scale benefits.”

Hemp Black is in an interesting position as it focuses on the development of five core textile products. This includes carbon infused high-performance fibre, water-based ink, vegan leather, polymer fibre and nano-film. Intellectual property has been developed and patents filed in partnership with Thomas Jefferson University.

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