25% Revenue Growth – Positioned Well to
Capitalize on CBD and Other Opportunities
TSX-V: HEMP
VANCOUVER, Dec. 22, 2017 /CNW/ - Hempco Food and
Fiber Inc. ("Hempco" of the "Company") (TSX-V: HEMP) today
announced its results for the fiscal year ended August 31, 2017.
2017 and Subsequent Operational and Strategic
Highlights
- Revenues: Fiscal 2017 revenues increased by 25% to
$6.5 million, as compared to
$5.2 million for fiscal 2016.
- Capacity: during the year, the Company commenced
development of its new hemp seed processing facility in
Nisku. Once operational, the
Company anticipates the new facility to have a capacity of 240,000
lbs per month.
- Sales channel development: during the year, the Company
launched a number of initiatives to develop sales channels for the
Company`s retail product line PLANET HEMP, predominantly in
Canada and the UK. Sales in
Canada are developing steadily,
while efforts to break into the UK market are in the early
stages.
- Diversification: during the year, the Company
worked on the development of new product lines, such as hemp
supplements for animal feed. The Company anticipates these products
will become a material contributor to growth in 2018.
- Partnerships: Hempco entered into a partnership with,
and received an investment from Aurora Cannabis. The partnership
positions Hempco exceptionally well to capitalize on the
opportunities for whole-plant utilization, including the extraction
of CBD, once the new Cannabis Act is adopted, among others through
Aurora`s strategic extraction partner Radient Technologies.
- Financing: Subsequent to August
31, 2017, Hempco raised a total of $5.65 million through a private placement with
Aurora ($3.25 million) and through
the exercise of options and warrants ($2.4
million).
- Management Change: Effective December 11, 2017, Diane
Jang was appointed as CEO, succeeding Charles Holmes, who continues to serve the
Company as its President.
- Strengthened Board: Steve
Dobler, President of Aurora Cannabis, and Allan Cleiren, COO of Aurora Cannabis, were
appointed to Hempco's Board of Directors.
Management commentary
"2017 was a transition year in which Hempco developed a number
of initiatives that position the Company exceptionally well to
capitalize on a number of major opportunities in the health food,
animal food supplements, consumer-packaged goods, and CBD markets,"
said Diane Jang, CEO. "Furthermore,
an increased recognition of the incredible versatility of the hemp
plant and its myriad of uses is creating a market dynamic that
creates additional opportunities for the Company to pursue. While
our temporary exit from the Korean market is expected to have a
short-term negative impact on revenue development, we are executing
on a growth strategy that involves both product and geographic
diversification, which we anticipate will more than offset the
impact of the Korean market. Our partnership with Aurora Cannabis
is a major development that we believe, through access to Aurora's
infrastructure, sales channels and growing constellation of trusted
strategic partners, will enable Hempco to accelerate its commercial
development."
Financial Review
A more detailed discussion of financial results is provided in
the Company's Management Discussion and Analysis, filed on
www.sedar.com
Net loss for the 12-month period ended 31
August 2017 improved by $0.7
million to $2.6 million, as
compared to a net loss of $3.3
million for same period in the prior year, due predominantly
to the one-time go-public expense in 2016.
Gross profit margin fell to 13.5% from 29.3%, attributable
predominantly to increased production costs at the Company`s
MacGregor facility and falling
margins in the Korean market where the Company was faced with
significant pricing pressure due to competitors offering inferior,
but lower-cost product.
Revenues
Revenues for the year ended August 31,
2017, were $6.5 million, an
increase of $1.3 million, or 25% over
fiscal 2016. Revenue growth was driven predominantly by strong
sales in Korea, offset partially by a fall in Canadian sales. The
U.S. market represents 33% of sales and continues to be an
important market for the Company. U.S. sales in 2017 were
materially identical to 2016.
Hempco implemented product improvement initiatives in 2017, and
will begin marketing its new SAFE quality assurance program once
its Nisku facility is up and
running, which management anticipates in the coming months.
Korea Contracts
The Company signed a contract with a
Korean company for the supply of $9M
of product over one year of hulled hemp seed nut. However, as
demand growth for hemp nut in Korea slowed during 2017, the market
was impacted by a large influx of inferior quality, but low-cost
product, resulting in loss of market share, and the contract was
terminated before being serviced in full. It is anticipated that
there will be a rebalancing in the Korean market with premium hemp
product regaining market share, upon which management anticipates
that the market will become viable again for Hempco to recommence
sales to Korea.
The Company is working to diversify its revenue base through
diversification and the entry of new geographic markets, new
product development, and using new sales channels in existing
markets.
Cost of Sales and Gross Profit
The cost of sales for 2017 came in at $5.7 million. The gross margin on the high-volume
Korea contracts fell due to competitive price pressure and was
significantly lower than gross margins for retail domestic sales.
Additionally, the achieved yield from raw materials was slightly
lower in 2017, resulting in increased costs, while increased
production costs at the Manitoba
facility also contributed to an overall increase in costs in 2017.
The Company anticipates that its investments in quality control on
raw materials and the commencement of operations at its new
Nisku facility will contribute to
a relative reduction in the costs of goods sold.
Expenses
Overall operating expenses in fiscal 2017 increased by
$0.6 million to $2.9 million due to the Company's growth and
operation as a public company. The increase was primarily a
result of the Nisku lease cost,
new hires, investor relations, marketing commissions, travel
expenses, R&D, and sales and marketing costs of the PLANETHEMP
CPG retail products initiatives in the UK and Canada.
Outlook
While the Company's temporary exit from the Korean market is
likely to result in a short-term decline in revenues, initiatives
to expand sales of bulk hemp products into other geographical
markets are expected to offset this in the later part of
2018. Sales of bulk hemp-based supplements for animals, newly
branded under the name Praise, commenced in late 2017 and are
anticipated to become a material contributor to growth in 2018.
The Planet Hemp CPG brand is growing steadily in Canada since its launch in fiscal 2017, with
the product line currently carried in over 70 retail stores.
Further retail expansion and new product innovations are expected
in 2018, to be showcased at the Canadian Health Food Association
Show-West in February, targeting natural/specialty food and grocery
retailers. Implementation of the Company's CPG e-commerce strategy
will also commence in 2018.
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 Act, expected to be
implanted in the summer of 2018, to start processing hemp for the
extraction of CBD oils. The Company estimates it will be able to
source in excess of 5 million pounds of 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 partnership with Aurora provides Hempco with a highly
visible partner. Leveraging of Aurora`s expanding infrastructure
and growing constellation of trusted partners, management expects
will contribute to the Company`s ability to accelerate its
commercial development into new markets and revenue streams.
The potential addition of hurd and chafe processing would move
the Company toward its vision of whole plant utilization, to the
benefit of consumers, farmers and shareholders.
About Hempco
For more than 12 years Hempco has been a trusted and respected
pioneer, innovator and provider of premier hemp seed foods. Hempco
is committed to developing hemp foods, hemp fiber and hemp
nutraceuticals, a "tri-crop" opportunity for producers and
processors. Hempco is expanding its processing ability to meet
global demands in a 56,000sq. ft. facility located at Nisku, Alberta. Hempco's common shares
trade on the TSX Venture Exchange under the symbol "HEMP". Hempco®
has grown its business significantly and is generating value and
profits for shareholders.
On behalf of the Board of Directors
Diane Jang
Chief Executive Officer
diane@hempcocanada.com
This news release includes statements containing certain
"forward-looking information" within the meaning of applicable
securities law ("forward-looking statements"). Forward-looking
statements are frequently characterized by words such as "plan",
"continue", "expect", "project", "intend", "believe", "anticipate",
"estimate", "may", "will", "potential", "proposed" and other
similar words, or statements that certain events or conditions
"may" or "will" occur. These statements are only predictions.
Various assumptions were used in drawing the conclusions or making
the projections contained in the forward-looking statements
throughout this news release. Forward-looking statements are based
on the opinions and estimates of management at the date the
statements are made, and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or
results to differ materially from those projected in the
forward-looking statements. Hempco is under no obligation, and
expressly disclaims any intention or obligation, to update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as expressly
required by applicable law.
Neither TSX-V, nor its Regulation Services Provider (as that
term is defined in the policies of TSX Venture Exchange) accept
responsibility for the adequacy or accuracy of this
release.
SOURCE Hempco Food and Fiber Inc.