Positive momentum from new initiatives
TSX-V: HEMP
VANCOUVER, April 20, 2018 /CNW/ - Hempco Food and Fiber Inc.
("Hempco" of the "Company") (TSX-V: HEMP) today announced its
results for the second quarter fiscal 2018 period ended
February 28, 2018.
Q2 2018 and Subsequent Operational and Strategic
Highlights
- Revenues: revenues for the quarter continue to reflect
the Company's temporary exit from the negative margin Korean
market. While bulk sales continue to be the main contributor to
revenues, a shift in product mix towards higher margin products in
the consumer packaged goods (CPG) and animal food supplement market
is starting to occur, with the Company's PLANT HEMP and Praise
brands showing strong positive momentum, now accounting for 11% and
8% of revenues, respectively.
- Capacity: During the quarter, significant progress with
the Company's new Nisku facility
was made. Management anticipates the new facility to be operational
this summer, which will add 240,000 lbs per month in capacity. The
added capacity, quality assurance programs and certifications will
enable Hempco to pursue additional revenue streams, as well as
target larger customers to drive revenue growth.
- Diversification: the opening of the Nisku facility will enable the Company to
target additional revenue streams, such as the fibre market.
Furthermore, the Company is working on a number of product
innovations that it anticipates launching in the coming quarters,
such as showcasing the PLANET HEMP CBD oil product line at the
Natural Expo Show in the UK on April
22 and 23, 2018.
- Sales Channel Development: The Company continued its
initiatives to develop new sales channels for its retail product
line PLANET HEMP.
-
- Subsequent to the quarter, the Company announced a distribution
agreement with Kane Vet, a supplier to pet stores (1,900) and
veterinarian clinics throughout the country.
- Additionally, 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.
- Aurora Partnership: The strategic investment by Aurora
has capitalized Hempco for the completion of its Nisku facility, as well as provide funds for
organizational development and innovations to develop new product
lines, increase the sales and marketing team, as well as launch
marketing campaigns. Subsequent to the quarter, Aurora exercised
its warrants, increasing its holding in Hempco to 35%, for proceeds
of $4.3 million, further
strengthening the Company's balance sheet.
- Balance Sheet Strengthened: In addition to the Aurora
warrant exercise, further warrant and option exercises resulted in
a total $5.6 million inflow of funds,
partially offset by cash flows used for operations. On a net basis,
the Company's balance sheet was strengthened by $4.4 million increase in total assets, providing
liquidity for the implementation of Hempco's strategic
initiatives.
- 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
"While we continued to experience the effects of the temporary
exit from the Korean market, as well as some customer transition in
the U.S., our strategic initiatives are starting to generate strong
positive momentum," said Diane Jang,
CEO. "We are witnessing encouraging growth of our CPG brand PLANET
HEMP, in part driven by greater consumer awareness of the benefits
of hemp as a food supplement and as an important source of
plant-based protein. The launch of PLANET HEMP on Amazon.com and
Well.ca, as well as a growing number of highly visible and
well-connected distributors are expected to drive continued growth
into Q2 and beyond. The support from our strategic partner Aurora,
the imminent completion of our Nisku facility, the pending change in
legislation allowing Hempco to pursuit a whole plant utilization
strategy and further product diversification, positions Hempco very
well to pursue the many opportunities in our markets, and we look
forward to reporting on our progress in the coming quarters."
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 3-month period ended February 28, 2018
came in at $0.9 million, a
$0.6 million increase due mainly to
lower gross profit resulting from reduced sales volumes. Operating
costs increased marginally by $0.1
million as the Company is investing in growth initiatives
related to its new product lines and its new Nisku facility.
Revenues
Revenues of $0.3 million for the
quarter ended February 28, 2018
decreased by $1.6 million,
attributable to the Company's temporary exit from the Korean market
and one major U.S. customer seeking alternative third-party supply,
offset partially by strong early growth across the Company's new
product lines PLANET HEMP and PRAISE.
Hempco's product improvement initiatives, launched in 2017, will
enable the Company to begin marketing its new SAFE quality
assurance program once its Nisku
facility is up and running. This will strengthen Hempco's brand
positioning and product diversification, as well it will allow for
the pursuit of larger customers.
Cost of Sales and Gross Profit
The cost of sales for the three-month period ended February 28, 2018 came in at $0.3 million, resulting in a slight negative
gross profit of $0.1 million. In
comparison, cost of sales for the same period in the prior year was
$1.9 million with a profit recorded
of $0.4 million. The negative
gross profit in the current quarter is due to the lower sales not
being sufficient to offset fixed costs and adjustments made for
slower moving product.
Expenses
Overall operating expenses increased to $0.9 million for the three-month period ended
February 28, 2018, as compared to
$0.8 million for the same quarter in
the prior year. Contracts related to investor relations and
corporate development were not renewed. However, lease and
personnel monitoring costs related to Nisku resulted in an increased contribution to
selling, general and administrative expenses, as compared to the
February 2017 quarter.
Outlook
Hempco continued executing on its strategy to reposition the
Company in the three months ended February
28, 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 currently is going
through the Canadian Senate
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, targeting natural/specialty food and grocery retailers.
Implementation of the Company's CPG e-commerce strategy commence in
2018 with product launches on Amazon.com and Well.ca., two of the
most heavily visited sales channels for natural health
products.
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
it 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
+1.604.431.8787
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.