Zoetic International, the UK’s only LSE listed vertically integrated CBD company, has released its interim results for the six months ending 30 September 2019. The group reported a loss of £4.0 million which reflects the start-up costs of the CBD business, a write down of exploration assets and an unprofitable Natural Resources business (which has now achieved profitability). However, more importantly these results show encouraging evidence that its CBD business is starting to gain traction and should be the main driver of business going forwards. With the brands established, management is now focusing on revenue growth.
Zoetic has evolved from being a natural resources business into a vertically integrated CBD business where it grows hemp, manufactures and retails CBD products. The group has seen an encouraging start to its CBD business since it launched in the US in June and in the UK in August. Although revenues are modest in this period at £36,000, the company is already adding new products and increasing its retail presence and we would expect to see these increase as its product gains traction over the coming months. The group is also preparing for the sale of feminised seeds in early 2020 ahead of the growing season which should have a major impact on revenues.
The group has been cutting costs in its Natural Resources business, with the most important being its East Denver oil and gas operations. This division has now reached profitability for the first time in the group’s history. This has given management the luxury of not being forced into an early sale of these assets since they are generating cash flow and so can wait until an offer comes in that reflects the value of the business. The Montana natural gas/helium business is expected to be closed in Spring 2020 at limited costs to the company. The company has previously announced that it has disposed of its water business, for no consideration, where it retains a 10% interest.
The financial results for the six months very much reflect the old natural resources business whilst CBD revenues start to grow. The loss of £4.0 million reflects the previously unprofitable Natural Resources business and the start-up costs of the CBD business. On top of this, there was a non-cash provision of £2.3 million on its exploration assets. Zoetic had cash balances at the end of September of £1.0 million. The company has pro-forma running costs of £2.5 million per annum and so the company’s cash resources should allow its cash to see it through for the remainder of the financial year by which time revenues from its CBD business should be coming through. The cash balances would also be bolstered should management sell off its Natural Resources business.