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How high can it go?

Tim Boreham
Wednesday, November 21, 2018

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Elixinol Global (EXL) $2.09

The hemp producer is keeping a keen eye on Washington, not so much for the fallout of the mid-term elections but for progress on a long-awaited law to liberalise cultivation of the plants in “non psychoactive” form.

Even though hemp can be legally grown in 47 states, federal laws have classified the stuff as a controlled substance, even in low potency form (here, the federal government legalised hemp as a food in November last year).

Meanwhile, recreational weed is legal in states including California, where authorities have clamped down on outlets peddling hemp-infused products, such as bath bombs.

Go figure.

To address the glaring discrepancies, the US Senate recently passed the Hemp Farming Act Bill, which removes the plant from the controlled substances schedule, which means it will be regulated like any other agricultural commodity.

While Congressional argy-bargy continues over a peripheral issue about migrant workers, Elixinol founder and CEO Paul Benhaim expects an agreed law to be awaiting Donald Trump’s flourish early next year. Enactment would enable Elixonol – already the third biggest provider of hemp in the US – to advertise their wares openly and obtain easier access to bank funding.

Benhaim says the liberalised rules will open the way for giants such as The Coca Cola Company and pharmacy chain Walgreens to promote hemp-inclusive products.

“The market is likely to expand significantly,” he says. “But if it doesn’t go through we continue our revenue growth – 27 percent quarter on quarter – which is not bad for a worst-case scenario.”

Elixinol consists of three separate businesses: Hemp Foods Australia, the Colorado based medical hemp producer Elixinol LLC and the local fledgling medical cannabis business Elixinol Australia.

Elixinol’s subsidiary Hemp Foods Australia is Australia’s biggest supplier of hemp-derived food, while Elixinol itself does a brisk line in hemp derived cannabidiols for foods and skincare.

Developed with the help of a “holistic nutritionist”, Elixinol locally has launched a hemp-infused snack bar, Essential Hemp, in three flavours (salted caramel crunch, ginger macadamia turmeric and choc banana coconut if you really must know).

In the pantheon of ASX-listed cannabis stocks, Elixinol stands out as the only one producing recent revenue: $14.9m in the first (June) half and $10.4m in the third (September) quarter. The company posted a $600,000 underlying profit for the half.

Benhaim says the company remains profitable, although it’s spending more to enhance market share in the US, European and Japan (where it owns 50.5% of its local distributor).

In October, Elixinol raised a chunky $40m in a placement, having raised $20m at $1 apiece when it listed in January.

Benhaim has a 25-year history in the global hemp sector in industrial hemp legislation, cultivation, manufacturing and sales.

Benhaim has also penned nine books on hemp-related topics, so what he doesn’t know about that greenery is not worth knowing.

tim@independentresearch.com.au

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

Published: Wednesday, November 21, 2018


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