What the company owns
Zoetic International plc (LON:ZOE) performed a major shift in direction in 2019.
Formerly known as Highlands Natural Resources, an oil and gas group with wells in Colorado, in March the company got into the CBD business and changed its name in August.
It has established CBD sales on both sides of the Atlantic with 67 US stores now stocking its products.
Its first retail distribution and sales agreement was with Schrader Oils chain of eighteen convenience and gas stores, which also invested £100,000 in the business as part of the deal.
These stores are stocking CBD products under the Chill brand, namely chew pouches and pre-rolled smokes.
How it is doing
The six months ended 30 September recorded revenues of £1.15mln, up from £0.52mln the previous year, and ended the period with £1mln in cash.
CBD[hhmc]
In the US, Zoetic said in November that a trial with distributor Mr Checkout was poised to go live via some of its 150,000 independent retail members, while talks are ongoing with another distributor.
The popularity of Chill chew pouches has been stronger than expected, so management has started exploring solutions to expand manufacturing capacity, which may include outsourcing some manufacturing or expanding in-house capacity.
Ahead of the festive season, the Chill brand was ready to launch six products in the UK, starting with CBD gummies available in two strengths and sold in four flavours from early December, as well as softgel capsules.
Chill beauty products will also be launched in time to go in Christmas stockings, including a hand cream, night cream, facial serum and lip balm, with further product launches planned for next year alongside a broadening of a massage oil range that has proven popular since going on sale in October under the Zoetic brand.
October saw the harvest of the 16-acre US hemp crop, with the dry weight less than expected but the quality said to be “at the top end of expectations”.
In light of low biomass prices, Zoetic decided to forgo some short-term revenue from selling dried but untreated plant in order to use the product for its own CBD production, with the longer-term impact on margins expected to be “very positive” and in line with the group's "seed to sale" strategy.
The company said it was well positioned to begin sales of feminised hemp seeds next year, with management working on developing arrangements with seed distributors in the US ahead of the growing season.
Gas production[hhmc]
Zoetic told investors in October that it was in discussions with several parties on the sale of its historic oil & gas assets as it looks to focus solely on cannabis and hemp.
Its East Denver assets, in common with most oil and gas projects, are slowly declining in line with others in the area and second half revenues are expected to be lower.
Management have been worked with the operator to manage operating costs and, whilst they have been reducing in recent months, the first half's shares was expected amounted to approximately £350,000 but with a fall predicted in the second half of the year.
DT Ultravert
The CBD business was spawned, in a serendipitous way, through Zoetic's ownership of a 75% interest in the economic value of a technology called DT Ultravert, which prevents well bashing and enhances well productivity.
The process involves the injection of nitrogen gas into an existing well at the same time as a new nearby well is fracked.
Zoetic enjoyed some early-stage success in deploying the technology but needed its own nitrogen supply represents one of the largest cost inputs.
As a result, it bought a nitrogen producing asset in Kansas in May 2018, which is also a naturally occurring source of hydrogen.
Given the volume of nitrogen produced at Kansas, the company realised it might create another revenue stream by becoming a supplier in its own right, as well as using nitrogen to improve its own crops.
A pilot project with a Colorado-based organic legal cannabis company surpassed expectations, with the gas mixture increasing plant size, height, root diameter and flower count by up to 30% and inspired the group to enter the CBD business.
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