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Zoetic International makes rapid progress with CBD business

Snapshot

  • Zoetic in 2019 moved fully to focus on hemp growing and production of consumer CBD products 
  • In process of selling legacy natural resources assets
  • Registered as a hemp seed distributor in five US states
cannabis plants

Quick facts: Zoetic International PLC

Price: 7.25 GBX

LSE:ZOE
Market: LSE
Market Cap: £13.47 m
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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 Oil’s 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. In November it listed on the OTC in New York.

In March, the company said that its distribution partners “remain very supportive” despite volatility during the coronavirus outbreak.

CBD

In the US, Zoetic has attracted interest from companies such as Mr Checkout, AATAC and New Age Beverages.

Chill chew pouches are its best-selling products.

In the UK it launched CBD gummies in February following targeted media campaigns, appearing on publications such as the Times, the Sunday Telegraph, Easyjet's in-flight magazine, Absolutely London, Spa Elemental, Styletto and Northern Life.

The company is planning to start selling feminised hemp seeds between February and March.

In preparation for that, Zoetic has registered as a seed distributor in five US states and is also developing a bespoke website to advertise seed sales.

During May, the company said predicted that distribution agreements agreed and that it is close to signing will lead to a “substantial increase” in sales of its Chill products in the US market.

This was followed by news that the company had also filed US patent applications the method of manufacturing its tetrahydrocannabinol (THC)-free Chill CBD products.

Zoetic said it believed CBD may play “a rapidly increasing role in smoking cessation aides” and that its Chill branded tobacco-free, THC-free and nicotine-free products were “well-placed to take an increasing share of this market”. The company noted that, if issued, the patent will provide it with “a protected market-leading offering”.

Natural Resources

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 CBD.

The East Denver project brings in monthly revenue, while there is US$270,000 outstanding in bonds lodged with state authorities. Of these, US$50,000 are expected imminently.

In May, the company signed a deal with Path Investments PLC to sell its 75% interest in DT Ultravert (DTU), a method for hydrocarbon well stimulation and protection, as well as its nitrogen assets in Kansas.

The cannabidiol (CBD) products firm said under the deal Path will issue Zoetic with 15mln new shares together with warrants to subscribe for a further 15mln Path shares at 1.5p each at any time between the first and third anniversaries of the completion of the transaction.

Path has also agreed to pay Zoetic royalties equal to 5% of all gross revenues derived from the DTU technology attributable to the 75% interest in perpetuity.

The firm added that the exit from its legacy natural resources business will help it achieve material cost savings during the current year compared to the year ended March 31, 2020.

Zoetic also filed a second unrelated patent application relating generally to drug compositions and specifically to compositions in which an active ingredient is physically mixed and/or chemically bonded with a cannabinoid to form a prodrug, such that the cannabinoid modifies a pharmacodynamic or pharmacokinetic profile of the active ingredient.

 

What the bosses say: co-CEOs Antonio Russo and Trevor Taylor

Commenting on the patent filings, Russo said in a statement: "The filing of the smokable non-provisional patent is yet another step in Zoetic's journey to lead the industry in innovation and product development.  We believe there is a major shift in how tobacco users will make the transition from traditional tobacco products.  We believe our first-mover position will have substantial benefits as other competitors begin to enter the market".

Fellow co-CEO, Trevor Taylor, added: "Although, our primary focus in the US has been on the Chill branded product lines, we believe it is important to continue to develop other cannabinoid related products that will serve other parts of the emerging market. The combination of cannabinoids with other drug compositions may prove to be a pivotal breakthrough in the science of drug efficacy."

 

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Inflexion points

  • Harvests of its feminised hemp seeds exceeded expectations
  • Royalties from legacy natural resources assets
  • Increased sales of Chill products

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