Is Elixinol Share Price a Buy after Institutional Placement?

Global cannabis producer Elixinol Global Ltd’s [ASX:EXL] share price took a tumble this morning, losing 5.15%, or 22 cents to trade at $4.05 per share. The company’s share price has gained strong momentum over the past 12 months, up 153.12%, but the share price has tanked heavily since the end of May.

EXL is a global distributor in the cannabis industry, selling hemp-derived CBD dietary supplements, hemp food and wellness products, as well as being involved in the cultivation and manufacture of medicinal cannabis products.

Cap raising resets EXL stock price

Shares in EXL entered a trading halt yesterday, pending news of a proposed institutional cap rise. In an announcement made this morning, EXL said it will issue approximately 12.8 million shares at $3.90 per share, representing an 8.7% discount to the closing price on Monday.

As of 2016, the market value for legal recreational cannabis and cannabis-derived products in the US was worth about US$1.9 billion. By 2025, it is estimated to be worth US$10.9 billion. According to New York-based investment bank Jefferies Group LLC, the global cannabis market could be worth some US$130 billion by 2029.

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This morning’s drop has reset the share price back to where it was in late March. If we take a quick look at the graph below, we can see that while the moving averages have been diverging since the beginning of the year (indicating strong upwards momentum), we could be seeing this momentum start to cool.

EXL share price


Nevertheless, the cap raising puts the company in a strong growth position. EXL more than doubled its yearly revenue in FY2018 to $37.1 million (up 121%), boasting a strong balance sheet with net cash of $42.7 million as of December 2018. Today’s cap raise should see EXL flush was cash to comfortably scale its current operations.

CEO Paul Benhaim said today’s cap raising left Elixinol Global incredibly well-positioned for growth.

We are witnessing an unprecedented positive shift in consumer appetite for CBD and hemp derived products. Elixinol plans to double its current production capacity in the US. Further, by securing additional raw materials, the Company will be well positioned to accelerate the growth of Elixinol branded CBD products and strategic opportunities.’

Should you buy the dip?

While today’s share price does appear to be trading at a discount, I would be hesitant to jump on EXL immediately, as we could see the price continue to slide as momentum wanes.

Right now, it’s worth watching for regulatory developments both in Australia and abroad, as they are likely to have the largest impact on share price.

Part of EXL’s strategy for 2019 is to build medicinal cannabis business cultivation and manufacturing capability in Australia, which are subject to licencing approvals. Australia is slowly becoming more relaxed in its stance on medical cannabis, with Murray River Organics Group Ltd [ASX:MRG] announcing today it had been granted a license to grow low-THC cannabis in Victoria.

With demand for cannabis derived products growing in Asian markets, EXL has the potential to become among the top exporters to the region pending the appropriate licenses.


Ryan Clarkson-Ledward
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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