At time of writing, the share price of Elixinol Global Limited [ASX:EXL] is up 1.45% trading at $3.50.
The Elixinol share price registered a small gain today after four straight losing sessions:
The company released its quarterly report today which outlined continued growth. However, this growth has occurred at a slower pace as it transitions to higher margin products.
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Elixinol share price rises on open, growth more subdued than previous quarters
The Elixinol share price rose as high as $3.60 in early trading, before settling lower.
These were some of the key highlights from the quarterly:
- Q2 FY2019 revenue of $9.9 million, 19% growth PCP, 18% QoQ
- Acquired 25% of Pet Releaf
- Raised $50 million to expand in the US
- Nunyara (Aussie medicinal operation) granted manufacturing license
- CBD Processor Authorisation in New York
- MedVec distribution agreement for German pharmacies
But this was perhaps the most important bit of info:
‘Elixinol Global has continuously reported strong quarterly sales growth compared with PCP. In the Company’s March 2019 quarterly update, it communicated its strategic decision to reduce focus on lower margin private label business in the US to enable increased capacity for expected future growth of higher margin branded products and provide the ability to capture further market share. Excluding this private label business, normalised revenue growth for Q2 FY2019 would have been reported at 38% on PCP (normalised revenue growth for H1 FY2019 would have been reported at 34% on PCP).’
As you can see below, their growth between 2017 and 2018 was more rapid than this year:
We note that they went through nearly $17.5 million in manufacturing and operating costs for $8.35 million in receipts from customers.
They still have a healthy cash balance of $48.1 million.
So there is a potential concern about how they monetise their diverse product range, with tapering revenue growth.
Outlook for Elixinol
We noted slowing momentum for the Elixinol share price at the beginning of June.
Since then, the share price has struggled to replicate its form.
There’s frequently a lot of emphasis placed by cannabis companies on value-added products as these are generally seen as higher margin.
And within value-added products there are varying levels of success.
As the company noted in this quarterly, it is seeking higher margin (branded) products, so this is encouraging.
Food for thought.
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For Money Morning