Weed Week: Cannabis stocks down almost 20% in 2023 but ECS Botanics showing resilience

NCV Global Cannabis Stock Index drops by 16.5% in 2023 as part of downward trend in recent years
As most ASX cannabis plays dropped in 2023, ECS Botanics saw its share stay in the green
ECS says it’s the only ASX-listed cannabis cultivator operating profitably, operating a capital-light B2B model

2023 continued to be a challenging year for cannabis investors with the NCV Global Cannabis Stock Index dropping by 16.5%. This decline is part of a larger downward trend, with the index having plummeted over 91% since reaching its peak in early 2021.

However, NCV is optimistic the sector could make a comeback in 2024 and react very favourably to the potential rescheduling if 280E taxation on American cannabis producers and sellers is wiped out.

This week Stockhead caught up with ECS Botanics (ASX:ECS) MD Nan-Maree Schoerie to discuss the challenges she sees facing the Aussie sector.

Situated on the Murray River in Victoria, ECS Botanics operates a pharmaceutical grade GMP standards facility that harnesses its prime cannabis growing climate.

While much of the ASX cannabis stocks fell in 2023, ECS saw its share price rise stay in the green, modestly up ~7%.Furthermore, ECS says it’s the only ASX-listed cannabis cultivator operating profitably.

ECS MD Nan-Maree Schoerie. Pic: Supplied (ECS)

Firstly, could you provide us with some background on ECS Botanics and explain your position within the medicinal cannabis space?

“We believe ECS Botanics is Australia’s lowest-cost medicinal cannabis cultivator and manufacturer,” Schoerie says.

“We employ progressive and innovative cultivation methods to produce EU-GMP standard cannabinoid products.

“Our focus has always been on long-term sustainability with our organic regenerative horticultural methods fundamental to this vision.

“We also process our products to EU GMP standards at our pharmacy-grade manufacturing facility, ensuring the highest pharmaceutical-grade quality able to meet the most stringent requirements.”

How has the evolving regulatory environment in Australia impacted ECS Botanics, especially in the context of medicinal cannabis?

“In 2016 when cannabis cultivation was legalised for medicinal purposes, the legal landscape in Australia underwent a significant shift,” Schoerie says.

“On one hand, the evolving regulatory environment has increased access to medicinal cannabis, offering individuals alternative therapeutic options.

“However, these regulatory shifts have also presented challenges for Australian exporters with Australia requiring a lower GMP standard when compared to the EU.

“As ECS Botanics is a global player selling to customers in Australia, the UK, Germany, Switzerland, and New Zealand we maintain strict adherence to EU-GMP standards, ensuring the highest quality and safety of our medicinal cannabis products that not only align but exceed Australian standards.

“This commitment has driven us to invest in refining our processes and infrastructure, positioning ECS Botanics as a reputable and quality-driven player in the medicinal cannabis industry.”

We’ve seen a lot of volatility for cannabis stocks in the Australian market, with several notable companies exiting. Can you elaborate on how ECS Botanics has managed to remain a profitable cultivator and navigate the challenges stemming from the initial cannabis bull rush on the ASX?

“I believe the key to our success has been our decision to adopt a capital-light business-to-business (B2B) model, which is also energy efficient and sustainable,” Schoerie says.

“We believe this is the reason why we are the first, and currently only, listed medicinal cannabis company to become profitable.

“This strategic and resilient business model is optimised for maximum efficiency.

“A few years ago medicinal cannabis product prices were very high but like all emerging industries the price has normalised.

“We started the company knowing that we had to be competitive when market prices dictated a more realistic price point.

“In addition, with a vision for the future we elected to use sustainable and organic farming practices with low production costs, ensuring we were well positioned to manage increasing energy costs and different consumer preferences.

“Over the past financial year, ECS secured major contracts both domestically and internationally, worth nearly $50 million.

“These contract awards demonstrate our competitiveness and ability to form key partnerships in the sector without the burden of debt that some in the industry face.”

How important is it for ECS to be licensed by the Australian Therapeutic Goods Administration to manufacture EU-GMP certified products?

“It is a key benefit that ECS is licensed by the TGA for the manufacturing of EU-GMP Medicinal cannabis products, as this is a requirment for export to the UK and EU,” Schoerie says.

“This standard ensures ECS maintains the highest pharmaceutical grade quality in its production processes, guaranteeing the quality of medicinal cannabis products for consumers.

“It also further establishes ECS as a reputable player in the industry, as one of the few producers authorised by the Australian regulatory authority for PIC/S GMP certified products.”

You say your manufacturing facility is pharmacy-grade. What does this actually mean?

“This distinction means that the facility employs sophisticated clean room facilities equipped with advanced technologies to maintain precise control over humidity, temperature, and air quality,” Schoerie says.

“By adhering to pharmacy-grade standards, we ensure a controlled cleanroom environment with strict batch document control throughout the manufacturing process.

“Many of our patients have serious medical conditions and are immunocompromised, these measures ensure the purity of ECS’s medicinal cannabis products.”

What advantages does ECS have over indoor farm producers?

“ECS holds a distinct advantage over indoor farm producers through its strategic use of outdoor broad-acre cultivation methods, which offer the lowest production costs with higher yields for use in extraction to produce of medicinal cannabis oils,” Schoerie says.

“For our medicinal cannabis flower ECS uses protective cropping enclosures which also leverage sunlight and optimal soil biology whilst protecting the flower from the environment.

“It is this symbiotic relationship with sun and soil, which contributes to a more efficient and cost-effective production of premium quality cannabis flower with a high terpene content.

“We are also very proud that this commitment to sustainable cultivation results in a reduced carbon footprint and decreased energy consumption compared to indoor cultivation methods.”

How is ECS Botanics broadening its business model beyond the cultivation and sale of B2B cannabis?

“Our most recent initiative to expand our product portfolio has been to incorporate a B2C offering, a move intended to reach a wider consumer market,” Schoerie says.

“We secured a 10-year licence to utilise the innovative drug delivery system VESIsorb, positioning us as a technology leader in pharmaceutical-grade medicinal cannabis oils.

“VESIsorb increases the bioavailability of cannabinoids by 400%, making it substantially more cost-effective and absorbed three times faster by users than current methods.

“These products will be marketed through our own sales network, establishing a more direct connection with end-users as consumer preferences evolve.”