Elixinol Wellness' core priorities to reignite US and UK businesses and integrate CannaCare as it fuels Canobo growth

Elixinol Wellness Ltd’s (ASX:EXL) (OTCQB:ELLXF) (FRA:E8M) core priorities are to reignite its US and UK businesses following the severe COVID-19 restrictions and integrate recently-acquired CannaCare into the Elixinol Group whilst fuelling the Canobo growth.  It is also targeting shifting its business to digital and optimise cost and margins as it transforms into a world-leading hemp-derived, natural health and wellness consumer products business.  The company, which has undergone a substantial evolution over the past 12 months, believes the management team’s strengthened strategic, commercial and governance capabilities positions it perfectly for the next phase in its development.  Formerly known as Elixinol Global Ltd, the rebranding is a natural but symbolic step in its journey of creating a global wellness consumer business that makes a positive contribution to people’s health, wellness and the planet.  ‘Digital first’ group The COVID-19 lockdown had some silver lining for Elixinol Wellness as it shifted into a ‘digital first’ organisation. The company said it did have an adverse impact on consumer foot traffic to physical venues, which impacted revenue growth, especially with its plans in traditional bricks and mortar retail markets. Its focus on building its e-commerce capabilities to ensure a direct consumer relationship has been rewarded, with e-commerce accounted for 33% of total group revenues in financial year 2020, up from 26% in financial year 2019. This trend has continued into the first quarter of financial year 2021, whereby e-commerce accounted for 40% of total group revenues. Relaunch of new Elixinol brand The launch of the new Elixinol brand in financial year 2020 enabled the company to leverage its CBD capabilities into the much bigger and more widely understood nutraceuticals and supplements categories. As a direct result of its brand relaunch and product innovation, it has seen greater retail acceptance, in particular in the UK, with new listings in Well Pharmacy, Boots Ireland, leading TV home shopping channels and Superdrug in the UK. Balance sheet Elixinol Wellness chair Helen Wiseman said: “On the financial front, our balance sheet was substantially strengthened through an oversubscribed capital raise completed in December 2020 and a commitment to tight financial control that yielded a much leaner rebased ongoing cost-base.” Following its substantial operational and corporate cost reduction program, which completed in June 2020, the company reduced its annualised cost base by 45%. It is also now well-funded, with $23.3 million in cash and virtually debt-free. Its EBITDA also improved significantly between the first half and the second half, despite lower revenues with a reduced cost base supporting a simplified strategy. Cost reduction program and higher margin business driving performance improvements. CannaCare acquisition In March 2021, Elixinol Wellness entered into a binding agreement for its subsidiary Elixinol BV to acquire CannaCare Health GmbH, a company incorporated in Germany for an upfront consideration of €9 million in cash and shares.  Upon attainment of financial year 2021 revenues of €12.9 million and 20% EBITDA, the maximum earn-out of €15 million is payable in Elixinol shares, taking the total potential consideration to €24 million.  The CannaCare acquisition will fast-track Elixinol’s revenue growth and accelerate its pathway to group profitability. It is targeting to complete the acquisition in July 2021. CannaCare, founded in 2018 and based in Hamburg, manufactures and distributes an extensive range of 20 CBD products produced in Europe. Its brand Canobo has very quickly established itself as the leading brand in bricks and mortar retail with a total of over 4,500 distribution points, including Rossmann - Germany’s #1 drugstore chain; Mueller; Budnikowski and individual pharmacies. Canobo’s product range consists of CBD oils, sprays and cosmetic products with many of these being organic. Its skincare range launch in April achieved extensive distribution and early re-orders, with Canobo skincare now Mueller’s bestselling new cosmetic line. The strategic rational & synergy opportunities include: Access to EU’s #1 growth market with leading consumer brand Canobo in 4,500 plus distribution points; Improved regulatory environment legitimising CBD as food product and driving wider distribution and consumer adoption; Profitable business with opportunity to positively contribute to cash generation; Opportunity to create pan-European CBD powerhouse and combined business; Cross-selling mutually exclusive and differentiated product portfolio; Access to fast-growing adjacent German-speaking markets; New cosmetics range offering access to new large-scale distribution; Integration of back-office and operations functions to reduce cost of doing business; and Improved buying power resulting in lower cost of goods sold (COGS). Agents of change As part of its transformation, the company has appointed Beata Silber as the global R&D and innovation director with effect from 24 May 2021 and Rob Hasselman as president of Americas with effect from 29 April 2021. Silber has been the global director R&D/innovation at H&H Group and the head of research & science comms at Swisse Wellness. She was also a research scientist at Nestle, Switzerland for nine years. Hasselman was the chief commercial officer at Present Life and the chief marketing officer at Ecofibre. Looking ahead Looking ahead to the next 12 months, the company is firmly focused on revenue growth and improving profitability. Wiseman added: “We envisage we will need to make some strategic investments in order to get the scale and reach we need to achieve this. “Our key markets for FY2021 will continue to be the US and Europe for Elixinol, and Australia for Hemp Food Australia (HFA). “In the US, we have adjusted the business and now have a strong team that is well-positioned to drive growth, while being ready to take advantage of any opportunities presented as a result of the market consolidation.” The company plans to appoint an independent board director in the US in the coming months to strengthen its in-market presence and network. The US will see its phase 2 business transformation under new leadership addressing new growth channels. In Europe, it plans to capitalise on the intense industry interest and market growth. “With rising consumer demand and an increase in competitors coming into the market, we need to be more aggressive to continue to build brand dominance and market leadership,” Wiseman added. It will close and embed the CannaCare acquisition, investing in a profitable growth agenda to meet the earn-out range. In the UK, it will reactivate national distribution post-COVID-19 lockdowns and activate Superdrug, Well Pharmacy and Alliance Healthcare post-UK’s Food Standard Agency (FSA) and NFA validation. In Australia, growing HFA’s number one position will remain the focus through increased product innovation and dedicated marketing strategies. Elixinol Wellness is also working on strategies to secure Australian distribution of Elixinol CBD products via the Special Access Scheme.