Zoetic International (LON:ZOE), the London listed vertically integrated CBD and natural resources company, has provided the following update on its operations and current trading.
Highlights
· Six new CBD products to be launched in the UK ahead of Christmas
· Two new flavours for chew pouches to be launched in the US
· Two new blends introduced alongside larger pack sizes of Chill smokables
· Introduction of the Chill brand to the UK
· Further distribution discussions in the US
· Successful harvest of outdoor crop
United Kingdom
The Company is working towards launching six new CBD products for sale before the end of 2019, all of which are expected to be available for sale ahead of Christmas.
Cosmetics
The Company has been developing a range of cosmetics and beauty products, and its initial launch comprising a hand cream, night cream, facial serum and lip balm is expected to be available for sale in the first week of December. Assuming the success of these products, Zoetic plans to further develop this range, with further product launches planned during 2020.
Softgels
Also expected to be available for sale in the first week of December are softgels. Similar to the Company’s oral tinctures, these are oral capsules which will be available in two strengths of 10mg and 30mg with each being sold in packs of 30 softgels. The softgels are suitable for vegans.
Gummies
During December, Zoetic plans to commence sales of CBD gummies. These edible sweets will also be available in two strengths of 10mg and 25mg and will be sold in four assorted flavours. Significantly, the gummies will be sold under the Company’s “Chill” brand and this will be that brand’s first introduction to the UK and Europe. The gummies are also suitable for vegans.
Massage oil
The Company’s massage oil that has been on sale since October has been very popular and so the management team are exploring ways to broaden this range. New products are likely to be introduced in early 2020.
Marketing
In line with these new product launches, Zoetic is expanding and upgrading its marketing programme. This includes:
· Launch of an affiliate marketing programme (already live in the UK and with the US to follow)
· Upgrades to the UK customer website www.zoetic.uk.com (in progress)
· Attendance at UK/European trade shows during 2020
United States
Chill
Chew pouches have rapidly become the Company’s best selling product by volume. At present, these are available in mint flavour, but Zoetic has been developing and testing other flavours with the expectation of adding two new flavours, vanilla and peach, to the range before the end of 2019.
Preparations for the trial with Mr. Checkout are complete and Chill products will shortly be available through certain of Mr. Checkout’s distribution partners. Based on correspondence with Mr. Checkout to date, management is optimistic about the outcome. In addition, the Company is in discussions with a further major distributor in relation to the chew pouches. These discussions are currently at the contract negotiation stage and, assuming a satisfactory conclusion, will provide the Company with another valuable outlet for its lead product.
In light of this potential high demand, Zoetic has reviewed its manufacturing capability. If both of these distributors proceed as expected then demand may exceed the Company’s existing manufacturing capacity. To ensure there is no disruption to supply, management has started exploring solutions and these may include either outsourcing some manufacturing or expanding its in-house capacity.
As previously announced, the Company will be trialling larger pack sizes of its CBD smokables and the management’s expectation is that a pack size of 10 has more traction with end customers. That makes the product more comparable with tobacco product sizes and takes the smokables out of the novelty category and into mainstream, and potentially repeat, use. Alongside this trial, Zoetic is introducing two new blends to its range of smokables – “Mintz” and “Calm” – both of which will also be available for sale in December. Mintz is a mint-flavoured blend focused on the menthol smokers market and Calm is a blend of herbs designed to have a relaxing effect.
Outdoor crop
Harvesting completed in October and the plants have now been dried. The dry weight yielded is less than expected, but this is more than offset by quality of the crop, being at the top end of expectations, such that the overall value of the crop is very satisfactory. Although the Company has made a small number of sales of the biomass (which is the dried but untreated plant), Zoetic plans to use the vast majority of its outdoor crop in its own product manufacturing. Biomass prices are relatively low at present and, as the Company expands its operations and requires more raw material, it is far more economic to process the biomass for the Chill and Zoetic brands. Whilst this means the Company will forgo some short-term revenue from biomass sales, the longer-term impact on margins should be very positive and it supports Zoetic’s “seed to sale” strategy.
Feminised seeds
In anticipation of commencing sales of feminised hemp seeds next year, Zoetic has started developing framework arrangements with seed distributors in the United States and is now well positioned in this regard ahead of the growing season. The process of developing and curing the feminised seeds is taking marginally longer than anticipated and Zoetic now expects its first high quality feminised seeds to be ready at the beginning of 2020, having previously expected the seeds by the end of 2019. Notwithstanding this additional time, the Company remains on target to make its first sales ahead of the 2020 growing season and to reach maximum capacity at its indoor facility in DeBeque in the coming months.
Operating costs
Notwithstanding this expansion of activities in the UK, the Board continues to identify further cost savings such that the overall operating costs of Zoetic remain in line with the expectations set in the trading update announced on 4 October 2019. Further details will be provided at the time of the announcement of the Company’s interim financial results for the period to 30 September 2019, next month.
Commenting, Nick Tulloch, Chief Executive of Zoetic, said:
“The development of six new products in the UK has taken considerable effort from the team in both the UK and US. The primary target was to ensure that the cosmetic and beauty range was available for sale ahead of the Christmas period and I am delighted that we are on track for that. Furthermore, the impending launch of our first Chill-branded product in the UK is an important milestone. In conjunction with these product launches, we are upgrading and improving our sales and marketing capabilities in the UK and Europe and investors should expect to see several changes here in the coming months.
“In our US division, the popularity of our chew pouches is surpassing expectations. This has meant that we may need to address manufacturing capacity earlier than we expected, but it is paramount that we are able to meet demand and the team in the US are already well advanced in examining options in this regard. In the meantime, as we look forward to commencing sales of feminised seeds next year, our outdoor farming operations have produced a successful outcome and we are now positioned to manufacture products with our own source of CBD.”
