Zoetic International (LON:ZOE), the London listed vertically integrated CBD company, has today provided the following update on its operations.
Highlights
· Two major distributors in the US proposing to take on the Company’s Chill products
· Trials underway with contract manufacturers
· Launch of CBD gummies in the UK generating significant interest
· Company on track to commence sales of feminised hemp seeds, including outside of the US
· Recovery of funds from legacy business continues
Retail products
Chill in the US
Chew pouches remain the Company’s best-selling product by volume and the introduction of two new flavours, vanilla and peach, before the end of 2019 has continued the success of this product. In addition, Zoetic introduced two further blends (Mintz and Calm) to its range of Chill smokables.
Progress with Mr Checkout has surpassed expectations with one of its partners, AATAC (a US national association comprised of smaller buying groups), expressing interest in taking both the chew pouches and smokables for distribution to its convenience stores in Florida and the surrounding area. Brands represented by AATAC include Gulf, BP, Sunoco, Circle K and Chevron.
In addition, Zoetic has developed interest from New Age Beverages Corporation, a Nasdaq listed distributor of healthy, natural products. New Age Beverages’ supplies a number of well recognised brands including Nestea, Xing, Marley, Volvic and Coco Libre. New Age Beverages already distributes CBD and is interested in adding Chill’s chew pouches and smokables to its supply chain.
Securing an increase in manufacturing capacity has to date been an impediment to progressing with these distributors, but the Company is now pleased to announce that trials are underway to contract manufacture both the chew pouches and smokables. Furthermore, initial products from these trials have been of very high quality.
Retail prices for both products will remain in the sub-US$10 range and Zoetic will sell to the distributors at around half of that price. Depending on volumes, the Company expects to earn around a 50% gross margin.
Total stores represented by these two distributors are approximately 12,000. The Company’s realistic objective is to supply around 500 new stores per month, subject to customer demand and manufacturing constraints, and so management estimate that it is likely to take up to two years for products to be rolled out across the entire network. Zoetic has recently been selling between two and three packs of each of the chew pouches and smokables per store, per day, where they are currently stocked. However, these have been achieved with the products being placed on shelves with multiple other brands. Moving forward, the Company is introducing display cases which hold 48 of its products. These are typically placed on the sales counter and, by increasing brand awareness, management estimates that the introduction of these cases could potentially double daily sales given the prominence they give to the Chill brand and products.
Subject to concluding a successful trial with the contract manufacturers in the coming weeks, Zoetic intends to enter into contracts with both distributors with the target of supplying initial stores by the Spring.
Zoetic / Chill in the UK
The UK retail division now has 19 product lines following the launch of its CBD gummies this week. There has been a concerted approach to build brand recognition through targeted media campaigns and, since the beginning of 2020, the Zoetic brand has featured in the Times, the Sunday Telegraph, Easyjet’s in-flight magazine, Absolutely London, Spa Elemental, Styletto and Northern Life amongst others. Whilst it is too early to draw definitive conclusions, there has been an increase in online sales, as well as new wholesale customers, so it appears that the strategy is working.
It is the launch of CBD gummies that has generated most interest in recent weeks, including from certain retail chains, and the UK team have been focused on building interest in these product lines. These edible sweets are suitable for vegans and available in two flavour combinations, “tropical” and “berry burst”, and two strengths of 10mg and 25mg. As previously announced, the gummies also represent the Chill brand’s first introduction to the UK and Europe.
In the coming weeks, the UK customer website will be upgraded and relaunched as www.zoetic.com and the Company will continue to build its presence in the UK retail buying community, attending Natural & Organic Products Europe in April and Beauty UK in May.
Feminised seeds
Zoetic has successfully produced feminised hemp seeds and, assuming that further crops bring sufficient volumes and the quality of the seeds is high, the Company plans to start commercial sales in the coming weeks. In preparation for that, Zoetic has registered as a seed distributor in five US states and is also developing a bespoke website to advertise seed sales.
Zoetic’s strategy will be to focus on accessing newer hemp markets where it believes pricing will be more robust than in traditional growing regions. One significant development is that the Company has received enquiries from growers outside of the US and it is currently working on the feasibility of enabling supplies to them.
Recovery of funds from natural resources business
The process of recovering capital from the Company’s legacy natural resources business continues. As announced at the time of the interim results, the monthly revenue from the East Denver project, combined with a cost reduction exercise, has created a profitable natural resources division and consequently a determination by the Board to sell the assets at only a compelling price. Nevertheless, there remain a limited number of physical assets that are not essential to the operation of the division and plans are in place for these to be realised. The amounts are unlikely to be significant (a little over US$34,000 has been received so far this year for example) but the management team are conducting a thorough review so as to realise full value for shareholders. Of more significance are the various bonds lodged with state authorities. Approximately US$270,000 remains outstanding with US$50,000 expected imminently and the balance during the course of this year.
Trading on the OTC
Zoetic’s ordinary shares have been trading on the OTC in New York since November last year and a focus of the Company’s investor relations activity in 2020 will be to develop its profile in the US with the aim of building liquidity on the OTC. To that end, the Board has been examining different options and further details will be announced in due course.
Appointment of new financial adviser and broker
Zoetic is also pleased to announce the appointment of Allenby Capital Limited as its financial adviser and broker.
Nick Tulloch, Chief Executive of Zoetic, said:
“Our business continues to develop on all fronts and, although competition in the CBD industry shows little sign of abating, our strategy of leading with compelling branding is beginning to show signs of paying off. In both the US and Europe, our Chill and Zoetic brands are consistently well received and the fact that we now have interest in our range of Chill products from partners such as AATAC and New Age Beverages evidences the scale of the opportunity.
“The onus is now on us to deliver our products at high volumes and with no compromise on quality. We believe our switch to outsourced manufacturing will achieve this and our trials will be completed in the coming weeks following which our distribution contracts will get underway. In the UK, our Zoetic products continue to receive positive reviews and the launch of gummies under the Chill brand this week is already showing signs of being a success.
“I am also pleased to report the successful production of feminised seeds. Volume is important in this part of the industry and we will wait to produce greater numbers before formally launching our sales programme, but preparations are well underway and shareholders can look forward to further news shortly.
“We remain an early stage business with much to prove but I am pleased with the substantial progress we have made in a little over 10 months from a standing start. This has given us the belief that we can convert our branding and marketing efforts into significant sources of revenue.”
