ECS Botanics (ASX: ECS) has made an assertive commercial move within the blooming Australian hemp industry after the agribusiness announced a strategic investment into TAP AgriCo, a grain handling, marketing, storage and export packing facility in Tasmania.
The two companies have agreed that ECS will invest an initial $750,000 in TAP AgriCo for a 28.4% stake in the business while also securing a call option to increase this stake to 34.6% on the same terms, should ECS decide to do so.
According to ECS, TAP AgriCo is a profitable business that is locally owned and receives substantial support from local growers including cereal and oilseed producers.
As an agribusiness, ECS is able to grow, supply and manufacture industrial hemp for the Australian market through a Queensland grower licence.
Additionally, the company is pursuing a medical cannabis licence to further bolster its market capabilities.
Industrial hemp bloom
The hemp industry is currently blooming at a rapid pace following multilateral legislative changes that have made the plant a commercially viable entity in countries such as the US, Canada and Australia in recent years.
As a prime example of how quickly industrial hemp is making a market comeback, the US made a federal decision to legalise hemp in December last year via the so-called Farm Bill.
Small Caps first reported on the news in June 2018 following a landslide vote in favour of legalising industrial hemp by 86 to 11 in the US.
The Bill enabled US authorities to remove hemp from the Schedule 1 list of controlled substances, thereby making hemp a standard agricultural commodity which can be grown and sold without fear of criminal prosecution.
Industrial hemp was once the main contributor to creating a large proportion of household items including building materials, plastics, composite materials, clothing, nutritional supplements, food, fibres, rope and even biofuels.
Hemp is not psychoactive which makes it an excellent “multi-tool plant” that’s already worth close to US$700 billion (A$1 trillion) on a global scale.
In Australia, hemp cultivation was banned in 1937 on the back of drug cultivation fears, but with the growing acceptance of cannabis and its own newly-found legal position – industrial hemp is making a second coming in both the US and Australia.
ECS market move
ECS’s investment into TAP AgriCo comes at a critical time in the growth of Tasmania’s hemp industry.
The rationale behind the investment is that the funds will be used to purchase key infrastructure including a hemp seed dryer, storage and handling equipment which will underpin the expansion of ECS cultivation along with other hemp producers in the state.
In Australia, hemp was made legal in November 2017, although given the differing stance on the cannabis plant in comparison to the US, extracts from leaves and flowers are still considered a controlled substance nationwide.
Despite the differing rates of legislative softening, Australia’s cannabis industry is prospering with dozens of companies coming to the fore to produce cannabis on a commercial scale.
“We are very excited to be working with the TAP AgriCo team to execute on a shared vision and significant opportunity at a time when Tasmania requires key infrastructure and capacity to support the expansion of the hemp industry,” said Alex Keach, chief executive officer of ECS.
“This investment enables ECS to position itself ideally for anticipated developments and growth in the local industry,” he added.
Retail food distribution
ECS has also signed a retail food distribution agreement with Eden Foods for its range of retail food products.
The distribution agreement will see the ECS range, which includes hemp hearts, hemp seed oil, capsules, curry sauces, soups and protein mixes, offered to the Eden Foods network of retailers in Tasmania.
Eden Foods is currently focused on intermediation between food manufacturers and consumer-facing entities such as IGA, gourmet shops, confectionery shops, hotels, restaurants and cafes.
ECS said that given Eden Foods’ core focus of representing food manufacturers to the range of customers in the Tasmanian marketplace, ECS could potentially extend its commercial reach and thereby improve upon its overall sales volume in the Australian market.