The company detailed its game-changing strategy, with plans for a major scale-up of its Tasmanian cultivation operations.
Cannabis producer ECS Botanics (ASX:ECS) has made its scale-up intentions clear with an important market announcement this morning.
The Tasmania-based company confirmed that it has lodged plans with the federal Office of Drug Control (ODC) for a major expansion of its cultivation area – the next step to position itself as Australia’s largest producer of low-cost cannabidiol (CBD) extract.
The expansion will see ECS expand its operations from the existing 2,500sqm facility to a large-scale growing area comprising 320,000sqm. 100 times greater than its current licensed production in Tasmania.
And speaking with Stockhead, managing director Alex Keach highlighted the company’s opportunity to create a large-scale, low-cost production hub that meets two key criteria.
Firstly, the capacity to meet the current cost and quality demands of the global CBD market. And secondly, the opportunity to capitalise on the competitive advantages unique to the Tasmanian environment.
Markets evolution
More broadly, Keach said larger operations are crucial to get a market advantage as the cannabis sector matures.
“You’ve either got to be a boutique play or you’ve got to have major operations — there’s no room in the middle,” he said.
“It’s about economies of scale and product range. That’s when big global clients will deal with you because they know they can easily meet their supply requirements, with a major producer that’s GMP (Good Manufacturing Practices) certified.”
And with its expanded facility, ECS is gunning for a first-mover advantage in the next phase of cannabis markets, where CBD is increasingly used as an active pharmaceutical ingredient (API) for over-the-counter (OTC) products as well as clinical research.
“This expanded model wasn’t around back in 2017 when the Australian cannabis industry was established,” Keach said.
“No one seriously considered a large-scale global approach. We’re ideally positioned to do it, partly because of our existing IP and agriculture capability, but also because the market in general has transitioned to where CBD is increasingly being used as a pharma ingredient.”
‘Global epicentre’
Along with global market demand, the ECS project also has the potential to make Tasmania the “global epicentre of high quality, low-cost cannabis production”, the company said.
A key part of the ODC application is that ECS has already generated significant intellectual property with the previous design and build of a commercial cannabis crop and licensed processing facility.
With its major scale-up, ECS is looking to replicate the integrated commercial pathway of Tasmania’s globally recognised poppy industry, which supplies around 50 per cent of the world’s raw material for pharmaceutical narcotics such as morphine and codeine.
“The poppy model in Tasmania is big business. It’s all grown outdoors in broad acreage and then manufactured into pharmaceutical ingredients,” Keach explained.
ECS is “applying this way of thinking with a similar model for the cannabis industry”, which will be the first of its kind in Australia, the company said.
Using what Keach described as an “industrial agricultural” model, the company will be able to reduce per-unit cultivation costs from around 60c per gram to just 20c p/g.
And aligning its model with Tasmania’s poppy sector, the company will be positioned as a premium Australian producer and supplier of choice to global clients, just as the size of the market takes off.
Citing research from Data Bridge, ECS said the European market for CBD oil is expected to grow at a compound annual growth rate of 36.7 per cent through to 2028 with “increased usage in pharma, nutraceutical, food and beverages”.
It all adds up to a bold “blue sky” play to effectively serve an industry that’s “now becoming bigger and smarter”, Keach said.
“We’re positioning to be that big global play. It’s as much about the scale but also about the quality and being able to meet GMP standards.”
“That’s why Australia is viewed so favourably by Europe, because they have very high standards as well.”
“This expansion plan is big thinking and a first in Australia, it will enable multiplication of revenues while becoming a world class cultivator and manufacturer,” Keach said.
This article was developed in collaboration with ECS Botanics, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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