ECS stock rises on $4.9 million Cannvalate supply deal

ECS Botanics Holdings has struck a deal worth more than $4.9 million to supply medicinal cannabis resin to Cannvalate.

Shares in ECS Botanics Holdings (ASX:ECS) have jumped more than 3% today after the company announced its subsidiary ECS Botanics MC will supply cannabis resin to Australian cannabis company Cannvalate.

The three-year deal is due to start within 12 months following commissioning of extraction equipment at ECS’s supply and tolling partner Sun Pharmaceuticals Australia’s facility.

The deal is forecast to generate ECS ~$592k in revenue over the next year after which there is a minimum obligation of ~$4.9 million over the remaining term of the agreement.

Cannvalate’s focus is on the later part of the medicinal cannabis value chain and has one of Australia’s largest networks of medicinal cannabis prescribing doctors, representing a significant share of the total prescribing market.

Cannvalate acts on behalf of The Valens Company (TSX: VLNS) in Australia, to manufacture medicinal cannabis through an exclusive arrangement with locally based Epsilon Healthcare Limited (ASX:EPN) who make the GMP medicinal products on the company’s behalf.

ECS to capitalise on stricter Australian quality standards

The Cannvalate deal reinforces the quality of ECS’s long term cultivation plan, and an increasing demand for Australian sourced medicinal cannabis products for the local and export market.

ECS is Australia’s largest grower of biomass for the extract market and recently partnered with Sun Pharma in a supply and tolling agreement to accelerate plans for the cultivation and extraction of competitively priced cannabis oils.

The TGA plans to enforce stricter quality standards on imported medicinal cannabis products in March 2022, which is expected to ensure a level playing field for domestic manufacturers versus importers.

ECS expects the revised standards will significantly increase demand for Australian grown and manufactured products over the course of the next 12 months, further enhancing the company’s growth prospects.

Furthermore, Europe has emerged as a major medicinal cannabis market, but increasingly seeks to work with suppliers meeting two key criteria: EU-standard GMP (Good Manufacturing Practices), and well-regulated production systems that meet international treaties.

With many producers in the established North American markets not meeting the criteria, European companies are switching to companies in countries with strong regulations, like Australia.

ECS expands production facilities as demand rises

ECS has struck several deals and has also been expanding its facilities this year. The company owns farms and medicinal cannabis facilities near Launceston in Tasmania and on the Murray River in Victoria for cultivation, processing and manufacturing its products.

The company has installed a further 2,100m2 of protected cropping enclosures at its Victoria site to meet growing demand and anticipated future orders.

In July the company secured a five-year agreement with Polish company Alivio Spolka for the supply of $4.5 million worth of GMP manufactured medicinal cannabis.

Supermarket giants Coles and Woolworths stock ECS hemp seed oil nationally. ECS has deals with distributors for their innovative wellness products which sees them stocked in many independent health and pharmacies around Australia..

ECS executive general manager, Nan-Maree Schoerie, said the latest Cannvalate agreement further highlights the company’s attractiveness as a supply chain partner to both global and local companies.

“We are delighted that Cannvalate and their partner Valens have selected ECS as their resin supplier and look forward to a long and rewarding relationship,” Schoerie said.

Cannvalate chief operating officer, Darryl Davies, said Australian businesses in the sector were increasingly working together which will further help with its growth.

“As the medicinal cannabis industry in Australia matures, we are now seeing niche businesses who excel at their own individual core competencies flourishing collaboratively,” Davies said.

“To see a transaction of this magnitude between industry leaders working harmoniously together is a glimpse into the future of the Australian medicinal cannabis industry.”

At the time of writing the ECS share price was up 3.31% to 3 cents.

This article was developed in collaboration with ECS Botanics Holdings, 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.