Algae.Tec is weeks away from planting its first crop of the very hipster sounding “heirloom cannabis varietals”, as it retreats from algae-based biofuels.

Algae.tec (ASX:AEB) announced last week its first 10-acre medicinal cannabis crop in Uruguay was expected to deliver 1000kg of oils, seed extracts and fibre products.

“Uruguay is the only jurisdiction in the world that currently allows commercial registration of cannabis cultivars without the cumbersome and limiting restrictions on THC and cannabiniod content,” a company statement said.

“This will be a key pivotal difference in Algae.Tec’s position in the medicinal cannabis market.”

The crop is a partnership with Winter Garden Biosciences — a Uruguayan cannabis grower that was until recently an acquisition target of suspended ASX gold explorer International Goldfields Limited (ASX:IGS).

IGS reported last month it was pursuing Winter Garden — also known by its Spanish name Jardin De Invierno — for a refundable $212,000 deposit and considering “legal action in Australia and/or Uruguay to recover these outstanding monies”.

Stockhead has contacted Alge.tec for comment several times without success.

Algae.Tec started out as a biofuel company but in 2013 refocused on algae nutraceuticals — products derived from food sources but with supercharged nutritional value.

It was a smart move — recent research indicates algae-biofuel is a losing game.

A recent report from Britain’s Swansea University shows the amount of biofuel gleaned from algae is the same for other plants such as corn: about 5000 to 10,000 litres per hectare per year.

The report’s co-author, professor of biosciences Kevin Flynn, believes the more algae you have, the more the individual organisms shade each other from the light they need to grow – defeating attempts to scale up.

Professor Flynn told Stockhead that while these issues would effectively kill the algae biofuel industry, they wouldn’t affect nutraceuticals.

“Anything to do with pharma and/or food would command much higher prices and also demand high quality controls,” he said by email from Norway.

“These would thus justify consideration of photobioreactor technologies, where everything is controlled.

“Photobioreactors have potential for being about ten times more productive per square metre of space [but] they would not be a viable option for biofuels.”

Algae can be grown in an open pond or inside a photobioreactor. Algae.Tec uses the latter.

The cost of cultivating algal biomass for biofuel was 10 to 20 times too high for commodity fuel production – particularly in a era of low oil prices, the International Energy Agency reported in January.

The agency called the algal industry overhyped, and based on “a few” overly-optimistic reports with still-unproven claims.

As a result, companies such as Algae.Tec have shifted into the $205 billion nutraceuticals market, and selling algae for animal feedstock.

Getting into the green

In May, Algae.Tec announced its foray into the $6 billion medicinal weed business, licensing its proprietary LED lighting technology to Winter Garden.

Algae.Tec believes it can lower the cost of growing a marijuana plantation by 60 per cent. It says Winter Garden’s heirloom varietal crop are genetically unaltered so they have greater cannabinoid yields and require fewer pesticides, herbicides and fertiliser — unlike nearly all genetically modified varieties found in North America.

The deal was contingent on Algae.Tec raising at least $4 million. An $8 million rights issue launched in July got over the line this month with $5.45 million.

Algae.Tec was now in a position to “commence planting of crops and research into new products that will fast track revenue generation and growth,” Algea.Tec chief Peter Hatfull said in a statement.

“The combination of increasing sales of algae nutraceutical products with the sales of cannabinoid products takes the company into an exciting future.”

The big biofuel promises of pre-2013 are still part of Algae.Tec’s portfolio, but the company’s shareholders have not bought into the move. The stock has been in decline since listing in 2011.

Since the rights issue the stock has traded at the bottom of its 52-week range of 3c-6c. Indeed, it’s the lowest the stock has been since another dip in 2015.

But with $102,000 cash in the bank and an expected $1.2 million in spending due this quarter, the cash injection has been very welcome.