Managing Director, Alex Keach breaks down the demand dynamics for medicinal cannabis & GMP complaint products, as ECS Botanics Holdings looks to execute on a global market opportunity.
After a multi-year period of development, the pieces are now in place for Australia to become a global leader in the production, sale and export of medicinal cannabis, ECS Botanics’ Managing Director Alex Keach says.
And with its expanding production facilities and an established sales pipeline across Australia and Europe, ECS is positioned for a material step-change in revenues and profits.
Stockhead caught up with Keach earlier this month, where he provided details on the sector outlook and how ECS is emerging as a market leader in the space.
Regulation – why it matters
For cannabis regulators in Australia, the focus has always been on the controlled cropping , manufacturing and sale of medicinal cannabis, rather than the recreational (THC) sector.
That regulatory backdrop has created clear parameters around how the market will develop and the result is that Australia now has a global competitive advantage, Keach said.
While Europe has emerged as a major medicinal cannabis market, it increasingly seeks to imports products from suppliers that meet two key criteria; EU-standard GMP (Good Manufacturing Practices), and well-regulated production systems that meet international treaties.
Many producers in the established North American markets don’t meet those criteria, Keach said.
“European companies want to be compliant in where they buy from, and they’re switching to the medicinal cannabis supplier country with the strong regulations — which is Australia,” Keach said.
“Effectively, Australia is the gateway to Europe.”
In addition, Australian cannabis companies are starting to favour local over imported supply.
And that switch is being driven by “price, quality and risk management,” Keach said.
“I think overseas investors will start seeing Australia as the next trade hub in Cannabis,” he added.
In that context, Australia is “the biggest opportunity in global cannabis right now”.
“We don’t need a recreational market,” Keach says.
“With the strength of our licences and GMP standards, those commercial pathways and contracts are being built. And customers don’t just go and switch once these pathways and relationship have been setup”
“Australia’s sector is so tightly regulated, that it actually becomes a large competitive advantage with a moat around it.”
While global medicinal cannabis markets have continued to develop, not every Australian company has executed properly.
A number of competitors have dialled back their cultivation strategies, often weighed down by excessive capex constraints.
And that’s where ECS has now emerged as a leading player with a global market opportunity.
The company is already cultivating, packing and locally supplying dry flower and oils from its existing facility in Victoria, with a major scale-up in the works for its Tasmanian operations.
“I think what people don’t see at the ground-level is how much demand is out there for medicinal cannabis,” Keach said.
“At the same time, we’ve seen competitor projects go on hold because they required too much capital – so there’s this shortage emerging.”
ECS Botanics is “already one of the biggest suppliers in Australia, and we’re scaling production to try and meet global demand,” Keach said.
“There is a growing list of medicinal cannabis distributors that want to fill the supply gap for doctors. The demand is there. People want it but it’s not exactly that easy to get your hands on,” he said.
“So when business customers can deal directly with ECS – a fully-accredited GMP company with manufacturing and cultivation licence and a history of sales – that’s actually a really important value-add in a growing industry.”
Lean, mean and green
Discussing ECS Botanics’ operations, Keach also highlighted its capacity to scale up production with reduced energy consumption.
The company specialises in the development of specialised semi-protected and outdoor growing facilities – a contrast to the indoor-production strategy that also left many competitors out of pocket.
“Our cultivation process uses around 50 times less energy than your typical indoor growing facility,” Keach said.
“So it’s a much lower carbon footprint, and it’s also a much lower unit cost because we’re growing cannabis using natural elements.”
ECS Botanics also produces cannabis with all-organic inputs and leverages its intellectual property to incorporate regenerative agriculture techniques.
“We have a healthy mix of farming and pharmaceutical expertise within the company. We’re really trying to grow a product as nature intended, and that shows up in the quality of what we’re producing,” Keach said.
And as the industry continues to grow, ECS’ existing practices give it an in-built competitive advantage.
“In the future, I think all products will need to be completely organic and carbon neutral – that’s where customer demand trends are going,” he said.
Putting it all together
Factoring in the regulatory tailwinds and ECS Botanics’ position in the market, Keach said his conversations with major investors centre around the company’s global market opportunity.
Shares in the company jumped last month when it announced a five-year, $4.5m supply deal with Polish company Alivio Spolka for GMP-standard medicinal cannabis.
Alongside deals like that, the company is consistently signing new revenue-generating supply deals in domestic and global markets, Keach said.
That’s a by-product of ECS’ standing as a leading B2B supplier, selling white-label medicinal cannabis manufactured to the highest global standards.
“That B2B approach means we’re supplying the inputs, manufacturing to the client’s specific needs and putting their brand on it. It means our addressable market is significantly higher, and also lower risk,” Keach said.
And as evidence of its global scale-up strategy, ECS announced four new staff hires in early July including pharma executive Michael Clark, who will head up the company’s European operations, as well as two new sales staff.
“We’re still putting this thing together and I don’t think people realise the scale yet,” Keach said.
“There actually is explosive growth in medicinal cannabis. People want the product.”
“In terms of our growth cycle, this is still only our first year of production. We were already getting plenty of knocks on the door but now we’ve got a dedicated sales team that knows the whole industry across Australia and Europe.”
“At the end of the day, we wouldn’t be scaling up production in Victoria and Tasmania and submitting plans for a 100-times expansion in Tassie unless we were confident of the demand profile,” Keach said.
And when asked what success would look like over the next few years, he replied “base case success over the next few years would build a business generating tens of millions in revenues, and dropping a chunk of that to the bottom line.”
“We’ve got the production base to do it, we’ve just got to keep planting more cannabis,” 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.