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Zoetic International PLC

Highlands Natural Resources to enter cannabidiol market in Colorado with new growing operation

The oil and gas firm said through its new subsidiary, Zoetic Organics, it was aiming to lease a 33,000 square foot facility in Colorado, which had the capacity for 40,000 hemp plants each year

CBD oil
CBD oil is increasingly being recognised by medical organisations as a method of treating symptoms of Alzheimer’s and Parkinson’s

Highlands Natural Resources PLC (LON:HNR) is to set up a cannabidiol (CBD) operation in Colorado using hydrogen from its gas operation in Kansas as fertiliser.

In an announcement after the close on Tuesday, the oil and gas firm said through its new subsidiary, Zoetic Organics, it was aiming to lease a 33,000 square foot facility in Colorado, which had the capacity for 40,000 hemp plants each year.

WATCH: Highlands Natural Resources PLC launches offer on PrimaryBid for its new CBD subsidiary

Zoetic would then target sales of products including organic hemp oil and pre-rolled smokable products in both wholesale and retail, with HNR expecting first revenues by mid-2019 and profitability by the end of the year.

The move followed a recent trial with another cannabis grower in the state which showed that the hydrogen recovered from HNR’s gas operation had increased the size of the plants grown when added as an organic fertiliser, with the results surpassing expectations.

Funding

To help fund the new business, the group said it had raised around £1.56mln through the subscription of 18.3mln new shares at a price of 8.5p each, a 12.4% discount to its last close price.

Robert Price, executive chairman and chief executive of Highlands, said Zoetic would provide the company with an opportunity to enter the “rapidly growing CBD market” at low cost.

“Our immediate priority is to advance the discussions currently underway with potential retail and wholesale partners, purchase manufacturing equipment and expand our outdoor growing, ahead of our intended harvest of our first 10,000 hemp plants by mid-2019.”

The company also said that the new operation would be developed alongside its existing asset portfolio, which includes eight producing shale wells in Colorado that would cover the firm’s overheads in 2019.

CBD is increasingly being recognised by various medical organisations, including the World Health Organisation (WHO), as a method treating symptoms of conditions such as Alzheimer’s and Parkinson’s. According to a report from market research firm Brightfield Group, the CBD market is estimated to be worth around US$22bn by 2022.

Shares lower on new business venture

In a note to clients, analysts at SPAngel said: “While we congratulate the management team for continuing to seek ways in which to generate value, we didn't quite expect yet another business venture to be started.

“While we can appreciate the growth in the cannabis sector and the potential profits that can accrue to the business, we find it hard to believe that with such diverse business interests already, that this will be any different.”

They added: “We believe that the increasingly disparate nature of the businesses that the management team is pursuing is starting to give us concern that they are running out of ideas.”

In afternoon trading, shares in Highlands Natural Resources were 8,.5% lower at 8.88p.

 -- Adds analyst comment, share price --

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Price: 7.05 GBX

Market: LSE
Market Cap: £10.51 m
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