Hempco Reports Q1 2019 Results

Strong Growth due to Diligent Strategy Execution

TSX-V: HEMP

VANCOUVER, Jan. 23, 2019 /CNW/ - Hempco Food and Fiber Inc. (TSX.V: HEMP) ("Hempco®" or the "Company") is pleased to announce Q1 2019 results for the period ending November 30, 2018.

Q1 2019 and Subsequent Operational and Strategic Highlights

• Revenues: In the first quarter of 2019 revenues gained significant strength and achieved a 47% increase over the same period in fiscal 2018 and a 175% sequential increase over the previous quarter. Revenue growth was due to execution of the Company's recently announced 5-Prong strategy, including entering into new international markets (e.g New Zealand), and the development of new distribution channels (the Company added distributors in Ontario and Quebec). The successful execution of these initiatives more than offset a fall in U.S. bulk sales, attributable to transition of a major distributor due to new ownership.  While bulk sales continued to be the largest contributor to revenue, at 76% of sales for the quarter, the Company's premium consumer packaged goods ("CPG") brands, PLANET HEMP™ for consumers and PRAISE for the animal food supplement market, showed strong momentum and now account for 24% of revenues in the quarter, up from the 21% for fiscal 2018.
• Capacity: The Company is progressing well with the commissioning of its new 56,000 square foot, 2.88 million kg/year, hemp-seed processing facility in Nisku, Alberta.  The Company anticipates further product diversification from its Nisku plant upon commissioning of its industrial fiber processing line, expected for the current calendar quarter.  The Nisku facility enables the production of bulk hemp products such as hemp seed protein, hulled hemp seeds, animal hemp supplements, hurd and fiber, and allows for further portfolio expansion of the Company's higher margin CPG product lines under the Company's premium brands PLANET HEMP™ and PRAISE.
• Diversification: As hemp fiber and hurd processing capacity comes online in 2019, Hempco anticipates developing new revenue streams.  New products are being developed for both its bulk hemp business and the company's premium CPG brands PLANET HEMP™ and PRAISE. The Nisku facility will extract fibers from the hemp "stalk" for sale in the business-to-businesses market. Processing of fiber and hurd gives Hempco the ability to achieve its sustainability vision for whole-plant utilization, benefiting all stakeholders, including customers, farmers and shareholders, as well as creating a positive environmental impact. The historic passing of the U.S. 2018 Farm Bill means hemp is no longer considered an illegal substance in the U.S.  As well, the FDA recently classified hulled hemp seeds, hemp seed protein and hemp seed oil as 'Generally Recognized as Safe' (GRAS) for human consumption.  This means hemp products not containing CBD can now legally be marketed in human foods without seeking prior food-additive approval. Based on these significant changes, Hempco anticipates market opportunities to expand for all its product categories within the U.S.
• Sales Channel Development: Significant distribution partners were established during the quarter in both Ontario and Quebec for PLANET HEMP Superfood™, as well, a first order from a major New Zealand importer was completed successfully. Hempco participated in the Supply West Trade Show in Las Vegas to build awareness and pursue new bulk customers. Hempco will continue to seek out new opportunities to deepen its market penetration as it remains focused on the execution of its 5-Prong Strategy.
• Aurora Cannabis Inc. (Aurora) Partnership: Now holds 52% of the issued and outstanding Hempco common shares.  Aurora holds a $5 million debenture of which the principle amount could be converted into 4.2 million Hempco shares.  Upon conversion, Aurora's ownership interest in Hempco would increase to 55%.

Management Commentary
"We achieved a marked improvement in our quarterly performance as compared to both the previous quarter and the prior year's quarter, resulting directly from the successful execution of our 5-Prong Strategy," said Diane Jang, CEO. "Hempco has built a solid foundation for expansion of its premium CPG product lines PLANET HEMP™, and PRAISE. We see further opportunities to grow our bulk hemp product segment by entering new growth markets. The passing of the Farm Bill in the U.S. creates additional opportunities for Hempco to accelerate development of our hemp product lines in the U.S. Lastly, with our Nisku plant being commissioned and anticipated to become fully operational shortly, we will be able to support the major sales channels we have and new sales developments, both with existing and new products."

Financial Review (C$000's; except per share information)
A more detailed discussion of financial results is provided in the Company's Management Discussion and Analysis, filed on www.sedar.com

• Revenues for the quarter ended November 30, 2018, increased 47% to $768 compared to $524 reported in Q1 2018 and increased 175% over the previous quarter. This increase is primarily related to Hempco's successful entrance into new geographic markets and the development of new sales channels.
  
  
• Net loss for the quarter ended November 30, 2018, increased by $798 to $1,490 compared to $692 in Q1 2018, as the Company is investing in developing its organization to carry the anticipated growth. Increased sales resulted in an improvement of gross margins.
  
  
• The cost of sales for the quarter was $599, resulting in a gross profit of $169. Gross margins on product sold was 22% of sales. Gross margins are expected to increase as sales continue to gain momentum and as the higher margin brands, PLANET HEMP™ and PRAISE, sales will make a larger contribution to overall sales.
  
  PLANET HEMP ™ and PRAISE represented 24% of the sales in Q1 2019, reflecting growth of the Company's retail and animal business segments.
  
  The Company anticipates that its investments in quality control on raw materials and the commencement of operations at its new Nisku facility will be accretive resulting in a relative reduction in the costs of goods sold.

Outlook

Momentum from product line launches in the PLANET HEMP Superfood™ and PRAISE lines, sales channel development through distributor and new market expansion for bulk have started to show positive momentum. The Company is focused on executing its 5-prong strategy, which includes:

1)	Building new global markets for Canadian bulk hemp products and PLANET HEMP™ and PRAISE brands.  Management anticipates further expansion in Canada, New Zealand, UK, USA and into other geographical markets. The completion of the new Nisku facility will further accelerate revenue development, secure product sourcing, reduce costs and improve quality issues experienced in 2018. With the Company's multi-channel goals, its e-commerce strategy commenced in 2018 with product launches on Amazon.com and Well.ca, two of the most heavily visited sales channels for natural health products.  2019 will see the launch of e-commerce on the Company's own re-branded consumer websites.
	Concurrent with the passing of the new U.S. Farm Bill, effective January 1, 2019, the U.S. Food and Drug Administration (FDA) announced that hulled hemp seeds, hemp seed protein and hemp seed oil are now classified as Generally Recognized As Safe (GRAS) and can be marketed legally in human foods without the need to seek prior food additive approval. These historic changes create significant opportunities for Hempco to pursue further market penetration in the U.S., creating new pathways for innovation, and enabling the development of new revenue streams.
2)	Focusing on innovations to further expand hemp-based products into new consumer categories and market segments.  A robust product innovation pipeline is being developed with new launches anticipated for both the PLANET HEMP™, PRAISE, and Hempco product lines.
3)	Developing tri-crop opportunities for hemp-based foods, fiber and nutraceuticals to maximize revenue.  The Company's new hemp fiber and hurd processing capacity is expected to bring in new revenue streams for the Company. The Nisku facility will extract fibers from the hemp "stalk" for sale to business-to-businesses. The addition of fiber and hurd product lines reflects the Company's vision of whole-plant utilization, and will benefit all stakeholders, as well as benefit the environment.
	One of the biggest recent developments for the hemp market is the anticipated ability under the new Cannabis Act, to start processing hemp for the extraction of CBD oils. The Act became law in Canada on October 17, 2018. The Company estimates it will be able to source in excess of 5 million pounds of chafe, flowers and leaves for potential sale through its farmer contacts, which would benefit the Company, as well as hemp farmers and the Company`s partners, Aurora and Aurora`s extraction partner, Radient Technologies.
4)	Championing Canadian hemp as a healthy ingredient for food manufacturers through marketing and other promotional activities, including key trade shows, to increase visibility of Canadian hemp and the Company's brands. The Company has increased its profile and exposure at trade events generating interest from baked-goods manufacturers, meat-substitute companies, and animal feed suppliers.
5)	Taking on an active and essential leadership role with the Canadian Hemp Trade Alliance (CHTA) to help drive the CHTA's objectives in promoting Canadian-grown hemp and derivative products, while working closely with the government on research, regulations, and international trade efforts and missions.  With Hempco's CEO being elected to the CHTA's Board on November 19, 2018, she will chair the newly formed, Market Development Committee. The committee's objective is to market and grow market share of the Canadian Hemp industry globally.
	Health Canada's proposed changes to its upcoming Canada Food Guide to be released later this year is evidence that plant-based protein is gaining ground. The new Food Guide is proposing to reduce its legacy four major food groups down to three: vegetables and fruit; whole grains, and protein-rich foods, especially plant-based sources of protein. This is a major development highlighting that the general public are becoming more aware of the health benefits of plant-based proteins.

 

Additionally, the partnership with Aurora provides Hempco with a highly visible partner. Leveraging of Aurora`s expanding infrastructure and growing constellation of trusted partners, management expects will contribute to the Company`s ability to accelerate its commercial development into new markets and revenue streams.

About Hempco

For more than 12 years Hempco has been a trusted and respected pioneer, innovator and provider of quality hemp-based foods, hemp fiber and hemp nutraceuticals. Hempco produces and markets the brands PLANET HEMP ™ and PRAISE, hemp-based foods and nutritional supplements for people and animals. Hempco is expanding its processing ability to meet global demands in a 56,000 sq. ft. facility located at Nisku, Alberta. Hempco's common shares trade on the TSX Venture Exchange under the symbol "HEMP".

The TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release includes statements containing certain "forward-looking information" within the meaning of applicable securities law ("forward-looking statements"). Forward-looking statements are frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements in this press release include the Company's anticipation of further growth. These statements are only predictions and are not guarantees of future performance; therefore, undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Companies are under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.

On behalf of the Board of Directors,

HEMPCO FOOD AND FIBER INC.
Diane Jang
CEO

SOURCE Hempco Food and Fiber Inc.

Copyright 2019 Canada NewsWire