The Zoetic International (LSE:ZOE) share price has been on fire over the last 12 months. After years of lacklustre performance, the stock has jumped by more than 1,300%.
So what caused this sudden growth? And Should I be adding this business to my portfolio?
The rising Zoetic (ZOE) share price
Zoetic is a producer of cannabidiol (CBD) oil products and operates within the medical cannabis sector. It has two brands under its name. The first is Zoetic, which targets the health & wellness segment of the market. These products include soft-gel capsules, oral tinctures, massage oils, as well as cosmetic items.
It’s hardly the only brand in the space. But it has managed to distinguish itself by being nominated and winning multiple awards for its product’s quality. As a result, Zoetic already has started building some reputation and pricing power. A promising sign in my eyes.
The management team is now leveraging this reputation to launch its second brand called Chill. After a long testing period, these products have proven to be a viable alternative to tobacco-based items. And since they are free from THC, nicotine, and heavy metals, the products are a significantly healthier option for individuals who smoke or chew tobacco.
From what I can tell, Chill is what triggered the rising ZOE share price. A trading update was released in October 2020, which announced the success of its trial phase. Over the next couple of months, the business began distributing these new products among a growing collection of reputable US stores. Based on the most recent progress, Zoetic now expects these items to be stocked at more than 3,500 US stores by July 2021. It also intends to begin launching Chill within the UK as well this quarter
The risks that lie ahead
As promising as these launches are, the company still has a lot of challenges to overcome. The firm only recently pivoted into CBD products, and in the process, lost its original revenue stream (it was an oil and gas business called Highlands Natural Resources, and decided to switch to CBD in 2019). Zoetic is already selling online. However, between April and September last year, only £55,000 worth of goods were sold.
Since the firm’s revenue stream is currently quite restricted, it remains unprofitable. And with limited information as to when that might change, the company is dependent on external financing to keep the lights on. Just last month, it opened a new £35m credit facility with LDA capital. And in my experience, a leveraged and unprofitable business carries quite a bit of risk.
The bottom line
I’ve previously explored other companies trying to penetrate the medical cannabis sector. But Zoetic does seem the most promising so far, thanks to its award-winning line of premium products. And if the launch of Chill meets expectations, I believe the ZOE share price can continue to climb even higher over the long term.
Having said that, I think it’s still too soon to invest. There remains quite a bit of uncertainty regarding the sales performance of its new products. And so, until more financial data becomes available, I’m keeping the business on my watch list for now.
