CHILL Brands Group, a retailer of CBD products in the US, UK and Europe, has seen some £180m wiped off its market value this year.
Formerly known as Zoetic, the group has endured a stock price drop of over 85% since March, with some investors warning a further sell off could soon be on the cards.
After skyrocketing from just 5.9p per share at the start of 2020 to 70p a year later, Chill Brands’ stock price hit an all-time high of just over £1 in early March this year – when cannabis stocks globally were still benefitting from a post-election US high.
However, the price has now plummeted to around 11.25p, including a drop of over a third since the start of November.
Share Price Rises To £1
Chill Brands, founded as Highlands Natural Resources in 2014, started life as a natural resources company focusing on oil and gas assets in Colorado and is listed on the LSE.
In 2019, it began to shift its focus onto its recently launched CBD operation and it informed investors, in September 2020, that it had completed the sell off of its legacy oil and gas assets.
This marked a turning point in both the company’s direction and its share price, which grew over 80% in the month to October 16, 2020, aided by a report released in late September that year revealing an upcoming distribution deal and positive sales of its flagship CBD products, including a 300% rise in its skincare range.
Just over a month later, Zoetic announced its largest distribution deal to date with Asian America Trade Association (AATAC), which promised to see its products rolled out to 88,000 US stores. This sent its shares skyrocketing a further 60% in the following four weeks, seeing Zoetic’s market capitalisation break £100m for the first time.
Its shares continued to climb for the next four months buoyed by a number of subsequent international distribution deals.
£35m Financing Deal
After seeing its market cap peak at over £212m in early March 2021, Zoetic saw its stock lose more than half its value over the next quarter.
The start of the sell-off coincided with Zoetic’s announcement it had signed a £35m financing agreement with US investment manager LDA Capital.
This enabled it to access the cash over a 36-month period, including £15m in the first year which it said would be put towards new international distribution opportunities as well as beefing up its supply chain.
However, in early May, Zoetic announced a surprise u-turn on this finance deal with LDA, seeing it pay £1.2m to get out of the agreement, while letting go of its its CFO Paul Ferguson – after promoting him just two months earlier.
While no explanation was given by the company’s co-CEO’s Trevor Tailor and Antonio Russo as to the abrupt change of direction, some investors have suggested the deal was overly ambitious and that the funding required for its expansion was greatly overestimated.
‘Lack Of Transparency‘
Since May, Zoetic, which rebranded a second time to Chill Brands Group in August, this year, has seen its stock drop a further 80%, sitting at around 11.25p at the time of writing.
Investors have taken issue with a number of the company’s practices, primarily its vague and intermittent financial reporting and lack of transparency from its board.
Chill Brands released its unaudited figures for the year to March 2021 at 18.25pm on August 31, an issue that was raised by investors at the company’s most recent AGM in October.
The board was also asked if it believed recent announcements communicated company news in a ‘timely and effective manner’, as well as how it will improve investor relations moving forward.
In response, it said: “We not only understand but wholeheartedly agree the Group’s approach to Investor Relations needs to improve. We are ably supported by leading advisers in this field who will update and refine our approach as we move forward.
“Our focus is now on providing more information to improve the Company’s investor relations credibility and to raise its profile on an international level.”
Despite its commitment, just days after its general meeting on October 26, Chill Brands released its figures for the three months to September 30, 2021.
Chill Brands reported sales of $561,330, but provided no further insight into its financial performance.
It also warned investors that plans to roll out its CBD tobacco substitute to ‘tens of thousands of stores across the US’ has been ‘influenced’ by ongoing supply chain delays.
It added that while it was on track to meet previously stated targets, it would no longer be publishing quarterly financial updates due to the ‘nature of the group’s relationship with its distribution partners’ making it impossible to provide comprehensive sales data.
What Is The Company Saying In Response To Its Critics?
Scott Greiper of Viridian Capital, a company brought in by Chill Brands in September 2021 as a strategic advisor, told BusinessCann: “At some point in time, the public market valuation of any company reflects the ability to execute. Period. That’s all it is. And execution is based on showing consistent revenue growth, showing consistent profitable revenue growth, showing consistent margins. That’s all that matters.”
“So I’m not happy or unhappy about the stock price. What I’m only focused on is doing what we can and what we’ve done successfully before with other emerging growth companies in creating an institutional practice.
“Because if that helps to drive execution, that will eventually have an impact positively, not only on the stock price, but on the underlying volume, the daily dollar volume, and bringing in stronger-handed shareholders into the public stock.”
When asked about the company’s investor communication practices, Mr Greiper said: “I don’t think anybody believes that the consistency, and the way that press releases have been put out to the investment community has been good enough, it hasn’t been.
“I’ve always been a believer that, you know, when you’re a public company, you have a responsibility to speak transparently, and honestly. I’ve been doing this for many, many years on the investor communication side, and it can be done better. There’s no question about that.”
In a final message to investors, Mr Greiper said: “From the underlying investment rationale in this company, you have one of the largest emerging markets in the world from a consumer brands perspective, and you have clear movement of consumers into this market. That’s a pretty good investment rationale to bet on.
“The only thing you need underneath that for an investor to invest in a company is ‘can the company execute on its business plan?’. And that’s where we need to see more evidence of Chill doing a better job of communicating with its investors communicating what its strategy is, and then showing evidence of execution.”
Chill Brands chose to speak to BusinessCann through its advisors after declining numerous previous interview opportunities.