I can speculate on this from my experiences managing the cash flows from 2004-2008.
1. Standard pre-IPO window dressing, of course.
2. More importantly, since growing has shifted from Australia to Kentucky, there are now only 2 growing seasons instead of 3.
3. In agricultural businesses, expenses go out the front door when the seeds go in the ground. Then more expenses go out the door when the product gets paid for at the farm gate. Then more expenses to manufacture the products.
4. THEN revenues.
It is almost March. It’s been cold in Kentucky. They weren’t growing, they were selling what was grown last fall.
5. Thus, as you point out, receipts from customers increasing 2.4x while payments to suppliers and employees decrease during the winter. All the bills were paid last fall. The agronomist is only needed during the growing season. So don’t have to pay the agronomist now. And product is getting to market over the winter.
6. For the next quarter, you’ll see payments go back up again (it’s Spring! Seeds go into the ground, the agronomist is back on the payroll, the farmers get paid 3 months after the seeds go in the ground).
So in summary, my best reading of this, based on experience, is that since agricultural cycles do not match quarterly reporting cycles, you will see these swings for the first few years until there is a critical mass of product supply on hand. Expenses will ALWAYS vary with the growing season vs the winter fallow season.
Also, there is no “futures market” for hemp. Thus the company itself has to often provide crop financing for the farmers to buy fertilizers, pesticides, labor, maintenance on machinery etc...during the growing season and these funds are eventually offset against the price paid at the farm gate for the product.
In a standard agricultural business, the farmers could pre-sell the crop in the futures market to fund operations. Since there is no “hemp futures” trading on the CBOE like there is for say, corn, or wheat, Ecofibre must devote millions of dollars to support the contract farmers with crop financing.
All this plays out on the cash flow statement and looks weird. It’s agriculture. God doesn’t respect quarterly earnings report requirements.
