If you set aside the low revenue products that SCU currently purports to sell (e.g., Draco Resin & Dendrobium which collectively earned $99,000 in FY21, i.e., ~1% of total net revenue). And ignore all the JVs/MOUs that don’t appear to have actually resulted in anything (e.g., China Tobacco MOU announced in Oct 2019, Blue AquaInternational JV announced in October 2020, etc), what’s left? And does it justifySCU’s current EV of $9.8m?
I’ll focus on hemp first. And then share my thoughts on the sea grapes (which is obviously the big money earner)
Hemp
The Company has a 51% stake in industrial hemp plantation, Yunnan Hua Fang. AFAIK, this business earns virtually nil revenue ($164 in FY21!) and cost ~$330,000 to operate in FY21.
This part of the business is a mystery tome. It operates under a hemp cultivation licence, meaning SCU can make things like hemp furniture/clothes/paper etc – none of which it has any interest/expertise in doing.But no extraction licence, meaning its unable to extract the CBD to make cosmetics, oils, TCM etc (i.e, the sort of things SCU actually wants to do)
So, what’s the point of this licence? We’ve owned this business for three years now and its done nothing for that entire period.
In the 30 August Preliminary Final Report, the Company foreshadowed an agreement with Heilongjiang Beimei Industrial Cannabidiol Extraction Co Ltd (a company btw that has zero online presence in eitherEnglish or Chinese). SCU didn’t explain what kind of business it plans to do with this outfit, but Beimei obviously has a CBD extraction licence, so I’m assuming it has something to do with that.
So does SCU propose to cultivate hemp in Yunnan, and transport the harvested materials across the continent to Heilongjiang for CBD extraction? And then what? Will it be made into perfume or TCM for export overseas (CBD products cannot be sold in China)? And if so, using what expertise and manufacturing process? Or alternatively. will this be another announcement that triggers a fleetingSP spike, followed by many subsequent years of inaction?
Ultimately, I think the Company probably does have a long-term vision for hemp. After all, Paul Rosen isn’t here for the sea grapes. And if the Company does spin-out the sea grapes business into a stand-alone listed vehicle, hemp will be the only operational element remaining in SCU. What the hemp business ends up looking like though, and how it proposes to transform the Yunnan farm into a money-making venture, I have absolutely no idea.
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