THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
29 April 2020
Zoetic International plc
("Zoetic" or the "Company")
Board and Strategy Changes, and Trading Update
Zoetic, the London listed vertically integrated CBD company, announces certain operational and organisational changes pursuant to a realignment in the strategic focus of the Company. Given the new strategic focus, Nick Tulloch and Paul Mendell, respectively Chief Executive Officer and Chairman of the Company, have resigned and that Trevor Taylor and Antonio Russo, respectively Chief Strategy Officer and Chief Revenue Officer of the Company, have been appointed as Directors and Co-CEOs.
· Core CBD operations focused on Colorado - primarily the distribution of Chill branded products
· Trevor Taylor and Antonio Russo appointed Co-CEOs
· Nick Tulloch will continue to partner with Zoetic by leading a new joint venture in the UK
· Re-affirmation of the Company's commitment to exit the natural resources business with asset sale discussions well advanced
· Confirmation that Zoetic's applications for over US$290,000 of Covid-19 loans have been approved
Board and strategy changes
As investors will be aware from previous announcements, Zoetic's largest immediate opportunities are centred on the US distribution prospects of its Chill brand products. To date, the most substantial distribution and revenue agreements come from that brand. Trevor Taylor and Antonio Russo have been able, in a few short months, to create well-received Chill branded product lines. Their ability to quickly secure major distribution contracts for the brand has given the Company great hope for further success.
Given the importance of that business line and the operational focus of Zoetic, the Company considers it beneficial that its senior management should be located in Western Colorado. With travel restrictions as a result of Covid-19 likely to be in place for some time, and with international travel likely to be particularly restricted, the challenges for Mr Tulloch, both professionally and personally, of leading a business remotely are considerable.
The Company's geographical focus in Colorado has to date overshadowed its European operations, although in just nine months Zoetic has established itself as one of the highest profile CBD companies in the UK, with 21 product lines in the range and brand recognition to compete with the more long-standing participants in that market. However, the Company has fallen short of its aspirations to secure distribution of its products to major retailers in Europe. The Board believes that the prospects of this division will be enhanced by a more dedicated focus on local opportunities and so it has asked Mr Tulloch to work alongside Zoetic in a joint venture, effective immediately, to build its brands in Europe and continue grow this division. As a participant in the joint venture, Mr Tulloch will no longer be employed by Zoetic, but will be entitled to a share of the revenue generated in the UK and Europe. The Company believes this new joint venture structure will enhance value for its shareholders, not only by reducing its operating costs in the UK, but by potentially enhancing its revenue opportunities outside of its core US business. The Company expects this restructuring to facilitate Mr Tulloch in securing a major distribution contract to bring the Zoetic brand to the main consumer markets in Europe.
As announced on 1 April 2020, Zoetic has been examining the feasibility of selling certain assets from its oil & gas division, both to reduce ongoing liabilities and to generate short term cash. Since that date, oil prices have fallen further, and in some cases to levels never seen before, but nevertheless discussions with potential buyers have progressed well and the Company is in receipt of indicative offers for several of its assets. With the ongoing economic uncertainty, there can be no guarantee that these offers will be realised, but the Board is optimistic they will reach a conclusion in the near term. Mr Mendell is an oil & gas specialist and, with an orderly wind down of Zoetic's oil & gas division well progressed, he considers that this is now the right time to step away from the business to pursue his other interests.
Trevor Taylor and Antonio Russo are instrumental to the success of Zoetic's US CBD business and the Board considers this is an appropriate time to implement these changes to the management structure. These changes also have the support of the Schrader family, the Company's largest shareholder and customer.
Also as announced on 1 April 2020, the Company has applied for loans under the US Covid-19 aid arrangements to cover some of its short term operating costs and Zoetic is now pleased to announce that it has received notification that both of its US operating subsidiaries has been approved for loans in aggregate of a little over US$290,000. Subject to compliance and a year-end review by the lender, there are certain circumstances in which all or some of the loans could be forgiven. Otherwise the loans attract interest at the rate of 1% per annum and are repayable over two years. It is anticipated that funds will be received this week. In the UK, Zoetic applied for and received a grant of £10,000.
Despite the global slowdown, Zoetic continues to receive enquiries from well-known distributors and retail chains for its products. Although this may not be the time to launch a new campaign, and neither is it possible to predict a likely timescale, the Company continues to have a high level of confidence in the popularity and appeal of its brands and in particular Chill.
The Company is also continuing to develop sales channels for its feminised hemp seeds both in the US and elsewhere. Predictably, the market has slowed considerably since the Covid-19 outbreak but, to address this, it has broadened the testing data it has on the seeds and is seeking to implement innovative marketing strategies. On the former in particular, test results from Colorado State University (a world leader in agriculture) have established that the seeds have a viability of between 86% and 95%, which is an exceptional result. The Company's indoor growing facility in DeBeque, Colorado is a significant cost compared to its other operations. Pending establishment of its genetics business, the Company has taken steps to reduce the operating cost of this facility. This has included fewer staff based there, a reduction in new plantings and a corresponding cut back in utility costs (primarily electricity).
It is clear that Zoetic has an inventory of products and brands whose appeal seems capable of surpassing the economic downturn, but the Company remains under no illusions as to how challenging it may be to operate its business. Accordingly, Zoetic continues to adopt a set of exceptional operational measures to significantly reduce its costs and navigate through these unprecedented times. Regrettably, during April Zoetic terminated the employment of two further members of staff in the USA and furloughed three members of staff in the UK.
Backgrounds of the new Directors
Prior to being appointed Co-CEO Mr Taylor was the Company's Chief Strategy Officer and, prior to joining Zoetic, he was the CEO of District 8 Holdings, the number one selling organic pre-roll cannabis brand in Colorado, the first state to legalise recreational cannabis in the United States and the global leader in CBD hemp production. Previously, Mr Taylor was the Chief Operating Officer of Old West Oilfield Services. Mr Taylor helped take the company from initial concept through the final exit in just over five years to MBI Energy Services. Old West Oilfield Services was a leading fluids and frack sand logistics services company serving major operators in five US basins. Mr. Taylor has spent his entire professional career owning and operating businesses in many different sectors including, retail, restaurant, real estate, oil and gas and commercial farming operations. Mr Taylor graduated from Colorado State University with honours and a degree in Civil Engineering. He is active in his community serving on multiple boards.
Prior to being appointed Co-CEO Mr Russo was the Company's Chief Revenue Officer and has been involved in the cannabis and hemp industry since 2010. He co-founded two cannabis companies encompassing five fully licensed retail stores and three cultivation facilities nearing 100,000 total square feet, including District 8 Holdings, the number one selling organic pre-roll cannabis brand in Colorado. Mr Russo was a former board member of MIG (Marijuana Industry Group) formed to help craft Colorado's earliest medical cannabis regulatory framework. MIG is the largest and oldest trade association for licensed cannabis business. He was instrumental in the progression of Colorado Amendment 64, marked as an electoral first worldwide.
Mr Taylor and Mr Russo became significant shareholders of the Company, as announced on 3 April 2020, owning 6.45 million shares each (equating to 3.47% of the voting rights). Neither Mr Taylor nor Mr Russo will receive any increase in remuneration for their additional responsibilities to the Company.
Commenting, Nick Tulloch said:
"It has been a privilege to have led Zoetic through its transformation from its oil and gas heritage to a vertically integrated CBD company. The world has some unprecedented challenges to overcome following the Covid-19 outbreak and it is right that our Company takes difficult decisions to position it to succeed in its business plan. I wish Trevor and Antonio the very best as they oversee the next chapter in Zoetic's development and I am looking forward to continuing to partner with them as we seek to build Zoetic's UK and European operations into a leading CBD brand."
Commenting, Paul Mendell said:
"I have been involved with Zoetic since its incorporation. During that time, we have explored a number of business opportunities, but the change in the past 12 months, from oil & gas to CBD, is what has most defined the business. I would like to thank Nick for all his hard work in overseeing this redirection in particularly challenging circumstances and I wish Trevor and Antonio continued success as they now take the helm in building Zoetic into a leading CBD business."
Commenting, Trevor Taylor Co-CEO, said:
"Paul and Nick have been extraordinarily influential members of the Zoetic team and I have the greatest respect for them. They have both offered to assist us in our transition arrangements and I have no doubt that we will benefit from their advice in the future. I am particularly delighted that Nick will be continuing to work alongside us in our new joint venture in the UK and Europe. I can think of no better person to lead this core part of our strategy. Antonio and I are excited to take the Company forward from this point as we focus on the distribution opportunities for Chill in the US and an orderly exit from our natural resources activities."
Commenting, Antonio Russo Co-CEO, said:
"I am so thankful for Paul and Nick's support in the past year in getting the CBD business established. I am very excited to bring my decade of cannabis experience to the highest level in the company. We are well positioned to take advantage of Trevor's and my knowledge in this industry. As leaders we will continue to accelerate the brands that we have built together"
Zoetic International plc
Trevor Taylor +1 901 235 3955
Antonio Russo +1 901 231 5219
Allenby Capital Limited (Financial Adviser and Broker) +44 (0) 20 3328 5656
IFC Advisory Ltd (Financial PR and IR) +44 (0) 20 3934 6630