Highlands Natural Resources PLC (LON:HNR) has decided to focus its attention on growing its recently-launched cannabis business following a strong start to trading.
The oil and gas company said it would divert all its discretionary expenditure to the CBD operation Zoetic, which was set up on April 1.
"We will maintain our activities in natural resources but our spending commitments here have now been curtailed to essential maintenance of those assets only," executive chairman Robert Price said in an annual general meeting statement on Monday.
The group said it will allow a number of non-core mineral leases in Utah to lapse, saving it about US$160,000 per year. Further estimated cost savings of US$65,000 a month are expected to be achieved through job cuts, the cancelling certain consultants on natural resources projects, reducing office space and revising spending policy on the oil and gas operations.
Cash bonuses will be replaced by a new share option scheme for employee rewards linked to achieving financial targets.
Highlands has also raised £354,000 through a share placing, which will be used to accelerate the marketing and development of Zoetic's products in the US and UK.
Last month the firm started selling CBD products in the two countries. It also recently launched a CBD brand called Chilli, which includes hemp flower and CBD infused herbal smokables. Chilli is available in 44 stores and the company expects the brand to be in at least 60 stores by the end of September.
Zoetic revenues to overtake oil and gas
“Whilst our oil & gas revenues from our East Denver project remain our largest source of income at present, there is every reason to expect that this will change in the coming months as Zoetic continues to grow,” chairman Price said.
He told investors recent trading has been dominated by the success at Zoetic as production at East Denver shale operation has been temporarily affected by problems that Occidental Petroleum had at its nearby processing plant.
The issues at East Denver have been resolved but production was curtailed in the first half of August as Occidental Petroleum limited how much gas it could accept.
“Production rates at East Denver have recovered in the last 24 hours but over the previous two weeks had been around 40% of levels achieved in July,” Price said.
“Whilst this has been disappointing, it was a temporary slowdown only, is not a reflection on our project and we believe that normal production levels will now be maintained for the remainder of the month.”
Highlands set for OTC listing
Meanwhile, the group is exploring a listing on the OTC and expects to announce a “firm intention in that regard shortly”.
Looking ahead, Price said the outlook for Highlands will be defined in the near term by Zoetic.
“In a short space of time, we have developed a vertically integrated CBD business that is now making sales on both sides of the Atlantic. “
He added: “Our strategy in this high growth and fast-moving industry is only at the beginning but I am confident that, if we execute with diligence and discipline, we have an extraordinary opportunity to generate meaningful returns for our shareholders."