Medicinal cannabis company Ecofibre (ASX: EOF) has announced it is taking “significant” action to tackle $25 million worth of debt, with the board looking to sell the group’s fibre seed crop company and slash day-to-day overheads in an attempt to shore up its financial position.

In an update to shareholders, the company noted that a recent $15 million leaseback deal of three production facilities in the US helped reduce its debt from $34 million to $25 million, but conceded recent attempts to reduce operating costs were “insufficient” to right-size Ecofibre’s corporate expenses. 

The Sydney-based group revealed unaudited revenue for the December quarter came in at $6 million, reflecting a 16 per cent year-on-year slump.

Of that, yarn manufacturer Ecofibre Advanced Technologies (EAT) generated $4.2 million, followed by medicinal cannabis company Ananda Health at $1.8 million while fibre seed crop company Ecofibre Genetics saw no growth.

While EAT’s revenue grew by 12.6 per cent year-on-year, sales fell by $600,000 for both Ananda Health and Ecofibre Genetics.  

The group noted that restructuring and litigation costs continue to place a high burden on cash flow, totalling $1.7 million in Q2FY25 - a level representing almost a third of its income.

Interest costs across the company portfolio and rental costs for three premises have resulted in EOF forecasting an additional $5.4 million to be paid per annum. The firm anticipates an EBITDA loss of $3.5-$4 million for the first half of FY25. 

In a bid to reduce the debt, the company is prioritising the sale of Ecofibre Genetics, which is planned to be sold for an undisclosed sum following a harvest in North Queensland. Total cash currently sits at $3.9 million.

Meanwhile, a strategic review of Ananda Health is also underway after the company’s performance slumped for the quarter, with sales falling significantly in late 2024 both in the US and Australian CBD market. Ecofibre said the unexpected result has triggered a deeper strategic review of all options to increase the scale and utilisation of manufacturing capacity.

Today’s news comes a month after Ecofibre announced it was able to clear its debt to lender Nubridge after securing a US$9.7 million ($15.3 million) leaseback deal.

“Following the completion of key debt financing and restructuring activities in December 2024, the company has continued to work in January 2025 to restructure existing unsecured loans and secure initial funding under the working capital facility with nFusion, to provide working capital to fund the group’s ongoing operation and investments,” the company told shareholders in today’s ASX update.

“Completion of the sale of Ecofibre Genetics and surplus inventory in 3Q25 will also be important, and the directors believe that these initiatives have reasonable prospects of success.”

In December 2024, Ecofibre sold two properties at Greensboro in North Carolina, which were used in the manufacturing operations of Ecofibre Advanced Technologies, and a third production facility for Ananda Health in Georgetown, Kentucky. The total sale price came out to US$9.7 million ($15.3 million), with a lease term of 10 years and three extension options of five years.

The remaining US$1 million (AUD$1.6 million) was converted to an unsecured loan repayable by December 2027 at an interest rate of 12 per cent per annum and repayable at the end of the loan’s term.

The current cashflow problems are only one headache for Ecofibre, which still faces a legal stoush in the US from its former chief scientific officer (CSO) Dr Alex Capano and other former senior executives, including Jeff Bruner who was the president of Ecofibre Advanced Technologies.

Capano has filed another employment-related claim, while the group also revealed that Elixinol Wellness (ASX: EXL) believes it has a claim against Ecofibre relating to its purchase of Ananda Food earlier this year.

Shares in EOF are down to 3 cents each at 3:08pm AEST.

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