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Medicinal cannabis company Ecofibre (ASX: EOF) has largely cleared a nagging debt owed to lender Nubridge after securing a US$9.7 million ($15.3 million) leaseback deal for three production facilities in the US.
The sale is part of a concerted effort by the company to reduce costs amid a sharp fall in revenue in the first quarter following a $40 million net loss in FY24.
Ecobfibre has 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.
Under the terms of the leaseback, Ecofibre will pay annual rent of US$1.2 million ($1.9 million) for the properties with yearly rent increases of 3 per cent locked in for the first three years.
Ecofibre will use the proceeds of the sale to immediately pay down US$9 million of the US$10 million it owes to secured lender Nubridge Commercial Lending LLC.
The remaining US$1 million will be converted to an unsecured loan repayable by December 2027 at an interest rate or 12 per cent per annum and repayable at the end of the loan’s term.
The sale of the assets has negated Ecofibre’s previous plan, announced in October, to secure a new debt facility through a consortium of lenders to repay the US$10 million owed to Nubridge and a $1 million debt owed to the James & Cordelia Thiele Trust Fund.
However, the company says it is in the final stage of negotiations with two lenders to provide working capital loans that will be collateralised by machinery and equipment, inventory and accounts receivable.
“The debt reduction and restructuring initiative announced today, and the proposed working capital facilities, will facilitate the company’s progress in establishing positive operating cashflows and reducing financial risk,” says Ecofibre.
“Ecofibre continues to have significant opportunities to establish itself as a leader in advanced technologies that address resource sustainability and emerging health issues.”
The leaseback deal removes at least 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 the group's highest-revenue division, textile operation Ecofibre Advanced Technologies.
A near doubling in legal fees to $3.7 million contributed to the company’s full-year loss in FY24.
The company’s quarterly update released at the end of October revealed a deterioration in revenue in the first quarter of FY25, which was down 11 per cent to $6.9 million compared to the prior quarter. The fall in quarterly revenue compares with an 8.6 per cent drop in full-year revenue to $27.98 million in FY24.
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