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Why Neptune Wellness Solutions Shares Rose Almost 9% Today

By Eric Volkman - May 19, 2020 at 5:53PM

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The company entered into a new hemp extraction partnership.

What happened

Shares of cannabis extraction specialist Neptune Wellness Solutions (NEPT -4.17%) closed 8.6% higher on Tuesday, following the company's announcement of a new six-month extraction partnership for hemp processing. 

Cannabis derivative and plant.

Image source: Getty Images.

So what

Under the terms of this deal, Neptune will take in revenue of at least $16.5 million in total by processing 44,000 kilos of crude and distillate extracts from hemp. This is to be divided into four installments. The company did not provide further details of the arrangement.

It did add that the extracts would be directed to the derivatives market in its native Canada. Following the so-called Cannabis 2.0 phase of legalization, the country legalized products such as edibles and marijuana-infused drinks, effective October 2019.

"With this partnership we are in an even stronger position to serve and provide value to our Canadian [licensed producer] customers, while generating high margin revenue opportunities through the processing of hemp or cannabis extracts for a variety of product forms," the company wrote in its announcement.

The deal's $16.5 million is a sizable amount for Neptune; total revenue in the company's most recently reported quarter was the equivalent of roughly $6.5 million.

Now what

Last week, Neptune issued preliminary results for its fiscal 2020, and provided Q1 fiscal 2021 revenue guidance. For the latter period, it expects 300% to 400% year-over-year growth on the top line, to $18 million to $21 million. It is not clear whether the revenue from the just-announced deal has been factored into that projection. 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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