During the last year, we have noticed a significant increase in the number of companies that are focused on the cannabidiol (CBD) opportunity.
In late 2018, President Donald Trump signed off on the Farm Bill, which legalized industrial hemp as well as interstate commerce for hemp and hemp-derived CBD. Several European counties have already legalized hemp, and this has become a global trend. Last year, the World Health Organization recommended that CBD be de-scheduled across 194 nations. These regulatory changes could pave the way for CBD to become a legal natural supplement globally and this would be a major catalyst for the companies that are focused on this opportunity.
Although many investors are highly focused on the CBD market in the US, the international market is something to be watching as the number of countries that have legalized CBD has significantly increased and this is something, we are excited about. Over the last few years, we have been identifying companies that are positioned to benefit from the increasing demand for CBD products and wanted to highlight 3 of those opportunities today.
Hemptown USA: A Differentiated CBG Opportunity
Hemptown USA has been nothing short of an execution story and an early mover when it comes to the cannabigerol (CBG) market and this is an opportunity that we are excited about. Later this year, the company plans to complete a go-public transaction and represents a differentiated opportunity with massive growth prospects.
Although we have heard a lot about cannabidiol (CBD) over the last few years, only a few companies understand the opportunity associated with CBG, which is the pre-cursor cannabinoid to CBD and THC. By being one of the only companies to focus on the production of CBG, Hemptown will be able to protect itself from potential price compression and we find this to be an attractive aspect of the story.
Hemptown has established operations in southern Oregon which is not too far from the California boarder. The company has eight years of experience operating in the region and has a 40,000 sq. ft. harvest processing facility. Currently, Hemptown is utilizing proprietary technology to cultivate hemp in Colorado, Kentucky, and Oregon. Last year, the company dried and stored 110,000 pounds of hemp and expects to dry and store more than 3 million pounds in 2019. This represents impressive growth and we are favorable on the way the company is addressing the harvest bottleneck that many operators are currently facing.
When it comes to the leverage to the hemp market in Kentucky and Colorado, the company has a different approach. During the last year, Hemptown has established itself as a leader in Kentucky’s hemp market and has secured 19 contract farming partners in the state. In Colorado, the company established a joint venture farming operation and we will monitor how the team continues to execute.
In 2019, Hemptown is poised to generate massive revenues and we expect 2020 to even more significant. At 1,500 acres, the company could generate upwards of $200 million in revenue which would make it the largest hemp company in the world. When looking at the Hemptown opportunity, it is hard to not get excited and this is an opportunity that is positioned for massive growth.
1933 Industries: Executing on a US CBD Strategy
Last month, we traveled to Las Vegas for a site visit at 1933 Industries (TGIF.CN) (TGIFF) which is highly focused on the US CBD market through Infused MFG., a wholly-owned subsidiary of the company. Earlier this month, 1933 Industries reported third quarter financial results and Infused accounted for 61% of total revenue. Over the next year, we expect Infused to record impressive growth due to the recently completed expansion and believe that the market significantly underappreciates this aspect of the story.
While in Las Vegas we visited the facility that Infused will be moving into and the scale of the facility is impressive. The state-of-the-art facility is 10x larger than the existing facility and will significantly increase total production capacity. During the last year, Infused’s product line has penetrated new markets and has seen a large increase in the number of stores that are selling the company’s products.
One of the reasons we expect Infused to report strong growth on a going-forward basis is due the way it has continued to expand its reach across the US by building its own distribution network into 46 states. Infused CBD products are being sold out of more than 800 retail outlets and we expect to this number to significantly increase over the next year. A majority of the stores that are selling Infused CBD products are located in California, Nevada, Arizona, and Colorado.
During the last two years, we have sampled countless CBD products from a variety of companies to better understand the market. Although companies like Charlotte’s Web and CV Sciences have the greatest brand awareness, we were not impressed with the products. We found the creams to be ineffective and were not impressed with the consistency of the products. With that being said, we sampled several Infused CBD products following our site visit and were blown away with the effectiveness of the products. The company has a diverse product line for specific indications (i.e. sleep, energy, libido) and also has an amazing line of products for pets.
During the last year, 1933 Industries has been quietly building a platform to capitalize on the CBD opportunity and has a portfolio of premium products that are gaining traction across the country. The company is an early mover in the CBD market, and this is just starting to pay off. If you look at the company’s market capitalization, the shares are trading at less than 1x 2020 projected revenues and we find this to be significant. 1933 has attractive leverage to the CBD trend and this is an opportunity to be watching.
Future Farm: Slow to Execute but a Hemp Play to Watch
Future Farm Technologies (FFT.CN) (FFRMF) is a hemp focused company that has been under considerable pressure and this is an opportunity that most people have forgotten about. During the last year, the company has significantly advanced its hemp operations, and this is an interesting aspect of the story.
Earlier this month, Future Farm reported a major milestone and announced that it has successfully transplanted all 200,000 Cherry Wine hemp plants into the field in Maine. The first plants were transplanted from warehouse to field over three weeks ago, with continued rotations following thereafter. This staggered approach allows for the systematic development and harvest of the crop, ensuring that the plants achieve ample growth and we will be monitoring this aspect of the business.
Now that the plants are in the ground, Future Farm will continuously monitor the crop for health and vigor, begin its elite seed propagation and breeding program, and continue its work developing a robust sales pipeline. After harvest, the company will work closely with its processing contractor to produce and sell whole plant extracts, isolates, distillates, water solubles and 0-THC products.
Going forward, the name of the game for Future Farm is execution and this is an opportunity we will continue to be watching. The company is highly focused on the Florida market and we will monitor how the management team is able to advance this side of the business. When compared to its peers, the valuation is barely a fraction of the CBD market leaders and this is an opportunity that we are watching.
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