From Whole Foods to CVS, we have seen a significant increase in the number of major retailers that sell products that contain cannabidiol (CBD) and this is a trend that is just getting started. Demand for CBD infused products has been steadily increasing as researchers continue to learn more about the health benefits associated with certain cannabinoids (non-THC) and this is a trend that we expect to continue.
When looking at the CBD opportunity, we see an industry that is barely in the first inning of a major growth cycle. Although CBD is the best-known cannabinoid, we have recently seen increased demand for products that contain cannabigerol (CBG), which is the pre-cursor cannabinoid to CBD and THC. Over the next year, we expect see an increase in the types of cannabinoid infused products and find this to be significant.
During the last year, we have been closely following the leading CBD companies as well as businesses that are focused on other high value cannabinoids. Today, we have highlighted 5 of these businesses and believe that these companies represent attractive plays on the cannabinoid opportunity.
Hemptown: A Pre-IPO Opportunity to put on Your Radar
Hemptown USA is a pre-IPO leading US hemp business that has been nothing short of an execution story and this is a private company that we have been excited about. In the coming months, the company plans to complete a go-public transaction, and this is an opportunity that our readers should have on their radar.
One of the reasons we are excited about Hemptown is due to way the business is structured. The company is laser focused on the production of high-value cannabinoids and in 2019, Hemptown plans to cultivate more than 500 acres of rare high-CBG genetics and is executing on a strategy to become a leading global producer of this high-value cannabinoid.
When looking at the economics associated with the production of CBG, there is a lot to be favorable on. Currently, it costs around $20,000 per kilogram of CBG and this is significantly higher than the $4,000 price tag associated with a kilogram of CBD. Next year, the cost per kilogram for both CBG and CBD are expected to decrease and Hemptown will benefit by focusing on the production of hemp that is high in both cannabinoids. We are favorable on the is aspect of the operation and believe that Hemptown is well positioned to combat future price compression by focusing the on the production of these two high-value cannabinoids.
Hemptown initially established operations in Oregon and has eight years’ experience operating in the region. 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. During the last year, Hemptown has significantly expanded its reach and is currently utilizing proprietary technology to cultivate hemp in Colorado, Kentucky, and Oregon. Between these three states, Hemptown will cultivate on 1,500 acres in 2019 and expects to produce 1 million pounds of CBG and 200,000 pounds of CBD.
Hemptown has been able to differentiate itself from the competition through its focus on the production of both CBD and CBG and through its strategy for growth. Going forward, the company plans to increase production capacity through acquisitions and strategic partnerships, and we are impressed with how the management team has been executing on this strategy.
When analyzing hemp focused businesses, we are primarily looking for companies that are already operational and have a proven track record of success. Investors also should be focused on businesses that are well capitalized, led by a management team with a proven track record, have a sound financial structure, act in the best interests of shareholders, and continue to execute on business initiatives. We believe that Hemptown represents an attractive growth opportunity as it possesses the right traits and is a pre-IPO company that we are excited about.
Cardiol Therapeutics: A CBD Company with Multiple Revenue Streams
Cardiol Therapeutics (CRDL.TO) (CRTPF) is focused on creating the purest and safest cannabidiol (CBD) therapies while innovating unique formulations to target heart disease. When analyzing the growth prospects associated with Cardiol Therapeutics, there is a lot to be excited about. The company has several significant potential catalysts for growth including:
- the launch of its pharmaceutical CBD product line later this year
- the scaling of its supply of premium CBD
- the formation of strategic international research partnerships
- the advancement of its heart failure therapies
- the development of additional CBD products that are based on science.
Cardiol Therapeutics represents a multi-faceted growth opportunity that has several emerging pharmaceutical product streams. The company has a number of attractive potential near and long-term catalysts. When looking at the company’s near-term growth prospects, we are most excited about the launch of CardiolRx™ which is expected to be available in Canada in the near future. Through the launch of CardiolRx™, a THC-free premium CBD product, Cardiol will be able to capitalize on the $1.2 billion CBD market (according to New Frontier Data) and we expect this product should be a major revenue driver for their business.
Another potential pharmaceutical product stream is related to Cardiol’s planned clinical trial in acute myocarditis, a condition characterized by the inflammation of the heart muscle. The clinical trial will utilize the company’s CardiolRx™ CBD formulation and this will provide the company with a unique opportunity to build brand awareness in support of the commercial launch of Cardiol’s pure pharmaceutically produced CBD product.
So far this year, Cardiol Therapeutics has done a fantastic job at advancing its fundamental story and has recorded several significant achievements. We believe that this is just the start of something big and Cardiol is an opportunity that has several potential catalysts for growth. Over the next year, the company should report major developments as it relates to CardiolRx™ and we expect this to prove to be a major revenue generator.
When looking at the most significant potential catalysts for Cardiol, we are looking for the company to announce distribution agreements for the sale of CardiolRx™ in Canada. The launch of CardiolRx™ will also serve as a major catalyst later this year as the product should set the standard for purity and consistency. The entry into additional international markets in Europe or in Latin America would also represent a major advancement in the story. And finally, how the advancement of clinical programs designed to demonstrate the impact of CardiolRx™ and CTX formulations on inflammatory heart disease will be a significant catalyst for the company.
Veritas Farms: A Colorado CBD Growth Story
Veritas Farms, Inc. (VFRM) represents a turnaround story in the making and this is a business that we have been following since inception. During the last year, Vertias has recorded impressive growth and we have seen the products being offered in a number of CVS locations. The vertically integrated agribusiness is focused on producing whole plant, full spectrum hemp oils and extracts containing naturally occurring cannabinoids.
Veritas currently owns and operates a 140-acre farm and production facilities in Pueblo, Colorado, and is registered with the Colorado Department of Agriculture to grow industrial hemp. The company markets and sells products under its Veritas Farms brand and manufactures private label products for a number of leading distributors and retailers. All of the company’s products are tested by a third-party laboratory for strength and purity, which is an important aspect of the story.
Earlier this month, the company’s CEO issued an update that caught our attention and we want to highlight some of the most attractive aspects of the story.
- The company’s products are being sold at more than 4,500 retail locations nationwide, including more than 3,500 national chain pharmacy and supermarket
- To fund growth, Veritas Farms completed two private placement financings over the past 19 months which provided more than $20 million. The capital is being used to fuel expansion efforts, to focus on the creating of new products, and to capitalize on inorganic and organic growth opportunities
- During 2019, Veritas Farms added several new members to its senior management team and has focused on enhancing the human capital aspect of the business
- Over the past year, Veritas Farms has spent considerable time and resources to develop exciting and unique new products. We expect to see new products launched in the near future and will monitor how the market responds to these
- During the last year, Veritas has recorded strong revenue growth and we expect to see this trend continue as the company expands into new markets
During the last few months, Veritas has come off its recent highs and this is an opportunity that has come onto our radar following the operational update. When compared to its peers, Veritas has an attractive valuation (from a market capitalization standpoint) and we will monitor how the story continues to advance.
Hempfusion: A Fully Funded Pre-IPO CBD Growth Story
Last month, we met with the management team that is behind Hempfusion and this is a private CBD company that has been on our radar. During the last two months, the company has raised more than $40 million and is well positioned to execute on its growth strategy and to increase market share.
Hempfusion is led by a management team that has a proven track record of success and we find this to be an important aspect of the operation. During the last month, the company has hired several additional sales executives and we are favorable on the focus on growth. One of the reasons we are excited about Hempfusion is due to the strength of the management team and believe that this will play an important role in the continued success of the business.
Currently, Hempfusion products are being sold in more than 3,500 stores across the US and this number is expected to significantly increase before the end of the year. The company has attractive growth prospects and has the capital that is needed to execute. When looking at a hemp business with these two characteristics, there is a lot to be excited about and Hempfusion is an opportunity that is on our radar.
In the coming months, we expect to see Hempfusion complete a go-public transaction and believe that this is an opportunity to be watching. 2019 has already proven to be a banner year for the CBD business and we expect 2020 to be even more significant. Similar to Veritas, Hempfusion has an attractive valuation (from a market capitalization standpoint) and this is a private opportunity to put on your radar.
Aurora Cannabis: Completes the Acquisition of Hempco
Aurora Cannabis (ACB.TO) (ACB) is a leading Canadian cannabis producer that has attractive leverage to several of world’s most exciting cannabis markets. The leading cannabis producer has also been highly focused on the CBD-hemp opportunity and been acquiring businesses to enhance its leverage to this side of the industry.
We were not surprised by this acquisition based on Aurora’s previous investment in the CBD-hemp business. Hempco is a provider of hemp-based foods, fiber, and nutraceuticals. Its brands include Planet Hemp food products and Praise nutritional supplements for animals. We expect this acquisition to immediately prove to be accretive to Aurora Cannabis and will monitor how the business continues to capitalize on the CBD opportunity.
We believe that Hempco is better positioned to capitalize on the CBD market as a subsidiary of Aurora (instead of as a standalone company). As a subsidiary of Aurora, Hempco will have access to additional resources and we expect this to play an important role in future growth. Access to capital is key component for success and we believe that Aurora makes this process easier for Hempco.
Following the acquisition of the Hempco, the response from the market was minimal and we believe that the market underappreciates this aspect of the business. Aurora has been under heavy pressure and has been downgraded by several leading broker-dealers. We will monitor this trend and will keep an eye on how Aurora is able to capitalize on the CBD market following the completion of this acquisition.
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