Last month, we highlighted Canrim Growth Group as an early mover on the cannabidiol (CBD) market in Asia and this is a company that has caught our attention. When compared to North America and Europe, we believe that Asia represents a massive untapped opportunity and are bullish on this market due to its sheer size.
When we analyze Canrim, we see a business that is in the early innings of a major growth cycle and are favorable on the structure of the operation. Canrim is currently comprised of two portfolio companies, CBD Group Asia (CGA) and Natural Source Group (NSG). We are favorable on the amount of value that can be created through these assets and wanted to issue an update on this emerging opportunity.
CGA and NSG Have Canrim Positioned for Growth
2019 has been a banner year for Canrim and we expect 2020 to be even more significant. Earlier this year, Canrim announced an agreement to acquire a 75% ownership interest in CGA and we are favorable on this aspect of the business. Through a Shanghai-based incubation program, CGA will invest and partner with North American companies that offer premium CBD products. CGA will also establish businesses in strategic international markets to develop new brands and introduce high tech solutions within the CBD sector.
Canrim has an exclusive commercial arrangement to distribute co-branded CBD products across NSG’s platform. NSG has an Asia-wide distribution reach and has been conducting sales since 2013. NSG’s underlying investment thesis is that a fundamental imbalance exists between sources of supply and aggregate demand in areas of the emerging frontiers of Asia. NSG has developed and launched its own brands as well as having brought other successful existing ones from North America and Europe to Asia.
Through a multi-faceted growth strategy, CGA is well positioned to penetrate the Asian CBD market and is developing its own brands and partnering with leading North American brands. Going forward, CGA will focus on investing and acquiring high growth CBD companies that are based in Asia and are looking to expand. We are favorable on the growth prospects associated with this strategy and will monitor how the team continues to execute.
From a distribution standpoint, CGA is well positioned and has partnered with world class distributors to reach millions of customers who are looking for high quality CBD products. CGA intends to be the gateway for companies that are looking for exposure to Asia and has established an incubator in Shanghai to help with this process. Through this platform, CGA is investing and partnering with innovative CBD related start-ups and existing businesses to create new brands and high-tech solutions within the CBD sector that can be used in China and abroad. CGA already has secured strategic partnerships with state and non-state owned enterprises within the China CBD space and we are bullish on this aspect of the story.
When looking at the amount of value that can be created between these assets, there is a lot to be excited about. Both CGA and NSG are led by management teams that have proven track records of success and we find this to be an attractive aspect of the story. We believe that the strength of the management team will play a key role in the success of the business and are of the opinion that Canrim is well positioned to capitalize on underserved markets.
Asia Represents an Untapped CBD Market
Asia is a largely untapped CBD market and represents the second largest health and beauty market in the world. The market is well positioned to benefit from the global secular trend toward the legalization of cannabis, particularly in healthcare and cosmetics, and Canrim should be a major beneficiary of this transition.
It is estimated that Asia’s cannabis market will be worth over US$5.8 billion by 2024. China in particular has a potential US$4.4bn market size for CBD products and already places no limitation on CBD content for its cosmetics, according to Prohibition Partners (2019).The country is highly focused on the potential associated with high-CBD strains; during the last year, the country has been investing heavily in health-related CBD products and we are favorable on the trend of this market.
When compared to the North American markets, Asia represents an opportunity that is not saturated, and we are favorable on CGA’s strategy for success. We believe that Canrim is well positioned to capitalize on a market that is not even in the first inning of a major growth cycle and we believe that this aspect of the story is not fully appreciated by the street.
A Pre-IPO Opportunity to be Aware Of
We believe that Canrim has done a great job when it comes to execution and can see that this story is just getting started. Over the next year, we expect to see several additional acquisitions and are favorable on the assets that are already in place. Going forward, we are looking to see Canrim expand by executing on a series of organic and inorganic growth initiatives and will continue to closely monitor this opportunity.
Canrim is a currently raising funds through a private placement ahead of a planned go-public transaction. During the fourth quarter, the emerging CBD company expects to commence trading on the Canadian Stock Exchange (CSE) and this is a new listing that we are excited about.
If you are interested in learning more about the Asian focused CBD company, please reach out to firstname.lastname@example.org and we will add you to our distribution list!
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