Although the market has been highly focused on the North American cannabis industry, we believe that these markets have become saturated over the last two years. For that reason, we have been working to identify emerging cannabis markets that are not saturated and are in the early innings of a major growth cycle.
We believe that Asia, and in particular China, represents an emerging market and stands out as an attractive long-term opportunity for a number of reasons. First, China is the world’s largest market from a population standpoint. Second, the market is not saturated, given that only a handful of companies are focused on it. More significantly, demand for cannabidiol (CBD) products in that region is rising and this is a trend that is just getting started.
In late 2019, we published a report on Canrim Growth Group that covered its plans to complete a go-public transaction on the Canadian Stock Exchange (CSE) and wanted to provide an update on the opportunity. Last week, the CSE approved the previously announced change of business (COB) transaction and this represents an important step in the go-public process.
Following the approval, Canrim will commence trading on the CSE (under the symbol CBDA) as an investment holding company. This is an opportunity that we are excited about and are impressed with how the story has advanced ahead of the planned listing. When it comes to Canrim, the management team was one the first that caught our attention and we are favorable on how the team continues to execute on previously announced initiatives.
Canrim has an attractive business structure and represents a multi-faceted growth opportunity. We are favorable on the amount of synergies that can be found between its divisions and consider this to be an attractive aspect of the story. Currently, the company’s investment portfolio includes: 1) Up to 75% equity ownership (on a post-converted, fully diluted basis) in CBD Group Asia Limited (CGA); and 2) A strategic investment and partnership with Natural Source Group Pte Limited (NSG). Over the next year, we expect to see Canrim increase the number of businesses that are included in its portfolio and are favorable on the amount of value that can be created through these assets.
CGA is Positioned to Capitalize on the Asian CBD Market
Earlier this year, Canrim and CGA signed a non-binding memorandum of understanding with HH Biotechnology Holdings, a leading Chinese CBD producer, to form the foundation of a cross investment and commercial partnership. Through this partnership, the companies plan to become a leading CBD cultivation, production and extraction company in China as well as in other countries in Asia.
The growth prospects associated with the Asian health and wellness market is significant and is already a multi-billion-dollar market. Over the next year, we expect to see increasing consumer demand for CBD products in Asia and this should benefit the relationship between these businesses. Going forward, Canrim plans to leverage its investment in CGA as well its memorandum of understanding with HH Biotech to accelerate growth. We are bullish on the growth prospects associated with the operation and will monitor how the companies are able to drive this relationship forward
When analyzing the Canrim opportunity, we believe that CGA will play an important role in growth and believe that our readers need to be aware of this aspect of the story.CGA has been working tirelessly on the roll out of its proprietary sales platform, iBloom and this could prove to be a major catalyst for the business. The iBloom mobile application is a cross-border WeChat sales tool that targets primarily Chinese consumers. In March, CGA expects to begin marketing iBloom and intends for it to be the first and the leading CBD focused sales tool in Asia.
CGA is receiving positive feedback on the iBloom platform and has received offers from numerous North American brands to list on the platform. iBloom has also received offers from Chinese wholesalers to purchase CBD products through the platform as well as CBD product manufacturers that are looking for exposure to Pan-Asia through export markets.
Initially, CGA will focus on the distribution of hemp CBD goods in China, which is the world’s largest cultivator, producer, extractor and exporter of CBD. One of the reasons we are favorable on this market is due to the changing regulations that supports businesses like Canrim. China regulates CBD production and processing on a provincial basis. Currently, two provinces (Yunnan and HeiLongJiang) have legalized CBD production and we find this to be significant.
Asia is the New Frontier for the Cannabis Industry
2020 should be a banner year from a regulation standpoint in China James Foster, CGA’s CEO, expects pharmaceutical and food legalization for CBD derived from hemp in 2020. This could prove to be a game changing development for the industry that will create countless of opportunities in the CBD space for companies like Canrim.
Concurrent with the announcement about the change of business approval, Canrim announced changes to the terms of the previously announced offering which will be completed in connection with the proposed change of business. After the change, the company is offering at least $2 million worth of units for $0.20 each.
Asia is considered to be the next frontier for the legal cannabis industry and we will continue to closely monitor Canrim. If you are interested in learning more about the opportunity, please send an email to email@example.com to be added to our distribution list.
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