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Over the last two weeks, CNRP Mining (CRPGF) has captured the market’s attention. During this time, the company has executed on its strategy by closing on the acquisition of X-Sprays and by completing a $3 million non-brokered private placement.
Although the recent rally has been significant, we think the shares still have room to run. CNRP has been laser focused on executing and we believe the company has several potential catalysts that could send the shares sharply higher.
CNRP is in its pre-commercialization stage and we expect to see this CBD products company enter the commercialization stage in the very near future. This would be a major catalyst for the company and investors need to keep an eye on this.
Enters Colorado via a Dispensary Network
Today, CNRP announced a major milestone and launched a test market for two of its products (CBD and Sleep with CBD) with a group of Denver-based medical and recreational marijuana dispensaries. The test will last three months and once it is completed, CNRP will provide an update on the sales and performance of its products.
We are favorable on this development due to the market that the company is targeting. Colorado is a great place to test CBD products due to the maturity of its medical and recreational marijuana market.
Colorado is a massive market and as of September, the state has generated approx. $182 million in tax revenue in 2017. With three months left in the year, we expect Colorado to surpass the $193.6 million in tax revenue generated in 2016.
An Attractive Share Structure
Another reason why we are favorable on CNRP is due to the share structure. The company has a very small float and this will support share price appreciation when favorable news is reported.
The 6.4 million share float creates a supply-demand problem with the number of shares available for purchase and we are favorable on this aspect of the story. In January, the 10 million shares issued as part of the $3 million financing will become unlocked and we will be monitoring how CNRP trades ahead of this event.
Undervalued When Compared to its Peers
If you were to compare CNRP to Lifestyle Delivery Systems (LDS.CD), which operates a similar model and is in the pre-commercialization stage, it is easy to conclude that CNRP is undervalued.
LDS has 90 million shares outstanding and a market cap of approx. $38 million. CNRP has 17 million shares outstanding and a market cap of approx. $13 million. Today’s development is significant and put CNRP on a better footing than LDS. We think investors need to keep an eye on this company as the shares still have room to run.
Tinley Beverage Company (TNY.CD) is another good comparable for CNRP since the company’s model is similar and is also in the pre-commercialization stage. Although CNRP is a more attractive opportunity, Tinley’s market cap is twice the size.
Completes Acquisition on Favorable Terms
CNRP acquired X-Sprays for 16.8 million shares of common stock and these are locked up for three years (some of the shares become unlocked every six-months). We are favorable on this acquisition because of its accretive nature and the structure of the financing.
We are also favorable on the terms of the acquisition since X-Sprays needs to deliver and hit certain milestones to receive all the shares. A milestone based payment structure is much more attractive for the acquirer. If the company being acquired does not deliver, it will not earn the entire payment.
Investors Must Watch this Execution Story
Investors need to keep an eye on CNRP as the company continues to execute and possesses several major catalysts for growth. Although the shares have moved considerably higher, CPRGF remains undervalued when compared to its peers.
CNRP recently closed a $3 million private placement and we expect to see the company use this capital to expand its reach and penetrate new markets. We are favorable on CNRP and believe the management team has the company well positioned to execute.