When it comes to the global cannabis opportunity, Asia represents an untapped market and we have been highly focused on this aspect of the industry. Only a few companies have announced plans to capitalize on this region and we find this to be significant.\
Of the companies that have reported plans to capitalize on the Asian cannabis opportunity, there is no clear leader and the announcements so far have not been significant. When it comes to the Asian cannabis market, we are mostly focused on the cannabidiol (CBD) opportunity and we are bullish on the growth prospects associated with this vertical.
In the near future, Canrim Capital Group is expected to complete a go public transaction and commence trading on the Canadian Stock Exchange (CSE). By accomplishing this, the company will be able to use its stock as a currency to further penetrate the Chinese CBD market and we are bullish on the growth prospects associated with its strategy.
China is the world’s largest market from a population standpoint, and we find this to be significant when measuring the size of the opportunity. One of the reasons we are favorable on the Chinese market is due to the changing regulations that supports businesses like Canrim. China regulates CBD production and processing on a provincial basis and the high barriers to entry support companies like Canrim. Currently, two provinces in China have legalized CBD production and we believe that this is just the start of something big.
Currently, Canrim’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). These two assets provide the business with attractive leverage to the Chinese CBD market and are favorable on the amount of value that can be created through them.
CGA Represents an Attractive Growth Driver for Canrim
In regard to CGA, the companies reported to have 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. Going forward, Canrim plans to leverage its investment in CGA as well its memorandum of understanding with HH Biotech to accelerate growth and we are favorable on this opportunity for the business.
Another reason we are favorable on CGA is related to the number of avenues it provides Canrim for growth. CGA has been highly focused on bringing its proprietary sales platform, iBloom, to market and find this to be an attractive aspect of the operation. iBloom is a cross-border WeChat sales tool that targets primarily Chinese consumers and we are favorable on the amount of value that can be created through it. 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.
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 the distribution of hemp CBD goods in China, which is the world’s largest cultivator, producer, extractor and exporter of CBD. It will also focus on investing and acquiring Asia-based CBD companies that are looking to expand. We are favorable on the growth prospects associated with this strategy and will monitor how the team continues to execute.
Strategic Relationship with NSG is Expected to Support Growth
Although we consider CGA to be the most attractive asset to fall under Canrim’s umbrella, we are favorable on the amount of value that can be generated through NSG. We are of the opinion that the assets that fall under the company’s umbrella are complementary to each other and find this to be significant when it comes to the long-term opportunity.
Last year, the companies announced an exclusive, commercial arrangement to distribute co-branded CBD products across NSG’s platform. NSG has an Asia-wide distribution reach which 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.
From a distribution standpoint, NSG is an attractive asset that has developed and launched its own brands. The company has also brought other successful brands to China from North America and Europe to Asia. We are favorable on the amount of value that can be created through NSG’s network and will monitor how the management team is able to enhance the overall business through it.
An Untapped Growth 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.
According to Prohibition Partners, Asia’s cannabis market is estimated to be worth over US$5.8 billion by 2024. 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.
One of the most important parts of the Canrim story is related to the management team and we consider this to be a bright spot of the story. The management team is comprised of executives that have diverse skill sets as well as a proven track record of success in the cannabis industry. A few members of the team have experience with public and private companies in China and we expect this to play an important role in the success of the business.
During the last year, Canrim has been nothing short of an execution story and we are impressed with the way the management team has been able to drive the business forward. We find this to be an important aspect of the story and expect the company to benefit from the strategic relationships that are already in place.
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.
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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