During the last year, demand for products that contain high-value cannabinoids has continued to increase and this comes after the enactment of the US Farm Bill in late 2018.
The passage of this legislation was a major catalyst for the companies that have been focused on the production of high-value cannabinoids and we have been closely following this aspect of the cannabis industry.
One of the major themes of 2018 has been the rise of the cannabidiol (CBD) industry and this is a trend that we have been highly focused on. Although CBD has quickly become the best known non-psychoactive cannabinoid, over the next year we expect to see increasing demand for other cannabinoids such as cannabidivarin (CBDV) and cannabigerol (CBG).
When looking at the amount of companies that are focused on the production of CBD, there is a lot to be excited about. Companies all over the world have taken a major interest in the CBD opportunity and have been laser focused on increasing production capacity. Over the next year, we expect to see a significant increase in the amount of CBD products that are available to the market and expect this increase to lead to considerable price compression.
Although we are bullish on the growth prospects associated with the CBD market, investors need to be aware of the potential impact that this level of expansion could have on the price of CBD over the long-term. Due to the potential for price compression in the CBD market, we have been focused on identifying companies that are also engaged in the production of high-value cannabinoids like CBDV and CBG.
Hemptown USA (private) is a company that we have been excited about due to the focus on the production of CBD and CBG. When it comes to the CBG market, we believe that Hemptown has a first mover advantage and is well positioned to capitalize on the increasing demand for the high-value cannabinoid.
Hemptown USA is a Growth Story to be Watching
When analyzing the growth prospects associated with Hemptown, there is a lot to be excited about. During the last year, the company reported several acquisitions and agreements that will quickly prove to be accretive to the business and this is an important aspect of the story. Hemptown is currently in the middle of a major expansion that is focused on dramatically increasing the amount of CBD and CBG that it can produce and we are bullish on the amount of value that can be created from this.
Hemptown initially established operations in Oregon and has been nothing short of an execution story in this market. Last year, the company dried and stored 110,000 pounds of hemp and expects to produce over than 1.5 million pounds this year. 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.
One of the reasons we are excited about Hemptown is due to the way the business has evolved and advanced. The company is led by a management team that has a proven track record of success and we are favorable on this aspect of the story. During the last year, Hemptown has significantly expanded its reach and is currently utilizing proprietary technology to cultivate hemp in Colorado, Kentucky, and Oregon.
A Leading Hemp Business with Attractive Economics
From an economics standpoint, we are favorable on Hemptown’s focus on the CBG market and expect this focus to pay dividends over the long-term. When compared to CBD, we expect to see much less price compression in the CBG market and this primarily due to the limited number of companies that are focused on this opportunity.
Currently, each kilogram of CBD isolate sells for approx. $2,000 to $4,000 (depending on the size of the purchase) and we expect to see significant price compression over the coming years once these CBD focused companies start producing at scale. Currently, it costs around $20,000 per kilogram of CBG isolate and we find the difference in cost when compared to CBD to be of the utmost importance.
Next year, the cost per kilogram for both CBG and CBD is expected to decrease and Hemptown will benefit by focusing on the production of hemp that is high in both cannabinoids. We are favorable on this aspect of the operation and believe that Hemptown is well positioned to combat future price compression by focusing on the production of these two high-value cannabinoids.
Launching Hemptown Chew in the US and Canada
A few weeks ago, Hemptown unveiled its new Chew gum, a consumer SKU that contains the highest levels of hemp-derived CBD and CBG cannabinoids available on the market. The launch of this product represents a major milestone for the business as it marks the first consumer product innovation to come out of Kirkman Group, a longtime nutraceutical manufacturer that was acquired by Hemptown in July.
In the near future, the Hemptown Chew will be available to consumers in the US. We expect to see strong consumer demand for this product and are favorable on the growth prospects associated with this vertical of the industry. When you look at the types of CBD and CBG products that are available to consumers, there are not many types of infused gum products on the market and we find this to be significant.
Hemptown is led by a management team that conducts significant due diligence before it brings a new product to market and we find this to be notable. From market availability to a pricing standpoint, we are favorable on the amount of research that is conducted by the team. From a resource standpoint, Hemptown has proven itself to be a lean operator and we are favorable on how this will impact profitability over the long-term.
A Company with Visible Growth Prospects
Over the next year, we expect to see Hemptown substantially increase the number of acres it is cultivating on and we are bullish on this aspect of the story. One of the reasons we are confident in Hemptown’s ability to execute is related to the strength of the balance sheet and the management team’s ability to put capital to work in ways that are accretive to the business.
Due to this, we believe the company is well positioned to take advantage of strategic growth opportunities. During the last year, there have been several major new listings coming out of the US and Hemptown is one to have on your radar.
To learn more about how Hemptown is positioned to be a leading hemp business, please email firstname.lastname@example.org to be added to our distribution list.
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