Hemptown USA has been making waves in the US hemp industry and this is an opportunity that we are excited about. Last month, we were fortunate to be able to meet the Hemptown’s management team and were very impressed with their operation. Following this meeting, we conducted a deep dive to better understand the Hemptown opportunity and have provided an update on this burgeoning hemp company.
In 2019, Hemptown plans to cultivate more than 500 acres of rare high-cannabigerol (CBG) genetics and this represents a massive opportunity. Following this harvest, the company will be positioned as one of the largest producers in North America and will be generating massive revenues. Although we have heard a lot about cannabidiol (CBD) in 2019, only a few companies understand the opportunity associated with CBG, which is the pre-cursor cannabinoid to CBD and THC.
CBG has been observed to have anti-fungal and anti-microbial properties and has been used to treat Psoriasis and Eczema. The mass market opportunities associated with CBG are significant and we are favorable on this. Outside of the applications associated as a cosmetic additive, we believe that there is a lot to learn about CBG and are favorable on the leverage that Hemptown has to this cannabinoid.
During the last year, we heard a lot about the opportunity associated with CBD and this is a trend that we have become very familiar with. With that being said, this is the first time we have heard about CBG and find this to be an attractive aspect of the business.
Hemptown: A Differentiated High-Growth Opportunity
Currently, there are hundreds of companies across North America that are solely focused on producing cannabis and are in the middle of massive expansions. As the amount of cannabis available for sale increases over the coming years, we will see significant price compression and the companies that are focused on the production of cannabinoids like tetrahydrocannabinol (THC) and cannabidiol (CBD) will be impacted by this.
By being one of the only companies to focus on the production of CBG, Hemptown will be able to protect itself from potential price compression and we find this to be a very attractive differentiator. The company’s foresight to focus on CBG is a testament to the strength of the management team and this is one of the most attractive aspects of the story.
When it comes to investing in a cannabis company (especially one that is private), the management team is the most important part of the story and is the primary reason to look at or to not look at the company. With regard to Hemptown, the company is led by a management team with diverse backgrounds and proven track records of success. We believe that the management team is aligned with investors, has significant skin in the game, and is focused on creating value for shareholders.
Currently, it costs around $20,000 per kilogram of CBG and this is significantly higher than the $4,000 price tag associated with a kilogram of CBD. Next year, the cost per kilogram for both CBG and CBD are expected to decrease and Hemptown will benefit by focusing on the production of hemp that is high in both cannabinoids.
A United States Expansion Story
Hemptown has established operations in southern Oregon which is not too far from the California border. The company has eight years’ experience operating in the region and has a 40,000 sq. ft. harvest processing facility. In 2019, Hemptown expects to produce 1 million pounds of CBG and 200,000 pounds of CBD. We are favorable on the growth prospects associated with the facility and will monitor how the team continues to execute.
Currently, Hemptown is utilizing proprietary technology to cultivate hemp in Colorado, Kentucky, and Oregon. Last year, the company dried and stored 110,000 pounds of hemp and expects to dry and store more than 3 million pounds in 2019. This represents impressive growth and we are favorable on the way the company is addressing the harvest bottleneck that many operators are currently facing.
Among three states, Hemptown will cultivate on 1,500 acres in 2019 and this number is expected to jump higher in 2020 and beyond. Next year, the company will be cultivating in California and this will bring the number of states to 4. We have been bullish on the California market and believe that this will prove to be a significant value driver to the entire business.
When it comes to the leverage to the hemp market in Kentucky and Colorado, the company has a different approach. During the past six months, Hemptown has established itself as a leader in Kentucky’s hemp market and has secured 19 contract farming partners in the state. In Colorado, the company established a joint venture farming operation and we will monitor how the team continues to execute.
Hemptown provides all of the genetics that are being used by their partners and we believe this is crucial when it comes to maintaining consistency. By using time tested standard operating procedures (SOPs), Hemptown’s partners will be able to produce a high-quality, high-yielding product and this will play a key role when it comes to securing additional partners.
Companies will want to work only with businesses that can position them for success and Hemptown can do this through the work it has accomplished on the genetics side of the business. We believe that this provides the company with a significant differentiator when it comes to securing additional farming partners and we are favorable on this aspect of the story.
Hemptown: An Extraction Leader in the Making
In 2019, Hemptown will not only be expanding the number of acres on which it is cultivating on but will also be expanding its extraction capabilities. This will play a major role in the company’s ability to create finished products and sell extracted cannabinoids to the market.
This company extracts cannabinoids from its state-of-the-art cGMP (current Good Manufacturing Practices) facility and ISO standard clean rooms which provides a significant competitive advantage when it comes to looking at Hemptown as a strategic partner. The company is currently developing a secondary extraction facility to complement the existing facility in Oregon.
Hemptown is the process of constructing a primary extraction facility in Kentucky that will mirror the operation in Oregon. We find this to be significant and like to see that the company is creating a consistent process that extends across the US. Going forward, Hemptown plans to invest in a pharmaceutical production facility for the development of consumer-packaged goods (CPG). We believe that this will prove to be a significant value driver for the company and will monitor how the team continues to execute on this project.
A Massive Revenue Generator to be Watching
In 2019, Hemptown is poised to generate massive revenues and we expect 2020 to be even more significant. At 1,500 acres, the company could generate upwards of $200 million in revenue which would make it the largest hemp company in the world. When looking at the Hemptown opportunity, it is hard to not get excited and this is an opportunity that is positioned for massive growth.
During the last year, the company has significantly strengthened its balance sheet in order to execute and raised $23 million (CAD) through a convertible debenture earlier this year. Hemptown plans to raise additional capital prior to conducting a go public transaction later this year and this is an opportunity that we are excited about.
To learn more about how Hemptown is positioned to be a CBD leader, please email email@example.com.
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