Earlier this month, we engaged with High Hampton Holdings (HC:CNX) (HHPHF) at the MoneyShow Las Vegas Cannabis Investing Event. This is a company we have been closely monitoring as we are favorable on its focus on the California marijuana market.
California’s marijuana market is expected to be the largest in the world, and High Hampton is laser focused on this opportunity. Through a variety of strategic initiatives and agreements, the company is working toward increasing market share in California.
A Distribution and Execution Story
Earlier this month, High Hampton entered a binding term sheet to acquire 8 Points Management LLC and its Bravo Distro subsidiary in an all-stock transaction. The companies expect to enter a definitive agreement soon, and we view this as a significant acquisition for High Hampton.
8 Points Management is a proven operator offering a full-service distribution model that will help High Hampton access major distribution centers in strategic hubsacross California, including a prominent location in Sacramento. Bravo is a California cannabis distributor that has been recording significant growth and provides immediate access to a major distribution center in California, a team of alcohol distribution veterans, and creates the foundation for building out a leading distribution network in California. High Hampton plans to unify these assets and create centralized hubs that will maximize value for shareholders.
We expect these acquisitions to prove to be accretive and expect High Hampton to recognize significant values as the company continues to execute. Distribution is the key to any business, and this is especially true in the cannabis industry. High Hampton plans to be a leading California player, and we are favorable on the recent moves.
Possesses Several Significant Catalysts for Growth
One of the reasons why investors need to keep an eye on High Hampton is the number of upcoming catalysts. The first half of 2018 has been significant for High Hampton, and we expect the company to build off its success during the back half of the year.
When it comes to catalysts, some of the biggest opportunities for High Hampton pertain to licensing and distribution. Earlier this year, High Hampton acquired a 10.8 acre property in Coachella, California and is pursuing Conditional Use Permits (CUP) for cultivation and manufacturing. In late 2017, High Hampton submitted its applications, and positive feedback would be a major catalyst for the shares.
The granting of a CUP would significantly increase the value of the property, and we view this as a potential catalyst for the company. To improve their chances of being granted a license, High Hampton has engaged strategic partners to ensure that the buildout is executed flawlessly, and we are favorable on this opportunity.
Focused on Capitalizing on New Growth Initiatives
As High Hampton continues to execute on its current business plan, the management team remains focused on the bigger picture and has its finger on the pulse of the market. High Hampton is led by a management team that has a proven track record of success and is focused on creating value for its shareholders. We are favorable on the leadership team, the continued execution, and the growth opportunities.
Currently, the High Hampton team is evaluating a multitude of opportunities to complement the Coachella asset and establish near term cash flow. We are favorable on this focus and believe that it would be incrementally beneficial to the company’s fundamentals.
The Coachella asset provides a strategic opportunity and position within the California marijuana market. The company will be able to easily expand its reach from this location as High Hampton is very focused on improving distribution. We believe the Coachella asset provides a great starting point for southern California and will keep an eye on how the company continues to execute.
An Undervalued Opportunity
With an attractive asset in Southern California and a leading management team, High Hampton is a cannabis stock that investors need to keep an eye on. With a market cap that is less than $75 million, the company’s valuation is too attractive to ignore, and we are closely monitoring how the team continues to execute.
High Hampton is well positioned to increase market share in California, and we are bullish on the company’s opportunity to do so. The company has several catalysts for growth, and we believe that there is significant upside to current levels. High Hampton is in the early innings of a major growth cycle and is focused on actively consolidating strategic California brands to increase market share via equity, royalty, and direct property ownership with leasing agreements. We think the shares have been hesitant to break out but believe that this issue is transitory and not something to be concerned about.
When you look at Canadian-focused companies with similar business models, the valuation tends to be considerably higher than High Hampton. Over the coming year, we expect to see this discrepancy change in favor of High Hampton and investors need to be monitoring this stock.