The summer months tend to be the slow season for the cannabis sector and we are monitoring how this trend continues this year. Although this trend has been prominent in prior years, the cannabis industry is reaching an inflection point and 2018 may prove to be different.
One company that we have been monitoring closely is Isodiol International (ISOL.CN) (ISOLF), Isodiol International, a global CBD innovator specializing in hemp based health and wellness products, the development of pharmaceutical CBD delivery methods and the manufacturing of a pure, natural CBD as an Active Pharmaceutical Ingredient (API) for use in finished pharmaceutical products (FPPs). Isodiol is focused on increasing market share in the burgeoning global CBD market and the company has been executing flawlessly. The CBD market is in the early innings of a multi-decade growth cycle and Isodiol is well positioned to capitalize on the increased demand.
Capitalizing on the North America CBD Market
Earlier this month, Isodiol announced a binding agreement to acquire 51% of Round Mountain Technologies, LLC (RMT), a cultivator of organic hemp with operations in Nevada. RMT has a license to cultivate organic hemp on a 155 acre property in Nye County. The companies plan to cultivate organic hemp on 70 acres of the property and cultivation is expected to commence soon.
Shortly before the RMT agreement was announced, Isodiol completed the acquisition of 51% of Farmtiva Inc., a cultivator of hemp in California that also provides hemp farming and distribution support for farmers and other industry participants. Farmtiva has a partnership agreement with Imperial Valley Conservation Research Center which completed the first commercial planting of an approximately 60 acre hemp crop as of June 1, 2018.
Last month, Isodiol signed a LOI with Sundial Growers to import CBD isolate into Canada, subject to applicable regulatory approvals. This was a significant development and comes only a few weeks after the company signed a LOI with Zenabis to import CBD isolate into Canada from Isodiol’s GMP-certified production facility in the United Kingdom. Zenabis is a Canadian biopharmaceutical company and intends to import at least 3,000 g of CBD isolate a month for the purposes of R&D and new product formulation.
A Global CBD Company
In early June, Isodiol KURE Corp subsidiary finalized plans for a national retail expansion and plans to open several locations in cities across North America. This is a significant initiative and KURE signed a strategic representation agreement with Newmark Knight Frank (NKF) which is operated by the Newmark Group, Inc. (NMRK: Nasdaq).
NKF is a leading commercial real estate advisory firm and we are favorable on this relationship. Under the agreement, the Newmark Group has identified several national real estate investment trusts (REIT’s) who will provide Class A retail locations. The initial roll-out plan is for 10 cities across the United States with additional cities to be announced.
In late May, Isodiol strengthened its balance sheet and completed an $18 million non-brokered private placement. The expected total capital expenditure cost of the initial 10 locations is $2 million and the existing 12 KURE stores average $900,000 in revenue per year. As long as Isodiol can execute, the capital expenditure costs should be recovered pretty quickly.
KURE plans to expand its product offering by introducing Isodiol’s CBD products, including a new kathy ireland Health & Wellness product line in the second quarter of 2018.
An Undervalued Opportunity
Although Isodiol continues to execute, the shares have been under considerable pressure and have fallen more than 60% in the last quarter. We think the recent sell-off is overdone as Isodiol continues to execute on previously announced initiatives and this is an important aspect of the story.
Isodiol is led by a management team that is focused on creating value for shareholders and we are bullish on the recent developments. Over the last year, Isodiol has made several strategic investments and acquisitions and has also been able to lock down strategic supply agreements. As the company continues to execute, fundamentals should improve and we think Isodiol represents a significant opportunity.
We are always looking for undervalued opportunities and are keeping a close eye on Isodiol. The shares are trading near oversold levels and we think the recent pullback is something worth watching.