The coronavirus outbreak has served as a headwind for most industries and has put significant pressure on global markets. From automobile manufacturers to restaurants, major industries across the globe have been forced to shut down operations and this is a trend that our readers need to be aware of.
Although the last month has been difficult, there have been a few bright spots in the economy and some industries are benefiting from the outbreak. The cannabis industry has been one of the few beneficiaries as dispensaries across the US have been reporting substantial revenue growth during this time.
As demand for cannabis increases, so does the need for the products and services that are used during the production process. Going forward, we expect the uptick in demand for cannabis (as a result of the coronavirus) to have an impact on ancillary businesses that are focused on some aspect of the cannabis value chain.
MustGrow Biologics Corp. (MGRO.CN) is a business that we expect will benefit from the increase in demand for cannabis and is an opportunity that we have been following. MustGrow is an agricultural biotech business that is focused on providing natural, science-based biological solutions to replace synthetic chemicals used in high value crops (i.e. fruits, vegetables, turf, tobacco, cannabis, and hemp).
One of the ways that MustGrow has been able to differentiate itself from the competition is through the ownership of a patented technology that is derived from mustard seed and can be used as a natural bio-pesticide. To date, the agricultural biotech business company has completed more than 100 independent trials that show that its proprietary technology is just as effective as synthetic chemicals in controlling soil borne pests and diseases.
Positioned to Execute on Previously Announced Initiatives
In late 2019, MustGrow was able to strengthen its balance sheet through the completion of a private placement and this is an important aspect of the story. Many cannabis companies are running on fumes when it comes to a capital standpoint and this is a trend that our readers need to be aware of. MustGrow is well positioned to execute on previously announced initiatives and has substantial potential catalysts for growth.
A lot of the groundwork has been laid out for MustGrow and we are favorable on how the story has advanced. During the last several years, the company spent over $10 million while working to develop and patent state-of-the-art agricultural technology and complete more than 100 independent research trials. Through the trials, the company has been able to gather the necessary data to prove that the proprietary product is as effective as chemical treatments and this represents an important aspect of the story.
Going forward, MustGrow is focused on developing a more concentrated version in a liquid format. Since a lot of the groundwork has already been completed, the management team expects the process to be substantially shorter. Over the next two years, the company wants to have its liquid formulation registered as a biopesticide in the US and Canada, wants to move the registration applications forward for its cannabis products, and be granted additional patents.
A Canadian Cannabis Growth Story
The Canadian cannabis industry has been a major area of emphasis for the business and we are favorable on the leverage that it has to this opportunity. By the third quarter of 2020, MustGrow hopes to have three products available for sale in Canada. We are favorable on the company’s strategy for releasing products as well as the types of products that are being launched.
The first product will be CannaMG, which is the company’s mustard derived technology that is used to treat the soil pre-plant before being brought into the greenhouse for cannabis production. The second product, CannaPM is a third-party product that was licensed in 2019 and is a bio-fungicide that has been used to treat powdery mildew. The third product is a bio-fertility product that is currently available for sale under the brand name TP-1000 and has been shown with third party studies to increase cannabis yields by 4.6% and terpenes by over 20%.
Over the next year, we expect to see MustGrow penetrate the Canadian cannabis market and are bullish on the amount of value that can be generated from it. With regard to MustGrow, we should be focused on its ability to penetrate markets across the world and are bullish on the global opportunity for the business. In Canada alone, if the company can achieve a 20% market penetration by 2021, it is estimated that it could be potentially generating approx. $80 million of revenue per year and we believe that the market does not take the global opportunity into account.
A Market Disrupter to be Following
The trend toward organic products is one of the most significant consumer shifts of the last century and we expect this trend to become more prevalent on a year-over-year basis. MustGrow owns patented mustard-derived technology that provides it with a significant opportunity to capitalize on the natural bio-pesticide market.
Through this technology, the company has the potential to disrupt the global agricultural pesticide market which is estimated to be a $65 billion market. When compared to synthetic products, MustGrow has an efficacious product, compared to synthetic chemicals, at controlling soil borne pests and disease and we find this to be an important differentiator for the business.
MustGrow has visible growth prospects and is led by a management team that has a proven track record of success. When we analyze a cannabis company, the management team is one of the first aspects of the story that we look into. We believe that MustGrow is led by a team that is well rounded and has diverse skill sets and expertise. During the last year, the management team has been highly focused on gathering the necessary data to support the proprietary product and we are favorable on how they have been able to accomplish this.
One of the reasons that we are excited about MustGrow is related to the capital structure. Along with a company’s management team, the capital structure is one of the most important aspects of the story and we are favorable on the tight capital structure associated with the opportunity. Another important aspect when it comes to the capital structure is related to who owns the company. Management and advisors own approx. 22% of the total shares outstanding.
The organic opportunity is just getting started and MustGrow has attractive leverage to this burgeoning market. Over the next year, we expect to see the business penetrate additional markets and secure strategic partnerships with large scale agriculture and cannabis companies. At current levels, we find the growth profile to be compelling and believe that this is an opportunity that has substantial room for growth.
To learn more about MustGrow, please send an email to email@example.com to be added to our distribution list.
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