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Although many companies are focused on the production of marijuana that is high in THC, demand for CBD derived products continues to grow.
The surge in demand is not surprising as many people have started to recognize the benefits of CBD, which is a non-psychoactive chemical compound found in cannabis. This means that CBD does not get you high.
We have been focused on companies levered to this burgeoning market and came across Tree of Knowledge (CSE: TOKI), which is focused on the production and sale of CBD products via its subsidiary, EVR Brands.
About Tree of Knowledge
EVR Brands is focused on the production of CBD products with proprietary state-of-the-art equipment. The products are organic, gluten-free, vegan, and formulated with other natural ingredients. EVR utilizes a third-party to test all products and has QR codes on all products to check laboratory results and view the Certificate of Analysis (CoA) for the specific product batch. This is significant since the CoA shows the CBD purity and provides a guarantee that no pesticides, microbial, or heavy metals are in the product.
Demand for CBD products continues to grow and we think this market is in the early stages of a massive growth cycle. The fact that CBD does not get the user high and provides significant health benefits has been driving demand for products all over the world. EVR has a substantial product portfolio and offers capsules, tinctures, pens, balms, and more. We are favorable on Tree of Knowledge’s ability to capitalize on this opportunity and will continue to monitor how the team executes.
A Global CBD Opportunity
EVR is focused on the global CBD market and is levered to emerging markets in North and South America, Asia, and Europe. We are favorable on this geographic diversity and the continued execution.
In Brazil, CBD products are prescribed by doctors after being approved through the government. EVR is one of 11 approved suppliers to physicians in Brazil and is the most well-known and requested CBD product line, according to the doctors that prescribe it. In 2018, EVR expects to generate approx. $725,000 in revenue in Brazil. The company expects this market to become a significant growth driver for EVR and will monitor how the team executes from here.
The Argentina market is similar to Brazil when it comes to how the products are approved and prescribed. In Argentina, EVR is one of only two approved suppliers. In 2018, EVR expects to generate approx. $200,000 in revenue in Argentina and will monitor how the team executes on this goal.
EVR is trying to enter the European market via Ireland and has an operational distribution facility in Dublin. In 2018, EVR expects to generate $1 million in revenue in Ireland and if the company can expand into new European markets, this part of the business can prove to be very significant.
EVR has a presence in China and expects to generate $1.5 million in revenue in China in 2018. EVR created Gout Crème specifically for a distribution partner in this market and delivered the first products in January. By the third quarter, EVR expects to start distributing 50,000 units a month and we will monitor this division for future growth.
In the U.S. the company has partnered with several large distribution groups that have started to gain market share and drive revenues. We are bullish on this market due to the size and growth potential.
EVR is also targeting the Canadian CBD market and we are bullish on this. Canada offers the company access to the world’s largest indoor grow, a good distribution network, and a world class R&D and teaching facility.
An Emerging Growth Story
TOK is targeting several new, high-growth markets and we are favorable on the continued execution. As the company continues to enter new markets, fundamentals should continue to improve and this is an opportunity to keep an eye on.
TOK is working with FUJI Water to create and exclusively market throughout North America, Europe, and Australia. The product is a Hydrogen and CBD infused water which will be produced out of TOK’s Scarborough location in Canada.
TOK is currently developing a sleep product that will be an all-natural alternative to existing products from the company’s Macedonia location. The facility is a fully licensed, GMP, ISO-9001 Certified, Import-Export facility allowing for all cannabis and CBD products as well as access to the European Market. This will be among other new products TOK will introduce upon public offering.
Over the next few years, TOK expects to record strong revenue growth and we are favorable on these projections. In 2018 and 2019, TOK expects to generate $5.3 and $28 million in revenue, respectively. In 2020, the company expects to generate $49 million in revenues. If the team is able to execute on its plan and generate revenues of this magnitude, TOK will be able to cement itself as a leading global player in the CBD market.
Led by a Proven Management Team
When it comes to cannabis companies, it is very important to take a look at the management team. TOK is led by a strong management with diverse backgrounds. We are favorable on the track records and the combination talent. This is an important aspect of the TOK story and something to keep an eye on.
TOK is led by CEO Jean-Paul Gaillard who has had incredible business success with some of the most notable companies in the world. His best-known achievements include creating the Marlboro Classics brand for Philip Morris Europe where he served as a marketing manager and creating the worldwide market segment and business model for high-margin single-serve coffee for Nestle Nespresso where he served as CEO.
We are favorable on TOK’s leadership team as well as the Board of Directors. The company has put a strong team in place and we are monitoring how the team executes.
A Company to Watch
Tree of Knowledge plans to go pubic very soon and we are excited by this global CBD company. The company has several levers for growth and is led by a management team with a proven track record.
The existing operations, improving fundamentals, and growth opportunities make Tree of Knowledge a company to watch. This is a differentiated opportunity and we are favorable on this upcoming listing. Cannabis investors looking for leverage to the global CBD market should take a look at this one.