Although demand for hemp and cannabidiol (CBD) products has not been too impacted by the COVID-19 outbreak, the sector has not lived up to expectations. Companies that were considered to be leaders in the hemp-CBD industry have been forced to shutter operation or file for bankruptcy.
During the last year, the valuations that were assigned to many industry leaders have been slashed by more than 50% and our readers need to be aware of this trend. Today, we want to highlight 3 hemp-CBD companies that have lived up to expectations and are opportunities to be aware of.
McConnell Backed GenCanna Files for Bankruptcy
GenCanna is a hemp company that is backed by Republican Senator Mitch McConnell and is a business that has failed to live up to expectations. Due to McConnell’s involvement, the company was overly hyped and was considered to be one of the most attractive industries in the sector.
Earlier this year, GenCanna surprised the industry when it reported to have filed for bankruptcy. The reason for the filing was related to the hemp producer spending more money than expected, construction delays at a new processing center, and a fire at its existing facility in 2019.
GenCanna filing for bankruptcy sent shockwaves throughout the industry and put additional pressure on the hemp and CBD sector. Following the announced, GenCanna issued an update in what seemed to be an attempt to restore investor confidence. The corporate update failed to gather support for the business and this is an company that we will be proceeding with caution with.
Canopy Growth Shuts Down New York Hemp Operation
Last month, Canopy Growth Corporation (WEED.TO) (CGC) announced plans to shut down its hemp-cultivation operation in New York state. This comes after the Canadian cannabis producer made an aggressive move into the US hemp market and the announcement took the market by surprise.
The reason for Canopy Growth’s decision to shut down the facility was related to oversupply. Last year, the company completed several harvests and reported to have a substantial amount of hemp leftover. Canopy Growth state that the decision was part of a shift in global strategy to optimize production and better align supply and demand in the current market.
With the shutting down of Canopy Growth hemp-cultivation operation in New York, there has been a decrease in the amount of material that is expected to hit the market in 2020 and 2021. Canopy Growth has a well-rounded operation with assets all over the globe and we will monitor how the business continues to pursue the hemp and CBD market in the US.
What is the Status of Hemptown USA?
Last year, we learned about Hemptown USA and became excited about the private company. Through company owned assets and contract farming agreements, Hemptown had substantial leverage to the US hemp market. Although Hemptown is focused on the CBD market, it has more leverage to the cannabigerol (CBG) market and we find this to be significant.
Due to the increase in the number of companies that are focused on the CBD market, there has been significant price compression and we are favorable on the focus on CBG. Despite CBG being a less known about cannabinoid, there has been an increase in the number of companies focused on the cannabinoid. Although CBG has not been immune to price compression, the price per kilo is substantially higher than the price per kilo of CBD.
Over the next year, we expect to see Hemptown list on a stock exchange and is an opportunity that we continue to follow. We are favorable on the direction that the management team has been taking the business and is an opportunity that our readers need to be aware of.