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Looking Around the Corner in the CBD Boom (CVSI, CWBHF, GDET, ACB)

The refresh is on the way in the CBD market. That should be at the top of the list for aggressive growth investors and professional investment managers looking out the next 12 months because the CBD space is the most obvious ground-zero theme for “shocking growth” anywhere to be found in capital markets.

“Cloud” is played out. Cannabis is oversupplied. Social Media is anathema. Blockchain is … maybe a bit more interesting. And we’ll get to that in a minute. But, first up, we have to run through some high-potential names in the CBD space to clarify where this story stands.

So, without further ado: Canopy Growth Corp (NYSE:CGC), Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF), GD Entertainment and Technology (OTCMKTS:GDET), and Aurora Cannabis Inc (NYSE:ACB).

 

Canopy Growth Corp (NYSE:CGC) has been hard at work, making a move on the CBD space.

They have the resources to anoint themselves as champion if that is a singular objective. The advantage we see with CGC is in management in terms of experience and leadership capacity. This is a bigtime team, and they know how to execute. The mere fact that CGC is targeting expanding scope of business in CBD could have other players in the space nervous.

Canopy Growth Corp (NYSE:CGC) engages in growing, possession, and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps.

According to its own materials, the company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names. It also offers its products through Tweed Main Street, a single online platform that enables registered patients to purchase medicinal cannabis from various producers across various brands.

In the company’s words, “Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time.”

We would also emphasize the globally diversified nature of this company, with operations in 12 countries across five continents.

One of its most important divestitures and strategic interests is Canopy Rivers Inc., a unique investment and operating platform structured to pursue investment opportunities in the emerging global cannabis sector. The company works collaboratively with Canopy Growth to identify strategic counterparties seeking financial and/or operating support.

CGC managed to take in revenues of over $90M in its most recent quarterly data – which represents a rate of top line growth of nearly 250% on a year/year basis. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($3.2B against $372.8M).

 


Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF)
is the best-in-class as far as pure-play names in the CBD space. There’s not much argument there. Nonetheless, CWBHF has been struggling to find traction in a world where the assumption starts with their leadership and ends with questions about scaling and competition.

This is especially true if one considers the potential for other big billion dollar names to get more and more involved in crimping those margins with bigger pocket books and deeper pockets.

In any case, at this point, these guys are in the driver’s seat on a branding basis and they have the most breadth in terms of single-silo distribution.

Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) develops and distributes hemp-based cannabidiol (CBD) wellness products. Its products include CBD hemp oils, capsules, topicals, and pet products that feature CBD hemp oil extracts.

The company sells its products online as well as through distributors, and brick and mortar retailers. Founded by the Stanley Brothers, the company’s premium quality products start with proprietary hemp genetics that are responsibly manufactured into whole plant hemp extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other beneficial hemp compounds. Industrial hemp products are non-intoxicating.

The company’s most recent release announces its partnership with Nielsen (NYSE:NSLN), the leading market research firm (think, TV ratings).

In addition, its earnings highlighted strong topline growth themes, including news that the company surpassed 9,000 doors carrying Charlotte’s Web products, expanded into new states and locations with current and new retail partners, increased retail breadth and product depth with new CBD oil flavors, pet and gummy SKUs, and evolved CPG leadership team and commenced buildout of infrastructure to expand production, distribution, R&D and extraction capacity processes ahead of the anticipated mass retail channel growth

“In an increasingly crowded, noisy and confusing CBD market, brands matter, and Charlotte’s Web is the most trusted hemp extract in the world,” said Deanie Elsner, Chief Executive Officer of Charlotte’s Web. “Consumers are becoming more informed about product ingredients, production quality, and variances between CBD isolate and full spectrum hemp extract efficacy. Consumer education is increasing and a 68% year-over-year increase in traffic through our online store drove Q3 B2C sales to new highs. As the CBD category’s flagship brand, we saw a similar 66% increase in sales pull into our B2B segment which includes the food/drug/mass (“FDM”) and natural health retail channels. This helped drive Q3 growth to 42% year-over-year. The majority of our FDM channel partners to only sell CBD topicals while awaiting legal and regulatory clarity from the U.S. Food and Drug Association (“FDA”). Topicals account for less than 15% of our sales at independent stores that carry both our topical and ingestible CBD product lines. This indicates the potential revenue catalyst of a broad adoption of ingestible products within the FDM channel. We are prudently investing in the expansion of our production and distribution capacities as planned, ahead of anticipated FDA regulatory clarity that could enable wider adoption of our product portfolio. We remain hopeful that broad political support will help drive quick regulatory resolutions in 2020.”

 

GD Entertainment & Technology Inc. (OTCMKTS:GDET) is more diversified than anyone else on this list because the company has operations outside of the hemp/cannabis/CBD space, which has served the stock well during the bear market in that space. Diversification is an advantage when something goes out of favor.

To get a feel for this, the company’s CEO, Anil Idnani, just completed an interview with SmallCapVoice that can be found HERE.

But our key thesis is that this period of stormy weather for that theme may well be coming to an end. The growth isn’t debatable: this theme will unquestionably come back into favor. And, even thought GDET is a sub-penny player, it has shown relative strength in comparison with other names on this list over the past 6 months. Now that the turning point may be at hand, we wanted to include this name because it may continue to outperform. And, for investors, the nominal price of a share is the least important idea in the mix. The big point is this: Will GDET continue to outperform its peers?

There’s good reason to think that may be the case.

The most important point to support that argument is that GDET is, according to its recent communications, just about to start aggressive monetization of a major inventory. This fact is highlighted by the company’s most recent release, in which it states that it just brought in 9,500 units of 10mg CBD Gummies for sale under The Greenery brand label.

 

Apparently, this amounts to the last major shipment of product in establishing its initial product inventory before what the company notes will be “an aggressive distribution process”.

 

We will wait for the company to let us know the total value of its inventory, but a quick bout of research suggests that this delivery alone may have a market value of in the ballpark of around $142K. According to the release, this will add to a large inventory that is already full paid off.

 

“We have amassed a very strong inventory of products now at The Greenery, and we are ready to focus on distribution and monetization going forward,” remarked Anil Idnani, CEO of GDET. “Our large inventory of CBD oil, tincture, salve, pet treats, masks, and our signature Honey Hemp infusion is all fully paid-for. The process of monetizing that inventory represents pure upside for shareholders going forward. Our Greenery segment is in a terrific position, which will allow us to be very aggressive in the weeks and months ahead.”

 

That bodes extremely well for the company provided they can make good on their distribution plans.

 

One other dimension that differentiates GDET in this list is diversification: it is also a fully-active and operating blockchain play. There are many potential synergies between these segments. But there is also the advantage of diversification of revenue streams, which may provide some cover if there is a further capitulatory washout in the hemp, cannabis, and CBD complex before the next leg higher in the space gets fully underway.

 

We would also note that the company just announced a substantial reduction in its outstanding share count to lighten the load and send a shareholder-friendly signal to the market.

Aurora Cannabis Inc (NYSE:ACB) has done the work involved in signaling to the market that it wants a big piece of the CBD boom. As a case in point, we can see a line of evidence in its strategic moves over the past 24 months.

For example, in 2017, the company invested in Hempco, a Vancouver-based maker of hemp-based foods, hemp fiber, and hemp nutraceuticals. Hempco also supplied Aurora with raw hemp for extracting CBD. ACB bought the rest of Hempco three months later.

The company next acquired Agropro, Europe’s largest producer, processor, and supplier of certified organic hemp and hemp products. At the same time, Aurora acquired Agropro’s sister company Borela, which processes and distributes organic hulled hemp seeds, hemp seed protein, hemp flour, and hemp seed oil.

Just after that, in late 2018, Aurora acquired ICC Labs, which claims leadership in the South American hemp CBD market, with a large-scale extraction facility that can process 150,000 kg of CBD feed annually.

That’s three big M&A moves in the past 30 months with one clear goal: to capture major market share in the CBD space. And it spans three different continent. This is a company on a mission and investors who believe in the larger growth thesis should take note now.

Aurora Cannabis Inc (NYSE:ACB) managed to rope in revenues totaling $98.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 416.7%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($362M against $436.4M, respectively).

Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.

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