In early 2021, we expect Hemptown USA to complete a go-public transaction and this is an opportunity that our readers should be aware of. We have been covering Hemptown since 2018 and are impressed with how the story has evolved during this time.
In early 2017, Hemptown started to cultivate feminized hemp and is considered to be a leading player in the cannabigerol (CBG) market. When we first met with Hemptown’s management team, the company was one of the few businesses to be focused on CBG and we are favorable on this focus.
Hemptown’s management team has a proven track record of success and is comprised of executives that previously worked at Fortune 500 companies (Intel and Kelloggs). We are favorable on how the management team has been able to make Hemptown standout in what has become a saturated market.
Positioned to Capitalize on the Current Market Environment
One of the reasons we are favorable on the opportunity is related to the infrastructure that has been put in place. Currently, Hemptown’s state-of-the-art FDA registered and cGMP certified facility is operating at 30% capacity and we expect this percentage to increase in 2021. Many of the company’s competitors are running out of capital and we have seen several CBD and CBG companies file for bankruptcy.
Last year, Hemptown raised $24 million through a series of private placements and has been cutting costs to conserve capital. This has left the business in a strong position to execute and we expect the company to record strong revenue growth as it ramps up capacity.
Another reason we are excited about Hemptown is related to how the business has evolved. The company has launched a line of hemp cigarettes that do not contain any nicotine and are made with CBD and CBG that is from its Oregon farm.
We have considered the hemp cigarette vertical to be an attractive market and are favorable on how Hemptown has differentiated its product line from what is currently available on the market. The products include a proprietary terpene infused filter that is available in a variety of flavors and we are favorable on this aspect of the story.
In a report from Cowen and Company, the US hemp industry is expected to be a $16 billion market by 2025. The passing of the 2018 US Farm Bill was a major catalyst for the cannabinoid market as it opened the door for an era of CBD commoditization. Following the passing of the bill, major retailers like Walgreens and CVS have entered the industry.
The surge of interest in the CBD market led to an even larger increase in the amount of production that companies had in place. This put substantial pressure on the price of CBD and high-profile operators like GenCanna (backed by Mitch McConnell) were forced to file for bankruptcy.
By being focused on multiple cannabinoids and by conserving cash, Hemptown has been able to survive the current market environment. We expect this aspect of the story to play an important role in how the business continues to grow and believe that Hemptown is an operator to be aware of.
We believe that the next phase of growth for the market will be related to a surge in interest in cannabinoids like CBG, cannabichromene (CBC) and cannabidivarin (CBDV). We believe that Hemptown is positioned to be a beneficiary of this growth and will monitor how the story continues to evolve.
Executing on a Multi-Faceted Growth Strategy
Last year, Hemptown acquired Kirkman which is an established brand that has been in business for more than 70 years. Kirkman operates out of a facility that is FDA licensed and cGMP certified. When the acquisition was reported, we became increasingly excited about the opportunity and believe that Kirkland has played a key role how Hemptown has launched products.
By using state-of-the-art equipment for precision dosing, Hemptown has been able to create a diverse product line that includes tinctures, capsules, creams, topicals, gums, and edibles. The focus on being vertically integrated could increase margins by up to 20x and we are bullish on the impact that the facility has had on the economics of the business.
On top of selling its own product line, Hemptown offers white label products and we are favorable on the structure of the business. These products use premium cannabinoids and are fully traceable from seed-to-bottle. Hemptown’s white label platform is a full service offering that includes branding, fulfillment, and marketing services.
By operating a business model that has diversified revenue streams, Hemtown has been able to protect itself from decreasing CBD prices. The business model is based on margins and this is a key metric to be focused on. The strategy allows Hemptown to monetize inventory in multiple channels that are based on the demand and margins.
The saturation of the CBD market has substantially raised the cost of the end-consumer. Hemptown’s ability to sell to businesses and to consumers has protected margins while also being able to scale revenue. We believe that the strategy will allow Hemptown to efficiently monetize inventory and will monitor how the management is able to execute on this.
Focused on the International Opportunity
Another major potential growth driver for Hemptown is the expansion into the European Union (EU). Hemptown is pursuing a FSA license in the United Kingdom for its CBD and CBG products as well as bulk ingredients. The opportunity in the EU is massive and this is a market that we have been bullish on for several years.
Currently, Hemptown is in advanced discussions to partner with an established European supply chain that will provide it with the opportunity to move over 1,000 kilograms of CBD per month. We are favorable on the potential revenue that is associated with the relationship and will monitor how the company is able to capitalize on the EU market.
A Private Opportunity to be Aware of
Hemptown has attractive growth prospects and plans to make additional acquisitions to scale the business. The management has used a series of organic and inorganic growth initiatives to bring the business to where it is today.
We are favorable on the types of acquisitions that Hemptown has made and expect an additional acquisition to immediately prove to be accretive. We have faith in the management team’s ability to identify a business that would be complementary to the existing assets in place and are bullish on the potential impact it would have.
In early 2021, Hemptown plans to go public and this is an opportunity that we are closely following. If you are interested in learning more about Hemptown, please send an email to firstname.lastname@example.org with the subject “Hemptown” to be added to our distribution list.
Published at Fri, 30 Oct 2020 12:05:39 +0000