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Why CBD is Poised for a Comeback and What to Do About It (TLRY, SKDI, CGC, CWBHF, GTEH)

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The big CBD bull market of 2019 didn’t exactly pan out like so many had believed following the landmark US Farm Bill, signed into law in December 2018. That was supposed to be the spark that lit the flame. We know end-demand growth for CBD products is there – the industry is demonstrably engaged in what analysts call “mainstreaming”: when a small, niche product market expands at an epic pace as it gets discovered by the rest of the population.

In this case, experts are still looking for over 125% CAGR growth over coming years.

But we also know that growth in supply has kept up with that mainstreaming expansion so far, and regulators have been slow to really help send it to the next level. In fact, the FDA has been working to set things back a bit, even going so far as to issue a warning on CBD in November 2019. That helped to set off a downside capitulation phase in many stocks with CBD in their DNA.

But it hasn’t impacted the viability of the mainstreaming thesis at all. More importantly, there is movement from the US Congress to sidestep the FDA on CBD and push for it to be added to the list of legal dietary supplements in the Federal Food, Drug and Cosmetic Act through an amendment measure and to exclude CBD from prohibited foods.

The bill was introduced in the House by the chairman of the House Agriculture Committee with bipartisan support last month, so it has strong prospects to pass the House. If it gets to the Senate, Mitch McConnell is vulnerable and Kentucky is the capital of Hemp farming. The implications aren’t difficult to work out.

Given the brutal slide most of these stocks have seen over the past 12 months, a push from regulators could send the whole space significantly higher, offering a ripe opportunity for new investors.

With that in mind, we have compiled a list of our favorite names for upside potential on the coming recovery rally, which we believe will represent a reassertion of the investment implications of the CBD boom in full: Tilray Inc (NASDAQ:TLRY), Sun Kissed Industries Inc. (OTCMKTS:SKDI), Canopy Growth Corp (NYSE:CGC), Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF), and GenTech Holdings, Inc. (OTCMKTS:GTEH).

 

Tilray Inc (NASDAQ:TLRY) acquired hemp foods company Manitoba Harvest last year, which puts it squarely in the CBD marketplace. The stock has been hit on debt-servicing costs, but short interest appears high and a return of momentum in the CBD theme should pay off here.

The company offers its products in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New Zealand, and South Africa. Tilray, Inc. was incorporated in 2018 and is headquartered in Nanaimo, Canada.

Tilray Inc (NASDAQ:TLRY) pulled in sales of $51.1M in its last reported quarterly financials, representing top line growth of 408.6%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($122.4M against $130.2M, respectively).

 

Sun Kissed Industries Inc. (OTCMKTS:SKDI) is an emerging high-growth-potential play at the center of the CBD theme. The company just completed its acquisition of Hakuna Supply, which is a strong brand in the high-end CBD products marketplace.

Shares of the stock have started to surge in recent action likely in anticipation and reaction relative to this news.

Sun Kissed Industries Inc. (OTCMKTS:SKDI) bills itself as an emerging leader in the CBD-based products marketplace that is openly interested in pursuing meaningful acquisitions as part of an aggressive M&A strategy designed to position it as a dominant player in a well-defined, high-growth niche within the rapidly expanding CBD sector.

The recent acquisition of Hakuna backs up that idea. Liquidity has picked up in the name and we would expect it to respond very well to a return of CBD sector momentum.

 

Canopy Growth Corp (NYSE:CGC) has clearly been working hard to establish itself as a leader in the CBD space for the past 24 months. We would strongly expect a bounce in the space would evidence itself well for CGC shareholders.

The company has a strong and well-developed venture arm, and understand how to scale a new strategy. And the market recognizes this and will assume the company has a very real path to leadership here if ROI in CBD remains on track as a long-term premise.

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.

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 current leader as far as pure-play names in the CBD space, with over 9,000 points of distribution across North America. Hence, a pop in CBD on a thematic basis would obviously play our well for CWBHF shareholders.

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.

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.

Charlotte’s Web pulled in sales of $33.5M in its last reported quarterly financials, representing top line growth of 50.6%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($67.2M against $18.3M).

 

GenTech Holdings, Inc. (OTCMKTS:GTEH) is an interesting emerging play in this space. The company is rapidly running toward the launch of a premium and CBD-infused coffee subscription package that could power the stock significantly higher.

To help augment the push that could follow from that launch, the company also just announced what it calls “an aggressive anti-dilution initiative”. That sends some very good signals for the market.

GenTech Holdings, Inc. (OTCMKTS:GTEH) plans to significantly reduce its authorized share allowance over time as debt is retired from the balance sheet and convertible notes are paid down ahead of conversion, according to its release.

Management notes that the majority of outstanding notes do not fall due until next year or later, but the company wants to be proactive in removing that risk to send a strong message to the market that this represents a significant transition and commitment. Older outstanding obligations will be retired. Some portion of more recent obligations will be converted into a tranche of preferred equity and some will be paid off. In addition, the 25% reduction in authorized shares is expected to be completed and visible within six weeks.

David Lovatt, CEO of GenTech, commented, “Our mission is to become the largest coffee subscription provider in the premium and CBD-infused niche in the US market. We have put in place a path toward that goal that is de-risked from the perspective of front-end investment. That allows us to begin proactively moving toward an aggressively non-dilutive framework and relationship with the capital markets, which holds the potential to add tremendous value for current and prospective shareholders.”

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American Green Inc (OTCMKTS:ERBB) Achieves Breakeven In 2020, The First After Entering Cannabis Sector

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American Green Inc (OTCMKTS:ERBB) has reported operational breakeven in 2020. It is the first after entering the cannabis space. David Gwyther, president of American Green, said the company is putting in significant efforts to achieve self-sufficiency for several years while availing the funds from outside to meet the requirements. With this breakeven, the company needs to borrow less for operational needs and improve the bottom line.

Begins the sale of One HD Seltzer Water

American Green commenced the sale of One HD Seltzer Water through its one CBD store. The company expects to add additional retail stores in California, Nevada, and Arizona. Vice President (Sales – Worldwide) of American Green, Kevin Davis, said the company spent almost year in search of a 12 oz Can of CBD Seltzer/ Sparkling Water that comprises 25 mg of pharmaceutical grade CBD and zero THC for sale through its AGM Smart Vending Machines. The company also plans to sell CBD Seltzer/ Sparkling Water via its online stores to the customers directly.

Maintains highest standards for all CBD products

American Green shall always strive to maintain the highest standard for all the CBD products. The company will maintain a crisp and clean taste and consistency of pharmaceutical grade CBD in every CBD can. Davis said One HD Water meets all the requirements. It has even exceeded expectations.

One HD’s founder – Mike Falcione said he is thrilled that American Green has One HD Sparkling Seltzer Water for the distribution. He further said the company is aware that American Green is becoming one of the reputed brands in the nation to offer high-quality CBD products. One HD will extend all the necessary support to American Green to achieve the sales targets. Davis said the company is in discussions with Mike for the distribution of One HD CBD Seltzer Water. He looks forward to working with Mike and his team.

CBD as a viable solution to manage pain

The demand for CBD is very high because Americans consider it as a viable solution to manage and relieve pain. According to Nielsen, the leading data measurement authority, the market for CBD will reach $2.75 billion this year.

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Why ISWH May Be a Prime Turnaround Opportunity in the Making

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For those in search of speculative turnaround potential in the small and micro-cap market space, you could do a whole lot worse than International Spirits & Wellness Holdings, Inc. (OTCMKTS:ISWH). The big picture here is a diversified branding play with commercial-stage operations already in place in the CBD, Wellness, Home Healthcare, and Spirits industries, and development stage operations in the Renewable Energy and Supply Chain & Logistics markets.

Based on recent financial performance, the company may have recently gotten past the point where its operational cash flows can start to fully support its future growth investments. For any micro-cap, this is the golden point in the investment cycle: when growth becomes non-dilutive. ISWH is either at or very near this point, posting EBITDA profitability and triple-digit topline growth in Q3 and Q4 of 2019.

ISWH recently completed a shareholder-friendly restructuring and reverse stock split to better align its price-per-share quote with common standards for investor perception.

Pro-tip: In our experience, when a company has this much going for it, and then does this type of restructuring and realignment, it’s typically in front of a lot of major positive news. The shift in structure and share price is to set the stage so that the company’s existing long-term shareholders can get the most bang for the buck on new strong announcements set to roll out over coming weeks and months.

In other words, the stage is set for some big happy news for ISWH. Take note.

In the words of the company’s President and Chairman, Alonzo Pierce: “A shareholder-friendly restructuring was necessary to strengthen our relationship with capital markets, pursue a near-term uplist to a higher exchange tier, and set in motion our operational strategy for 2020. We have a number of very compelling catalysts set to roll out, but we needed to provide a viable context – to lay a foundation for that success – as an initial step. We have achieved that with our restructuring and reverse split last week.”

That just about says it all.

The Foundation

The foundation for ISWH right now is its two main commercial-stage growth drivers: CBD-based products and the company’s rapidly growing home healthcare business.

The CBD products segment is positioned for rapidly accelerating growth this year following the signing of its defining partnership agreement with BioPulse Labs, a nationally-recognized brand development and manufacturing leader in the nano-infusion of CBD products. The BioPulse agreement provides for effectively a starter package in product development and marketing for the fresh launch of five new CBD-based wellness products. That will effectively push a restart button for the company’s P19 brand of CBD-based products.

The company also has an edge through this partnership due to the fact that it will be that rare CBD products brand able to boast that all of its products are formulated and produced in FDA compliant and registered facilities. This is becoming a huge issue in the current world of garage-band CBD producers. Consumers don’t know what they’re getting when they purchase CBD products. And they’re starting to figure that out.

The Home Healthcare segment is rapidly expanding as well. This division saw quadruple-digit percentage growth during the back half of 2019, and the company has implied that this trend is set to continue in Q1 2020.

Home healthcare spending is expected to reach more than $186 billion in 2027, according to a recent analysis from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary. This vastly surpasses any other category of health care service spending, even including hospital inpatient care, physician and professional services, nursing facilities, prescription drugs, retail sales of medical products and anything else you can think of.

ISWH has put in place a strong operational footprint in this rapidly expanding market, and we would look for continued strong performance throughout 2020.

Conclusion

With this foundation in place, a possible inflection toward non-dilutive growth in the quarters ahead, and now standing on the other side of the company’s recent shareholder-friendly restructuring, ISWH is an extremely interesting speculative opportunity, especially given our assumption that the company is getting ready to add some very strong new catalysts into the mix in coming weeks.

ISWH management drove this same sense home in its latest release: “This is truly all about embracing a very aggressive growth-oriented future path at ISWH,” continued Pierce. “We have put in place a winning framework as a genuine disruptor in the health and wellness space, and we continue to see dramatic growth in that endeavor, including strong financial performance over recent quarters. We are also entering several new markets, with a true edge already in place, and will be providing details on those strategic moves over the very near term. Long story short: we have some very exciting announcements ahead and we wanted to provide a solid structural foundation in the stock ahead of those catalysts for the benefit of our committed shareholders.”

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ANVISA Authorizes Khiron Life Sciences Corp (OTCMKTS:KHRNF) To Import Medical Cannabis Products Into Brazil From Colombia

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Brazilian Health Regulatory Agency (ANVISA) has authorized Khiron Life Sciences Corp (OTCMKTS:KHRNF) to import medical cannabis products on an individual patient basis. Khiron can now apply for a license to export medical cannabis products to Brazil with this authorization. The company also needs the nod of TSX for the commercialization of cannabis in Brazil.

Khiron achieves a milestone

Director and Chief Executive Officer of Khiron, Alvaro Torres, said the company achieved another milestone on receiving the regulatory nod from ANVISA to introduce its medical cannabis products in the largest Latin American market. It allows the company to serve the patient population in that region. He further said Khiron work towards achieving authorizations in Peru and Colombia and improves its network in Brazil.

A regulatory framework to import medical cannabis

ANVISA has established a regulatory framework that involves a comprehensive procedure for the production and importing the medical cannabis products into Brazil. The medical cannabis products are prescribed by the physicians and marketed through pharmacies. Therefore, patients get safe access to legal medical cannabis products.  Cannabis is beneficial for regulating oily skin and helps to fight aging.

The market for medical cannabis

The demand for medical cannabis in Brazil expects to reach 1.4 billion in the next three years. Also, the patient base that comprises patients with chronic conditions in Brazil will increase to 3.4 million. The request for medical cannabis products in the nation almost tripled since 2015. Around 1,100 physicians are prescribing medical cannabis products to the patients.

Chairman of Khiron resigns

Sidney Himmel, chairman of Khiron, has resigned to pursue other interests. Following his resignation, Alvaro will act as interim chairman of the company. Deborah Rosati will head the audit committee.

Khiron formed a JV with Dixie Brands to focus on the development of cannabis products. As per the terms of the pact, Dixie will also engage in the manufacture and distribution of kuida brand CBD cosmeceuticals targeting Hispanic population in the US. The joint venture with Dixie Brands gives Khiron exposure to the US market.

Chris Naprawa is a president at Khiron. Before joining Khiron, he worked as MD at Primary Capital and as a partner at Sprott Capital Partners.

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