The smokable hemp market is beginning to step to the forefront in the CBD revolution, pushed by the needs of those battling opioid addiction, looking to avoid the suddenly frightening prospects of vaping, or just looking for a way to relax while saturating the body with high-potency CBD, noted for its positive impact on many of the body’s major physiological and psychological systems.
Jamie Schau, who analyzes CBD markets for the research firm Brightfield Group, said the market for smokable hemp flower is projected to grow to $70.6 million in 2019, up from $11.7 million in 2018, representing an almost unheard of 503% year-over-year growth rate.
Hemp flower cigarettes are particularly exciting for investors and business owners because the processing costs are much lower than those associated with extracted CBD-based products because the all you have to do is have a high-quality crop of hemp, harvest it, and dry it. That’s it.
That’s an especially powerful proposition, and it will take strong execution to take a leadership role in what promises to become a new multi-billion dollar opportunity over the years to come. Today, we look at five stocks that may be best positioned to take up the baton in this race: Canopy Growth Corp (NYSE:CGC), HempAmericana Inc (OTCMKTS:HMPQ), Aurora Cannabis Inc (NYSE:ACB), Tilray Inc (NASDAQ:TLRY), and Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF).
Canopy Growth Corp (NYSE:CGC) has made enormous strides to move into the CBD marketplace, with tremendous resources and the ability to leverage its execution experience as a strategic investment pipeline hub. As the smokable hemp flower marketplace continues to boom onto the radar of major players in the space, look for CGC to become a force in this market opportunity.
Shares of the stock have been trending lower along with much of the space, so an association with a fresh high-power growth theme like hemp flower cigarettes could offer a new jolt of energy for shareholders.
CGC managed to rope in revenues totaling $90.5M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 249.1%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($3.2B against $372.8M).
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.”
This is also one of the most geographically diversified players in the cannabis space, 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. That could come heavily into play in any move to take advantage of the hemp flower cigarette boom.
Despite recent declines, shares are still relatively expensive, trading at over 100x sales.
HempAmericana Inc (OTCMKTS:HMPQ) is another interesting prospect from the standpoint of future winners in a prospective hemp flower cigarette boom.
The company has already quietly become an established leadership candidate in the burgeoning CBD marketplace given its state-of-the-art processing and extraction facility in Maine and the company’s strong branding process. But a move to seize the opportunity in the smokable hemp flower market makes a great deal of sense for HMPQ as it has more established execution experience in cultivating high-quality hemp flower than many of its peers, such as CGC, ACB, TLRY, and CWBHF.
An expansion of its operations to include hemp flower cigarettes would take very little in terms of fixed costs, given that it has already gained access to a steady supply of raw hemp for its CBD Oil production segment. And any additional marketing and distribution costs can become the focus of initial cash flows set to come in from the company’s very large inventory of fully processed CBD-based products now ready to hit the market (see the company’s recent release).
The advantage for HMPQ, of all the names we are considering here today, is that the company has already put in place all the pieces necessary to opportunistically move on the smokable hemp flower market without taking on new debt, and in a manner that could have a dramatic impact on the company’s overall value proposition for investors, whereas it might not move the needle a great deal for the likes of Canopy or Aurora.
At present, HempAmericana frames itself as an emerging leader in the CBD products market. The Company owns and operates a high-capacity, state-of-the-art CBD extraction and processing facility located in Augusta, Maine. This facility is armed with a supersized supercritical CO2 extraction system, centrifugal partition chromatography refinement technology, and a mechanized fully-automated CBD bottling system. Hemp The Company’s CBD oil business uses the brand designation, “Weed Got Oil”. HempAmericana also researches, develops, and sells products made of industrial hemp, including a popular brand of hemp rolling papers marketed under the brand name, “Rolling Thunders”.
Aurora Cannabis Inc (NYSE:ACB), like Canopy, has been suffering of late on the charts. But, also like Canopy, the company has been pining to get a piece of the CBD game, and that may ultimately translate into a will to take part in a prospective hemp flower cigarette boom.
Aurora’s CBD strategy has been focused on M&A. Back 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 3 months later. That segment still powers Aurora’s CBD push in the NA market.
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.
In other words, it has moved through the M&A channel to gobble up leaders in the North American, EU, and South American CBD markets in the past 2.5 years. If the smokable hemp market becomes the leading edge of that equation, we would expect the company to make a fresh move to acquire what it needs to dominate that equation as well – (maybe even HMPQ?).
Aurora is one of the most widely diversified players in the cannabis space due to its powerful strategic investments.
In addition, the company has demonstrated rapid organic growth and strong execution on strategic M&A, which to date includes 15 companies – MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland (formerly Pedanios), H2 Biopharma, Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics, Anandia Labs, HotHouse Consulting, Agropro, Borela, and the pending acquisition of ICC Labs.
We would also note that the company has invested in and established strategic partnerships with a range of leading innovators, including: The Green Organic Dutchman Holdings Ltd. (TSX: TGOD), Radient Technologies Inc. (TSXV: RTI), Hempco Food and Fiber Inc. (TSXV: HEMP), Cann Group Ltd. (ASX: CAN), Micron Waste Technologies Inc. (CSE: MWM), Choom Holdings Inc. (CSE: CHOO), Namaste Technologies Inc. (TSXV: N), Evio Beauty Group (private), Wagner Dimas (private), CTT Pharmaceuticals (OTCC: CTTH), and Alcanna Inc. (TSX: CLIQ).
However, just drilling down into its core cannabis production operations, Aurora Cannabis Enterprises Inc, trumpets itself as “one of the world’s largest and leading cannabis companies” and a licensed producer of medical cannabis pursuant to ACMPR.
We would expect expansion on the way given the inflow of investment capital. But, at present, the Company operates a 55,200 square foot, state-of-the-art production facility in Mountain View County, Alberta, known as Aurora Mountain, is currently constructing a second 800,000 square foot production facility, known as “Aurora Sky”, at the Edmonton International Airport, and has acquired, and is undertaking completion of a third 40,000 square foot production facility in Pointe-Claire, Quebec, on Montreal’s West Island.
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).
Tilray Inc (NASDAQ:TLRY) has been a controversial name because the short-squeeze was so dramatic in the opening months of the stock’s listed trading, and yet it has now fallen in such a shocking manner, with the stock’s current woes being directly related to massive debt servicing costs from convertibles – a worse situation one cannot imagine for a company at this stage.
That’s not a promising backdrop.
But we have noticed a clear thematic evolution that has started to include a strengthening emphasis on CBD and Hemp at the marijuana standard. It’s not hard to imagine a further shift to smokable hemp given its aggressive posture and a desire to be a player wherever the growth equation is most marketable to investors.
According to company materials, 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.
The trading tape continues to be characterized by a pretty dominant offer, which hasn’t been the type of action TLRY shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -11% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities.
Tilray Inc (NASDAQ:TLRY) managed to rope in revenues totaling $45.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 371.1%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($220.9M against $175.9M).
But, in all of this, losses continue to pile up much faster than anticipated and the convertible debt servicing undermines that sense of a superficially strong balance sheet. And valuations, even after the dramatic declines, remain largely unattractive.
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) is the leading pure-play in the CBD space among all investable CBD companies on the publicly traded markets. This status is perhaps made extra special by recent commentary from Stansberry’s Tom Carroll: “It’s the leader in CBD products, with a five-year lead on everyone else. It has strong brand recognition and great intellectual property on its seeds and strains. And it has far less regulatory uncertainty than most other companies. I think this is a ‘must own’ in the sector.”
So far, as each phase of the CBD boom has unfolded, Charlotte’s Web has made a point of positioning itself in a leadership role in terms of distribution footprint and branding reputation. We would expect the smokable hemp flower boom to follow this pattern. At the end of the day, the end market is basically the same as it is for CBD vapes or tinctures. Hemp flower cigarettes are just another way to access CBD. And the costs associated with processing are simply lower.
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 Holdings, Inc. sells its products online as well as through distributors, and brick and mortar retailers.
Charlotte’s Web Holdings, Inc. is the market leader in the production and distribution of innovative hemp-based cannabidiol wellness products. 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 current product categories include tinctures (liquid products), capsules, topical, as well as pet products. Charlotte’s Web hemp-based whole plant extracts are sold through select distributors, brick and mortar retailers, and online through the Company’s website.
With CBD forecasts boiling over as US mainstream consumer adoption accelerates, the stock is set to potentially benefit if the company is able to effectively take advantage.
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) 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).
