EXL are having an overdue day off after rising +70% to $3.12 post their capital raising in September at $1.85, trading at $2.65 today down 10%.
If you missed this one then it’s time to get on board – as an indication of how big the CBD/Hemp space could be see below article from the WSJ and more interestingly this week global cannabis producer Canopy Growth (WEED.TSX, marketcap $19bn) gained approval in New York to develop industrial hemp farms, planning to invest USD$100-150m in operations, up and running by 2020. The big boys are starting to move into this space as they can see the growth trajectory/demand for hemp/CBD products.
As a reminder Constellation Brands (STZ.NYS, USD$30bn marketcap, maker of Corona) invested USD$4bn in Canopy Growth last year, so we have a major cannabis producer, with a global beverage conglomerate as major shareholder moving into the space as they can see the opportunity. Over time I expect you will see CBD infused soft drinks, CBD infused alcoholic drinks, coffee, health food, cosmetics etc etc and EXL is in a great position to supply to anyone that comes knocking that fits with their strategy.
“Canopy Growth was founded to drive innovation within the cannabis and hemp industries,” said Chairman Bruce Linton in a press release.<https://markets.*.com/news/stocks/c...sh-u-s-based-commercial-operations-1027866356> “In New York we see an opportunity to create products that improve people’s lives.
“In the process, we will create jobs in an exciting, highly profitable new industry. I applaud the political leadership at the federal and state level that has allowed today’s announcement to become reality.”
Canaccord said this about Canopy’s move:
“Canopy ‘s hemp license in New York State and its plan to build an extraction and manufacturing facility will make it more appealing to investors looking for exposure to the U.S. cannabis market, GMP analyst Martin Landry writes in a note, raising his price target to C$70 from C$50.
* Landry, who rates Canopy a buy, notes that it’s difficult to assess the potential market for CBD-based consumer products, but believes it could amount to a combined U.S. market size of $50 billion; "therefore, a minor penetration into these product categories could be material" for Canopy
* Says Canopy could have CBD-based products across the U.S. by 2020, leveraging Constellation Brands’ distribution reach to accelerate market penetration
* U.S. CBD market is an opportunity for Canadian pot producers to generate additional revenue and cash flows while also building brand awareness and recognition, notes Eight Capital analyst Graeme Kreindler (buy, PT C$100)
* Entrance to the U.S. hemp market "substantially increases Canopy’s targeted total addressable market," writes Canaccord analyst Matt Bottomley (speculative buy, PT C$50)
* Says Canopy may be able to secure a "meaningful share" of the U.S. hemp market
As per EXL release, Brightfield Group expect the size of the US hemp-derived CBD market to grow to USD$22bn by 2022. EXL is a top 3 player in the space with the infrastructure and distribution to feed this growing market.
You haven’t missed this, prohibition only ended in December – use any weakness to get a position/add. John has a $3.08 valuation (last $2.66), I am sticking with $3.90 valuation, which is 7x John’s CY19 revenue of $68.6m, a big discount to the multiples global peers trade on.
Hemp is poised for a comeback.
The fast-growing plant related to marijuana was farmed across the U.S. for more than a century, its strong fibers woven into rope and textiles.
Cultivation was largely banned from 1970 until December, when President Trump signed a new $867 billion farm bill that removed hemp from a list of federally controlled substances.
Hemp’s return to farm fields this spring coincides with a surge in demand for cannabidiol, a derivative of hemp or marijuana that has become a popular additive in drinks, foods and dietary supplements.
Proponents say it relieves anxiety, inflammation and other maladies without the psychotropic ingredient that delivers a high to marijuana users.
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Farmers and processors believe growing demand for cannabidiol will turn hemp into a lucrative cash crop.
Sales of products containing cannabidiol and other types of hemp will rise nearly 10-fold over a decade to $2.6 billion in 2022, according to New Frontier Data, a cannabis research firm.
“The stigma is totally evaporating,” said David Bronner, chief executive of Dr. Bronner’s, a soap company that uses hemp in its products. “That’s going to be game-changing.”
Devin Jamroz, chief executive of Colorado-based SteepFuze LLC, a maker of cannabidiol-infused coffee beans and teas, said brokers have tried to lure away his suppliers of cannabidiol,
anticipating a run-up in demand for products that contain it. “They are expecting prices to go bonkers,” he said.
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That kind of speculation points to risks facing the nascent industry. Some agricultural advisers have warned farmers to make sure they have lined up a processor to buy their crop.
And states have a complicated patchwork of regulations for selling products with cannabis-based ingredients, including cannabidiol, that can complicate trade across state lines.
The Food and Drug Administration has issued warnings to companies making unsubstantiated claims about their product’s benefits.
“There’s a lot of confusion out there,” said Perteet Spencer, a principal at analytics and consulting firm Spins, who is discussing hemp with brands, retailers and investors.
The FDA said last month that it is exploring national guidelines for products containing cannabidiol.
Some U.S. farmers are eager to win back market share from producers in Canada, where hemp cultivation was legalized in 1998.
U.S. hemp imports rose more than 10-fold in the decade through 2017 to $67 million annually, federal data shows.
“This crop was growing and flourishing just across the border, and it just drove us nuts,” said Roger Johnson, president of the National Farmers Union.
Hemp flourishes in rocky soils inhospitable to other crops. It also represents a new potential revenue stream for tobacco farmers abandoning that crop.
Other growers are eager to diversify away from mainstream crops after several years of low prices spurred by a production glut and trade tensions.
Tony Kurtz, an organic grain farmer from Wonewoc, Wis., plans to plant 10 of his 200 acres of organic crops with hemp this year.
He would like to grow more if he can find a reliable route to market. “It’s fledgling,” Mr. Kurtz said.
Growers can earn $200 to $400 an acre growing hemp for use in textiles, plastics, insulation and construction materials, according to Rodale Institute, a farming research agency.
Hemp grown for cannabidiol could earn farmers thousands of dollars an acre, according to the institute. Farmers earned net profits of around $11 per acre for soybeans and lost $62 for corn in 2017, federal figures show.
“There is no shortage of people who are interested in growing hemp,” said Katie Moyer, who has planted hemp in Kentucky since 2014 as part of a federal pilot program.
She has tripled cultivation to 300 acres and purchased more farm equipment to ramp up production for hemp’s wider legalization.
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Processors in the U.S. also are expanding. Folium Biosciences is building a $30 million, 110,000-square-foot hemp extraction facility in Colorado to increase its capacity 10-fold, said Chief Executive Kashif Shan.
The Colorado-based company named J.P. Bilbrey, former chief executive of Hershey Co., to its board last month.
Charlotte’s Web Holdings, Inc., a Colorado-based hemp distributor, said it is in talks with major retailers to stock cannabidiol products like a concentrated hemp extract it sells for $165 an ounce.
“Some are ready to go, and some are still in wait-and-see mode,” said Hess Moallem, chief executive of Charlotte’s Web.
Great to see the Farm Bill/Hemp Act signed into law by President Trump this morning. As mentioned previously this opens up an enormous market opportunity for Elixinol, estimated to grow from USD $2bn to USD $22bn 2018-2022 (from +55% CAGR to +138% CAGR). Importantly it removes any federal restrictions from growing, marketing and selling hemp, and provides easier access to federally regulated services such as banking/insurance and utilities such as water rights – Prohibition is over.
EXL have said they will now appoint recognised advertising, public relations and marketing agencies to help build national brand awareness, focusing on increasing digital marketing campaigns (think Google, Facebook, Amazon) to grow direct to consumer e-commerce sales.
This should see EXL increase their marketing spend towards levels equivalent to that of their major peers Charlotte’s Web (CWEB) and CVSI Science (CVSI) – keeping in mind EXL is already growing faster than CWEB with a much smaller marketing spend…marketing $’s = revenue $’s…
John’s note below speculates on EXL doing a deal with a major national distributor (Kmart, Walgreens, Walmart, WholeFoods for example), with each account driving USD$20m in revenue (this could be light) – the opportunity here for revenue is enormous.
John has EXL growing revenue +72% in CY19 to $68.6m, then +39% in CY20 to $95m – in my view this could be very light on. John has nothing in his numbers yet for a deal with a national retailer. Any deal would super charge these already very attractive metrics below:
EXL Price at posting:
$2.68 Sentiment: Buy Disclosure: Held
(20min delay)