The legalities of hemp have come into question over the last few years based on its close relationship to marijuana, even though they are very different when used for their specific “benefits”. There is legislation in place for US states unfortunately to this point hemp production stateside is limited. Section 7606 of the 2014 farm bill has made it legal to grow industrial hemp under the direction of state departments and four year agriculture programs at universities stating that the hemp can only be grown for research purposes.
There are other Bills like the Industrial Hemp Farming Act of 2015, which effectively “Amend the Controlled Substances Act to exclude industrial hemp from the definition of marijuana. The amendment defines “industrial hemp” to mean the plant Cannabis sativa L and “any part of such plant, whether growing or not, with a delta-nine tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis.” It also deems Cannabis sativa L to meet that concentration limit if a person grows or processes it for purposes of making industrial hemp in accordance with state law, unless the Attorney General determines that the state law is not reasonably calculated to comply with such definition.
Aside from the legalities of growing the plant, it is completely legal to use. Based on this fact, companies have
been finding many benefits of the plant including those relating to health. In fact, retail sales of hemp products in the US continue to grow. In fact, total retail sales of hemp food and body care products alone, in the United States, are hit $200 million last year.
When you take into account that addition of clothing, paper products, and other items in the mix of hemp product, the Hemp Industries Association estimates the market to be somewhere north of $620 million with a growth rate greater than 21%. Considering that the US is not producing commercial crops yet, the market for hemp as a product has yet to be created. This has not stopped companies from gaining market share and employing the advantages that hemp has to offer.
Being that much of hemp’s health benefits come from the cannabinoid Cannabidiol, researchers and health advocates are targeting the many benefits that this non-psychoactive by-product offers.
CannaVEST Corp (OTCMKTS:CANV) is one of these companies and it focuses on hemp derived CBD oil. Because it is illegal to grow for traditional retail purposes, CannaVest sources its hemp through its supply relationships in Europe. During the better part of the last year the share price has declined from highs last July of $14 to its current trading channel between $0.70-$1.00. The company most recently concluded a long and drawn out litigation with Medical Marijuana, Inc. and its affiliated companies, which resulted in a $750,000 award to CannaVest.
The future outlook for CannaVest heavily rested on approval for financing in order to progress with development and continued product testing. Aside from the downside that a financing of its size ($6.5million) could pose from a dilutive stance, CannaVest financial shows that business is revenue producing. From the most recent quarterly filing, CannaVest produced over $2.7million is gross revenue for the three months ended March 31 with a gross margin of 60%.
With top line results like this, it is important for the company to continue to generate significant revenues in order to become fully self funded. Much of the financing that happens with stocks trading at or under $1 can tend to be more dilutive but what has hurt CannaVest the most has been its SG&A expenses ($3.99M) which, I would be willing to bet has a lot to do with the legal proceedings that they’ve been conducting. I would be cautiously optimistic in buying CANV simply because this expense in particular would need to drastically change come the next quarter results.
Nevertheless, hemp is being widely accepted as a “new super food” for health buffs. Several health benefits of using hemp as an ingredient include sustained energy due to hemp’s effect on blood sugar regulation, keeping the body feeling fuller longer, reduction in cardiovascular disease and improved mental focus. As a source of protein, Hemp seeds contain roughly 35% and is comparable to that of soy beans.
CBD’s have been widely used for medical applications by companies like UK based GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH). Many clinicians, family caregivers, and patient advocates stand behind the sale of non-pharmaceutical CBD extracts or “hemp oils” such as Charlotte’s Web. This hemp oil made from a high-CBD cannabis strain developed by Colorado growers, The Stanley Brothers, for the Realm of Caring Foundation.
The FDA most recently approved a request for trial of a pharmaceutical grade of CBD, Epidiolex, which GW Pharmaceuticals is the maker of. The company also makes another cannabis-based drug called Sativex, which has been approved in over 24 countries for treating multiple sclerosis. GW will announce on August 6 its third quarter financial results for the period ending 30 June, 2015. Analysts are anticipating that the company will post quarterly EPS of $-1.3 for the quarter and that the stock will see a price of $144.333 in the next year. I would tend to agree with this as well.
Outside of biotechnology and production of raw hemp oil, other companies have begun to focus on developing high-grade products that include hemp as one of the main ingredients. FBEC Worldwide Inc (OTCMKTS:FBEC) is another company focused on the evolving hemp industry and utilizes the ingredient in its line of H.E.M.P. Energy beverages. The first product, WolfShot H.E.M.P. Energy is slated for release this coming August. Since May the share price for FBEC has climbed from as low as $0.004 to as high as $0.14 at the end of June.
Shortly after issuing a shareholder update early in July stating that the company would be pursuing certain corporate milestones such as the upcoming product launch, FBEC underwent the steps of filing to up-list the stock and effectively moved from being an OTCPink issued stock to fully reporting on the OTCQB within the 2 weeks to follow.
Company CEO Robert Sand took control of FBEC Worldwide in April and since doing so, has implemented several safeguards to protect the stock from typical dilution that many micro-cap stocks see. Of note, Sands assumed an additional role as CFO and COO while choosing to take his pay completely in the form of accrued debt so that any cash allotted for the salary of those positions would go toward the product launch of the company’s first product.
FBEC has successfully acquired certain intellectual property rights developed by Dr. Linda Strause of G. Randall & Sons for hemp formulation used in energy shots, drinks and nutraceutical supplements. “Working with leading formulation scientists like Dr. Strause is a crucial component needed to carve out a true market niche. We believe hemp-based beverages do just that and we are confident our collaboration with Dr. Strause on our soon-to-launch products with our now 100%-owned hemp-formulation will solidify our place in the market while we work to build a strong following of consumers,” states Mr. Robert Sand, CEO of FBEC Worldwide in a recent press release.
The stock has built a more consistently traded market over the better part of the last 2 months while also receiving a “Buy” rating and $0.20 short-term price target from Stonebridge Capital Partner, LLC. I would expect that the stock price would increase as the company begins its sales campaign in August so until then I would expect trading of the stock to remain around the current $0.09-$0.10 price range. The real risk with FBEC right now is that until they start making sales, there is not a whole lot of financial information to focus on.
Aside from hemp alone, the Energy Drink Production industry has triggered more awareness of the ingredient and has also managed to realize more significant increase over the past five years. It is currently achieving a robust growth rate of 14.3%; valued at $8 billion while being a standout to lead the “packaged beverage production” industry. In addition to a company like FBEC Worldwide taking advantage of the health benefits of hemp coupled with the rise of energy drinks, Totally Hemp Crazy (OTCMKTS:THCZ) has also been capitalizing on this cannabis derivative.
Totally Hemp has been one of those stocks that started off socially driven after bringing to market a hemp infused beverage brand aptly named Rocky Mountain High. Since the beginning of the year, shares of Totally Hemp Crazy have rallied from near $0.01 levels to highs of $0.32 and market activity continues to support positive sentiment with the company continuing to deliver material announcements with regard to international distribution and revenue growth.
Totally Hemp had a great run earlier in the year but unfortunately fell in price to where it is at today. I think a
big reason for this has been based on the sheer amount of shares that have been converted by third parties during the last month or so. But the company does a have a real product with decent distribution so if it can manage to get cash positive on their filings, I would see no reason why it couldn’t trade back at its previous $0.25-$0.30 range from back during the spring.
As with marijuana stocks, the market leans heavily toward the micr-cap and nano-cap sectors. The risks here include high price volatility, lower levels of liquidity as compared to larger cap stocks, as well as issues of transparency when it comes to SEC reporting of audited financials. There’s no doubt that the market has been riddled with stocks traded at very low prices like these, which have ended up being incredibly risky simply based on the nature of penny stocks.
For hemp stocks like these however, they all have an operational history as well as material events to back up what management states. Not only is legalization in motion for cultivation efforts, but also by comparison countries that have already allowed hemp cultivation have realized significant prosperity in an industry that has yet to “go live” on a universal level in the US. For instance, American farmers have been observing Canadian farmers and how they’ve been able to profit from hemp to the tune of $180 per ton in 2014.
When you think about how a comparable US crop like soy has performed (roughly $50/acre) the numbers start to really make sense as to this becoming a viable cash crop. Hemp-focused businesses could have considerable potential moving forward and as federal legislation is actively changing over the last 18 months, so will the landscape in the market which should also allow easier access to both raw materials and sales outlets for companies choosing to get involved early on. I would think that allocating a small portion of your portfolio (2-5%) into a speculative market like hemp could prove to be profitable should legislation succeed and hemp based health products find the mainstream markets.