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HempFusion to buy Apothecanna CBD line as US retail starts to reopen

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There is plenty happening at CBD health products specialist HempFusion (TSXV:CBDu) at the moment. Earlier this week the company announced it was buying the holding company that owns the Apothecanna CBD line in a stock for cash deal. It gives HempFusion another arrow in its quiver as it continues to build out its portfolio of CBD brands.

The deal sees HempFusion paying $15m in a combination of stocks and cash and the company will also pay another $10m if certain revenue targets for Apothecanna are hit in the next 12 months.

Established in 2009, Apothecanna pioneered cannabis-powered body care and topicals. It was the first topicals brand to expand nationally in the US and to obtain a federal US trademark. It remains an established brand in the premium CBD space and also has access to the Canadian market through a strategic relationship.

HempFusion reports revenue up over 7% vs Q4

HempFusion also reported that consolidated revenue was up 7.6% to $983,496 for Q1 versus its Q4 2020 number. DTC sales were also up, a staggering 59.3%. International sales are also up as the company begins to roll out its products outside its core US market. Gross profits were $280,205 in Q1, with comprises 228.5% of net revenue.

HempFusion also has a strong cash position having raised a lot of money via its IPO earlier this year. The company reported it still had over $17m in the bank.

International expansion is going to be an area for investors to watch closely with this company, especially as the pandemic starts to wane as we see the roll out of vaccination programs globally. HempFusion is already busy putting in place the building blocks of an international distribution network for CBD-based wellness products. We have seen it register its products for sale in Ireland and it is in the process of entering the UK market.

Listen: Podcast with Jason Mitchell, CEO of HempFusion

Vaccine roll out paving way to reopening of bricks and mortar retail

CEO Jason Mitchell has told the market that he is very encouraged by the vaccine roll out across the US and that bricks and mortar stores are reopening. This area is of major importance to HempFusion, and while the company has been beginning its digital sales activity in the US, its real distribution muscle remains ordinary retailers across the United States.

Mitchell confirmed that 75% of HempFusion sales come from traditional retailers, so it is fair to say we should see an upswing in sales from the company in the course of the second half of the year.

Mitchell was also bullish on the prospects for international purchase orders. We note the company has an agreement in place to distribute in China, which we think has the potential to be a source of potentially vast revenues if HempFusion can get the formula right, It secured this deal in March for its Probulin Probiotics brand. These will be sold through Alibaba’s Tmall Global.

HempFusion has also reported that it has received its first significant purchase order in over a year from a big Dubai distributor.

“We are pleased to see more and more of our international sales resume, and we believe this initial +$200,000 purchase order is just the beginning of increased international revenue for 2021,” said Patrick Bucaro, Head of International Development. “Had COVID not occurred, this customer was expected to generate upwards of $800,000 for us in 2020 and $1,000,000 in 2021. With our projected domestic business growth and sales in the Middle East and North Africa region re-opening, we are excited to see this early indication that business on a global scale is starting to move in the right direction. We are hopeful this particular customer will generate north of a million dollars annually for us moving forward.”

HempFusion seems well positioned to benefit from a reopening of retail both within the US domestic market coupled with increased global distribution opportunities. We expect to see overall revenue picking up as this effect makes itself felt.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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