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HempFusion Wellness (TSX:CBD.U) made a strong start to the year. In January, the Denver, Colorado-based company completed a $17m initial public offering (IPO) and started trading on the Toronto Stock Exchange, becoming the first US-based CBD and wellness products company to list directly in Canada.

On their debut, the shares were priced at $1.00/share, which investors were quick to buy. After peaking at $3.56 on 26 February, shares fell back to $1.09.

HempFusion CEO Jason Mitchell issued a press release 15 April assuring investors that “the decline in the stock price cannot be explained by an undisclosed development at the Company, as all material information has been disclosed and is readily available”.

It could be said the share price does not reflect HempFusion’s strong market position. Bear in mind also that a considerable block of pre-IPO stock is coming onto the market and there are some investors who will be taking profits here. But the fundamentals of the distribution strategy remain in place and HempFusion was able to raise a considerable war chest at IPO with which to finance its expansion plans.

In terms of market recognition, HempFusion is now the second most recognised cannabidiol (CBD) brand in the US, helped by its growing e-commerce presence. It remains one of the few companies offering OTC drug listed topical products, giving it a strong advantage when distributing to more than 4,000 retailers, including Amazon, Whole Foods, Sprouts, Vitamin Shoppe and Fresh Thyme Market.

NielsenIQ data ranks HempFusion as the leading brand in product sales and units sold in one of the largest food and drugs retailers, as at end of January 2021. Last month, HempFusion was selected as sole supplier for a six-month clinical trial at Mount Sinai Medical Hospital in New York.

Listen: Podcast with Jason Mitchell, CEO of HempFusion

International strategy continues apace

HempFusion’s international strategy proceeds apace. Earlier this month, HempFusion announced a deal with Alibaba Group to distribute its CBD products on Tmall Global, the world’s largest online marketplace with more than 750 million potential consumers across the China region, where HempFusion already sells products of its subsidiary Probulin Probiotics. An office has been established in Ireland, with plans to launch into the UK market and other markets.

The CBD market in North America has huge untapped potential, and the arrival of a Democrat president of the United States with a reputation for being in favour of the sector has raised hopes that the liberalisation of the cannabis market is just around the corner. The market still has to be patient with the legislative agenda however.

Mitchell is optimistic that his strategy is a firm foundation for HempFusion’s future, and the additional $17m in capital to the treasury will certainly help him to establish it as a leader in the dynamic global CBD industry.

Mitchell told the market this week: “We believe the company is in the strongest position it has ever been with significant partnerships, developments, new distributors, and international channels deep in development, including a significant sales pipeline, consumers returning to stores, multiple international expansion initiatives, and a robust balance sheet, including a strong cash position of approximately US$9.3 million as of December 31, 2020 in addition to the closing of the company’s US$17 million initial public offering on January 6, 2021.”

Investors might note the mismatch between market position and share price, while competitors are watching closely, with an eye on possibly doing their own IPO. We expect further sales data in May which should make for interesting reading.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

James Norris

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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