In my opinion HempFusion Wellness Inc. (TSX:CBD.U) is a leading player in the cannabidiol (CBD) market.
HempFusion recently announced that it would commence trading on the US OTC Market under the symbol, CBDHF. Following this development, we have seen an influx of interest in HempFusion from US investors and this is a trend that caught our attention. HempFusion already has over 4,000 retail investors, but with the company introducing its shares to the US markets we expect this number to grow rapidly.
One of the reasons I are excited about HempFusion is their ability to raise capital to fund key growth initiatives. Since inception, the health and wellness CBD company has raised more than $55 million. When compared to other CBD operators, HempFusion has been able to raise capital in a much easier and quicker way, and we find this to be a key aspect of the story.
Last week, GW Pharmaceuticals plc (GWPH) was acquired by Jazz Pharmaceuticals plc (JAZZ) for more than $7 billion. GW is a biotech cannabis company that is focused on developing plant based treatments for major indications. Through clinical trials, GW has been able to prove that CBD has a significant number of benefits and we believe that this, combined with the significant acquisition, has added a level of credibility to the CBD sector.
Although HempFusion is focused on a different aspect of the CBD market, we believe the acquisition of GW is a positive for the business and expect to see increased interest as a result. During the last year, several large CBD brands have filed for bankruptcy and the sector has become less saturated as a result.
I believe that HempFusion will prove to be a winner in the CBD sector and consider it to be one of three main brands in the space. Currently, the company is competing against Charlotte’s Web Holdings, Inc. (CWEB.TO) and cbdMD, Inc. (YCBD) and we are favorable on the long-term growth prospects that is associated with the business.
Over the next year, I expect HempFusion to report an increase in the number of stores that sell the brand and believe that the market is discounting the growth prospects that is associated with this. We believe HempFusion will benefit from owning a proprietary product line and are monitoring how the products continue to gain traction.
Another reason I am excited about HempFusion is the structure of the business. The company owns a diverse product line and sells a premium line of probiotic products. The product line, Probulin has served as a major revenue generator and we expect the company to use the cash flow from this vertical to grow the CBD business.
When you combine HempFusion’s ability to raise capital with the cash flow that the business is generating, I believe that you have a recipe for success and expect this formula to support organic growth in the near and long-term.
Another key pillar of our thesis on HempFusion is related to the strength of the management team. The company is led by a team that has diverse expertise and a proven track record of success in several highly regulated industries. I believe the strength of the management team is one of the most important aspects of the story and are favorable on the direction the business is heading.
One of the ways that HempFusion has been able to differentiate itself from other CBD operators is by focusing on the development of an organic product line. Last month, the company reported to have received an organic certification from the United States Department of Agriculture (USDA) for several of its CBD tinctures. This development makes HempFusion one of the first publicly traded CBD brands to receive the designation and we find this to of importance.
Currently, HempFusion’s family of brands are available through approximately 4,000 retailers in the United States and select international markets. The company has a diverse product portfolio that is comprised of 46 SKUs and we believe that our readers need to be aware of this opportunity.
At current levels, we believe that HempFusion has an attractive risk-reward profile and a compelling valuation. When compared to its peers, we believe the health and wellness CBD company is trading at a discount and see significant upside potential to current levels. As HempFusion continues to execute on its growth strategy, we expect the business to receive additional coverage from leading broker-dealers and believe that this will be a catalyst for growth.
Disclaimer: Please do you own research, this is not investment advice.
