Cannabis as Food? The Biggest Market of All

Cannabis as Food? The Biggest Market of All,汉麻食品风靡,成当今最热门市场之一
Published on: February 7, 2018
Author: Amy Liu

Unless some Canadian investors have been vacationing on the Moon, by now everyone is aware of the unprecedented market opportunity that is arising from the global movement to legalize (and regulate) cannabis.  The closest parallel would be the end of alcohol Prohibition in the United States. However, the legalization of cannabis will ultimately dwarf the legalization of alcohol with respect to its investment potential.

The principal market for alcohol is as a recreational drug. In contrast, cannabis can (and will) penetrate many markets as:

  1. A recreational drug that is non-addictive and non-toxic (unlike alcohol and tobacco)
  2. Medicine: “medicinal cannabis” is being identified as a potent therapy for an ever-increasing number of health disorders
  3. Health supplements: the stellar therapeutic properties that are associated with cannabinoids have almost an infinite number of applications as “wellness” supplements
  4. Nutrition: cannabis is also food, in fact, cannabis is a super-food

Should investors be concerned with last week’s sudden pullback? In a word, no. With an emerging sector with decades of growth potential, corrections = buying opportunities. Now back to the cannabis story.

Most of these gigantic potential and existing markets will already be familiar to cannabis investors, except perhaps the fourth category. Ironically, it is this last category that represents the largest market of all. We all eat – several times per day.

Why do so few cannabis investors associate cannabis with “food”? The reason for this is that even many cannabis investors will not clearly appreciate (and understand) the investment opportunities associated with hemp versus the investment opportunities associated with marijuana.

The cannabis plant is broadly divided into two sub-species: marijuana and hemp. As most people know, it is marijuana that has been the primary target of now-antiquated cannabis Prohibition. It is the marijuana sub-species that contains THC – the psychoactive ingredient in the cannabis plant that induces mild euphoria.

Hemp was irrationally included in this Prohibition, despite near-zero THC content. This is extremely unfortunate given that the hemp plant has over 50,000 uses. Most of these 50,000+ applications come under one (or more) of the categories below.

  • Food
  • Oils
  • Nutritional supplements
  • Body care products
  • Medicine
  • Livestock food and bedding
  • Fabrics
  • Paper products
  • Plastics

It would take far too long to detail all of the current and potential uses for this Wonder Plant. What will be of more interest to investors is one company that is taking a targeted approach to penetrating some of these large/numerous markets: Naturally Splendid Enterprises Ltd. (TSX: V.NSPOTCQB: NSPDF, FRA: 50N, Forum).

NSP isn’t attempting to produce hemp-based products aimed at satisfying all of these 50,000+ uses. That would be too big a mandate for any large corporation, let alone a junior company with (at present) a market cap of approximately $35 million. However, Naturally Splendid is positioning itself in several of these major markets – all with multi-billion dollar potential.

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Obviously there is some overlap in the numbers above. However, with $100’s of billions in revenues up for grabs either at present or in the very near future, the Company has an abundance of opportunities to target.

Naturally Splendid is not alone here. Lots of cannabis companies would like to broaden their operations into some of these hemp-based markets. What separates NSP from virtually all of these potential competitors are three crucial factors:

  1. Naturally Splendid already has years of experience in the retail side of the hemp industry: developing distribution channels and honing its marketing strategies
  2. NSP already has unique and highly marketable IP that gives it a strong competitive advantage
  3. The Company already has the manufacturing, processing, and extraction infrastructure in place to commence large-scale production and commercialization today

Success in any retail market generally requires graduating from “the School of Hard Knocks”. Companies learn where the easiest penetration points are and how to exploit those opportunities. Naturally Splendid is years ahead of the curve here.

Their retail product lines are currently being sold in more than 1,400 retail outlets across North America. This includes major retailers like Costco, Whole Foods, Choices, Save on Foods, Sobeys, London Drugs, and others. And this is independent of Naturally Splendid’s e-commerce platforms.

Ultimately, what might be the key factor in catapulting NSP to a new level of operational success is Naturally Splendid’s unique and highly sought-after IP. This will become more apparent as readers progress.

In order to capitalize on these retail opportunities and fully leverage the Company’s IP, Naturally Splendid already has large-scale production capacity. This is infrastructure that would make other would-be hemp companies drool with envy.

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Put together, these assets provide NSP with large-scale manufacturing capacity with respect to its own product lines, toll manufacturing revenues from third parties, packaging and co-packing capacity. At the same time, these are also barriers to entry which new entrants to this space will find difficult, if not impossible to hurdle.

Having great products is only a value-driver for companies if these products can be properly commercialized. Very few cannabis companies have any in-house manufacturing capacity. This means the need for “toll manufacturing”: paying someone else to produce their product(s).

That can eat up a large portion of margins. Rather than having to deal with such costs, Naturally Splendid is a company that other companies come to for toll manufacturing and packaging services.

This begs the question: does NSP have the quality products to back up its manufacturing capabilities? The short answer to this question is that the Company’s products are FDA-approved, its research facility is ISO accredited, and its manufacturing meets “GMP” standards. Top quality.

What about product innovation? Here investors may be overwhelmed with the dizzying array of product lines that NSP has already pioneered in several of these hemp-based niches. In a conference call with Stockhouse Editorial, President and Co-Founder Craig Goodwin was unapologetic.

Ironically, having a product such as hemp, and IP & technologies that allow us to incorporate hemp into multiple products across many categories, has been a challenge for investors to fully comprehend. I get asked: “Are you a food company, or a pet food / care company?” Or a livestock company? You have cosmetics and skincare products…are you a cosmetic company? Or: NATERA FX is formulating practitioner grade supplements. Are you a neutraceutical company? 

The answer is, yes, to all the above. And the truth is, we could most likely be in several other markets as well. However, the key is that with the markets we have identified and product lines we have created, much of the science and expertise is transferable across the products. What we have learned and developed for human consumption and topicals is transferable to pets. And pet nutrition is transferable to livestock. And the IP we have developed with our HempOmega™ and hemp protein isolate, is applicable in most every identified market category as well. 

Our IP has been developed to be manufactured in our own production facilities creating opportunities to develop our own products, or enter into licensing agreements. In short, our expertise is in hemp and it’s many derivatives.

Investors wanting a closer look at these award-winning product lines can view the Appendix that follows this article. Is the Company doing too much?

Something upon which investors can focus is NSP’s “hemp protein isolate technologies”. That’s a mouthful. Think: super-nutrition.

Protein is not only our body’s essential building block, it is also a superior energy source. While it takes longer for our bodies to metabolize protein into energy, protein provides a much longer-lasting energy source. Protein is what powers busy people through their day.

Consequently, protein powders and supplements are already big business – in both the sports supplements and health supplements market. Naturally Splendid has engineered the best protein supplement. Period.

Why is it so superior to competing alternatives? Simply: much more protein. The best protein supplements previously available could achieve no more than 65% protein content by weight. And even getting to that 65% level was so difficult for manufacturers that such products are priced out of the budgets of most consumers.

NSP has engineered a 90%-pure hemp-based protein supplement, and its innovative process is far more cost-effective than any competing high-potency protein supplement. Not only is this a stand-alone product in its own right, it can be a superior ingredient in any number of meal replacement or health supplement products.

Talk to the management of the Company and they will tell you that the phone is ringing off the hook with inquiries about this IP, with many of these phone calls coming from other Licensed Producers (under Canada’s ACMPR regulations). Given that high level of activity, investors should not be surprised if one or more deals materialize here in the near future.

Why are discussions and deal-making suddenly heating up, across the cannabis sector? The original trigger was Constellation Brands’ $245 million strategic investment in industry-leader, Canopy Growth Corp.

For many of these cannabis companies, this was the “wake-up call” that if they wanted to be a consolidator (rather than a take-out target) that they needed to move sooner rather than later. Even more recently, the just-announced acquisition of CanniMed Therapeutics Inc. by Aurora Cannabis Inc. is a $1+ billion deal.

Then there is HempOmega™. Another proprietary formulation, HempOmega™ focuses on accessing a different nutritional component of this super-food: it’s high content in essential Omega fatty acids. Our bodies need to obtain regular, significant amounts of Omega 3 and Omega 6 fatty acids. The hemp plant contains both.

As with the Hemp Protein Isolate, HempOmega™ can also be commercialized as a stand-alone supplement or used as an additive in the manufacturing of other health and food products. Part of the reason why NSP is obtaining success with these initiatives is more of its proprietary technology: a better extraction process for hemp-based plant extraction (which is more complex than marijuana extraction).

In addition to its superior protein content and rich fatty acid content, the hemp plant is loaded with other nutrients, including very high levels of fiber and many important vitamins and minerals. Even before the Company moved into its more refined products for commercializing the hemp market, NSP was already busy producing a wide array of raw and less-processed food products, including the hemp seed itself – the most complete source of hemp nutrition.

What about markets and marketing?

Presently, the bulk of NSP’s revenues come from North America, as evidenced with the long list of North America-based chains carrying the Company’s products. However (in particular), Europe and Australia are ripe for market penetration, having the most hemp-friendly regulatory structure – at the moment.

Longer term, Asia obviously beckons. NSP has already made considerable progress in accessing these mega-markets. While its South Korea initiative suffered a setback when economic fundamentals eroded in 2017, the Company has gotten considerable traction at FOODEX 2017, an industry trade show hosted in Japan. Naturally Splendid already made a big splash via Asia’s “LOTTE Home Shopping Channel”.

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To accelerate the commercialization of these markets, Naturally Splendid recently brought in new leadership: Doug Mason was named as the new CEO on January 4, 2018. But NSP didn’t need to recruit from outside the Company, as Mason already had several years under his belt serving as an Advisor to Naturally Splendid.

Some investors will immediately recognize that name. For those who don’t, he was the driving force behind the launching and commercialization of such highly successful brands as “Jolt Cola” and “Clearly Canadian” – the flavoured-water beverage. Indeed, in the case of Cleary Canadian, it was Mason who was instrumental in defining what was (at the time) a new market niche.

Now Mason is fully applying that expertise to the commercialization of Naturally Splendid’s super-foods and super-nutrients, including the Company’s cosmeceuticals, pet-care/pet food products, and Elevate Me™ meal replacement products. His mission?

Mason states:

 I recall the times when consumers bought ‘just water’ or ‘just coffee’. Now these two commodities have created mega markets unto themselves with numerous products spanning multiple market segments. The successful companies in these categories create value added products through innovative IP or other differentiating methods.  

When I launched Clearly Canadian, we were a leading innovator in flavoured waters creating a market disruptive product line. Look at Starbucks and the empire they have built around coffee, offering it in numerous flavours and formats. In essence, that is what Naturally Splendid aspires to. Continue to extend our expertise creating value added products to differentiate ourselves from hemp companies offering more basic products.

The Starbucks of Hemp?

Starbucks became an overwhelming corporate success by becoming experts in marketing better coffee. Many different variations – but one, central product.

Naturally Splendid is working to become a corporate success by marketing better hemp products. Many different variations – but one, central product.

Coffee was an already established market when Starbucks appeared on the corporate landscape. Hemp is a brand-new mega-market, targeting revenue potential many times greater than the coffee sector. Cannabis investors can judge for themselves the investment opportunity here.

Source: stockhouse.com

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