There is a new pure-play cannabidiol (CBD) company coming to market, and the timing couldn’t be better. Underpinned by a strong cannabis market and favorable regulatory trends, HempFusion Wellness Inc. is looking to make its mark. TDR profiles the company sharing peer Big Board listing prowess with Charlotte’s Web Holdings (TSX:CWEB), as well as pertinent details of the initial public offering.
Who is HempFusion Wellness?
HempFusion is a Denver-based health and wellness company which manufactures and sells hemp-based CBD and probiotic products. The company distributes its family of brands, including HempFusion, Probulin Probiotics, Biome Research, and HF Labs, to approximately 4,000 retailers across all 50 U.S. states and select international locations. Its ultimate goal is to create a product portfolio that adheres to industry-leading regulatory compliance and human safety backing—setting itself apart from the industry. HempFusion’s Probulin Probiotics is the fastest growing probiotics company in the US, and is envisioned to act as a gateway to increased international distribution and approved vendor status with major retailers.
Along with its current branded product offerings, HempFusion is planning to extend into CBD-based beverages, edibles and pet products in due course. The latter category is among the fastest growing segments in the space, with a compound annual growth rate (CAGR) of 40.3% from 2020 to 2027 expected according to Grandview Research.
HempFusion USA was originally incorporated on October 13, 2015 and commenced operations as MetaCan Inc. The company was formed by participants with expertise across various verticals of the emerging hemp industry, including supply chain and operations, supplement formulation and regulatory expertise. In 2019, MetCan formally changed its corporate name to HempFusion Inc. in 2019 to align its corporate identity around its primary brand.
Over the past four years, HempFusion has seen robust revenue growth due to strategic acquisition and relentless penetration of major retail channels throughout the United States. Thus, the company is coming to market as one of the fastest growing revenue-generating CBD companies on any North American exchange. Below are the consolidated revenues for the past four reporting years:
|($USD)||Year Ended Dec 31, 2019||Year Ended Dec 31, 2018||Year Ended Dec 31, 2017||Year Ended Dec 31, 2016|
|Revenue, net of discounts||$3,016,618||$1,205,652||$712,994||$138,303|
|Year-over-year revenue ↑||150.02%||69.09%||415.53%||< 3-Year Avg|
|Cost of good sold||$2,403,175||$712,921||$520,493||$94,035|
Gearing up for its public debut, on October 22, HempFusion announced it had filed a preliminary prospectus with the applicable securities regulatory authorities for a proposed initial public offering (IPO) common shares for gross proceeds of up to USD$7,000,000 and Units of the Company for gross proceeds of up to USD$10,000,000. The Units offered will each consist of one common share and one‐half of one common share purchase warrant of HempFusion and will be subject to a contractual 4-month hold period upon the commencement of public listing.
As a tactical bonus, HempFusion was able to secure the optically-memorable ticker symbol “CBD.U”. TSX listing is expected to take place in the week of December 14th.
How Does HempFusion Differentiate From Its Competitors?
Unlike fly-by-night “gas station” CBD companies that have tainted the market with impure, ineffectual and sub-standardized products, HempFusion is doing things right. The company’s products must comply with rigorous Food and Drug Administration (FDA) production and testing protocols before coming to market—a foreign concept for many market participants.
For example, HumpFusion’s line of FDA listed Over-the-Counter (OTC) topical products feature scientifically active ingredients that provide relief for pain, acne, eczema and more. By producing and marketing these products in accordance with the FDA’s OTC regulations (including ingestables), the company is able to make specific health claims and target specific conditions for a variety of consumer needs.
Creating such regulated products is not something you can just achieve by mixing ingredients together in a pseudo-pharma environment. It takes trained personnel, a formulaic adherence to compliance protocols and capital to make it happen.
Watch Chief Corporate Officer Danny Brody explain the high barriers to entry CBD companies must surmount before getting product onto Big Box retailer shelves.
HempFusion is further bolstering its reputation as a company whose foundation is built upon regulatory compliance by participating in study to measure the effects of CBD on the human liver.
Researchers will study the effects on the liver from daily use of full-spectrum, hemp-derived CBD, as well as CBD isolate, in healthy adults—with a minimum participation of 700 consumers. The third-party scientific data generated from select participants is expected to address specific FDA’s requests related to CBD products. The results could also help answer safety questions for FDA officials, who are continuing to grapple with cannabidiol-based regulations to govern the industry.
On the personnel side, HempFusion has its bases covered. While all members of the management team bring unique and relevant qualifications to the table, some particularly notable industry stalwarts include:
Jason Mitchell, Co-Founder, CEO, Director
Dr. Jason Mitchell N.D., has over 20+ years of experience in the natural products industry and is a naturopathic doctor certified by ANMCB. Dr. Mitchell is an expert in supplement formulations. He was responsible for the successful creation and launch of over 300 industry-leading products developed during his 15-year tenure with Country Life Vitamins, before its acquisition. Dr. Mitchell was one of three Country Life Executives that led the transition through the acquisition by Kikkoman. He is a member of the American naturopathic medical association, the CNHP, and received his doctorate from the Trinity College of Natural Health.
Ola Lessard, Chief Marketing Officer
Ms. Lessard serves as the President of the US Hemp Roundtable. Ola is a proven and strategic marketer with 25+ years of experience in creating effective branding strategies. As Vice President of Marketing at Barleans, she was responsible for the launch of one of the most successful CBD brands in America with over 25+ SKU’s. Ms. Lessard oversaw the company’s strategic entry as the first large supplements company into the CBD space, launching nine CBD SKUs in under two years. Ms. Lessard also lead the company’s move to develop and launch a full-scale e-commerce site for direct-to-consumer sales, including subscription, affiliate and loyalty programs.
Danny Brody, Chief Corporate Officer
Mr. Brody is a co-founder and former Vice President of The Green Organic Dutchman Holdings Ltd. (TSX:TGOD). Mr. Brody and his team have been instrumental in capitalizing and listing notable cannabis companies including Emblem Corp., TGOD, and PLUS Products (CSE:PLUS). Before entering the Cannabis industry in 2014, Mr. Brody spent seven years at two leading independent Canadian brokerage firms.
Pivoting to balance sheet cash, HempFusion is fully capitalized to execute its growth strategy. The company is coming to market with the second largest cash position in the sector, with US$18,315,734 (~C$23.56M) and no debt. Only Charlotte’s Web has more, reporting US65.89M in current cash assets as of September 30, 2020.
TDR believes the above elements are important differentiators that can set HempFusion on a path to success.
The Market For CBD Expected To Grow Substantially
According to the Grand View Research, the global cannabidiol market was valued at USD 4.6 billion in 2018 and is expected to grow at a compound annual growth rate (CAGR) of 22.2% through 2025. That works out to an aggregate industry market value of USD $18.72 billion. The firm attributes expected strong future growth to “demand for cannabidiol CBD for medical and wellness purposes” and “government approvals… to drive the demand for cannabidiol infused products.”
The Brightfield Group calls it similarly. They prognosticated in July that by 2025, total US CBD market sales could reach $16.8 billion. This, despite market challenges such as “high unemployment levels” and “economic pressures” that could constrain consumer spending indefinitely.
Transitory economic backdrop aside, consumer demand has remained robust. Brightfield Group notes that “the base of US CBD consumers is still growing strong” and that “consumers adapted in Q2 2020 with 47% of CBD consumers purchasing online last quarter.”
And finally, it was reported in October that based on the 2020 Jefferies Virtual Cannabis Summit—which hosted over 200 institutional investors—that panelists were:
…largely consistent about their growth predictions for the industry post-COVID-19, expecting it to grow at CAGR of 20%-25% over the next five years on a conservative basis and 30%-40%, when speaking optimistically.
We’ll leave it up to readers to decide how prescient these forecasts will be. But if the consensus is anywhere near the mark, the industry faces a double-digit 5-year growth curve, at minimum.
Enter HempFusion Wellness, which is publicly listing just as the CBD industry begins coming together. Because when industry clinical research, improved product quality/standardization and affordability begin to coalesce, we expect the sector to re-gain investors’ attention. This time, in a more organized shift as a maturing regulatory framework weeds out the stragglers and consolidates market share to the top.