On December 10, 2018 Heritage Cannabis (CANN.C) announced that is has acquired 100% of Purefarma – a manufacturer and wholesale processor of premium CBD oils.
CBD – a non-psychoactive cannabis compound – treats a wide variety of ailments including age-related bone and muscle pain.
Because THC (the stuff that gets you high) is derived from the same plant as CBD – investors often mentally link the demand-side of the two products together.
But that may be throwing shade on CBD.
According to an Insights West survey commissioned by BCAA, 11% of non-pot smokers “may try THC for the first time over the 2018/2019 holiday season”, while 18% would try it for the first time, “if it is offered to them by a friend or family member.”
That’s a big wave of potential new THC users.
But it is dwarfed by the tsunami of demand for CBD products.
Because CBD demand is led by the medical needs of aging baby boomers – and that is the mother of all of demographic waves.
Between 2016 and 2021, worldwide life expectancy is expected to rise from 73 years to 74.1 years. By 2021, the number of people older than 65 years will jump to 656 million (about 11% of the total population).
According to The Economist Intelligence Unit global annual health spending reached $7 trillion dollars in 2015, and is expected to reach to $8.7 trillion dollars by 2020.
Heritage bought Purefarma because Purefarma has an experienced CBD extraction team, which is a key component to CANN’s overall growth strategy.
The Purefarma team will expand its premium CBD and THC oil offerings within the PhyeinMed and CannaCure LP infrastructure.
A month ago, PhyeinMed, received an updated cultivation license, allowing the company to sell and distribute:
- dried cannabis to qualified license holders
- cannabis plants and seeds to licensed nurseries
- cannabis plants and seeds to any entity authorized to sell cannabis
PhyeinMed has completed Phase 1 construction of its grow facility, consisting of 15,500 sq ft of production space. Phase 11 consists of 10 greenhouses, with four slated for completion this fall and the remaining six by spring 2019.
“Total grow canopy from the second phase of construction will deliver 41,580 square feet of grow space,” wrote Equity Guru’s Ethan Reyes, “The company aims to produce its first harvest in Q1 2019.”
CannaCure recently executed a supply and purchase agreement with CannTrust (TRST.T).
The 12-month agreement lets CannaCure purchase cannabis clones from CannTrust, while CannTrust retains the right to buy all “bulk dried cannabis” cultivated with the material it has provided.
CannTrust operates a 450,000 square foot cultivation facility in Ontario which is currently undergoing a 600,000 square foot build-out.
In Q3, 2018 CannTrust recorded revenues of $12.6 million and increased their patient count to over 50,000.
Purefarma has an existing supply agreement for 1,600 acres of hemp available through partner farmers, which has been harvested this season and available for the 2019 consumer market. Purefarma is also negotiating with several parties for more long-term supply for 2019 and beyond.
“Today our company brought in a talented group of leaders in the extraction industry.” stated Clint Sharples, Chairman and interim CEO of Heritage “We will integrate the Purefarma business into our LP structures, and quickly move to begin our wholesale extraction production.”
To close the deal, Heritage will issue an aggregate of 33.3 million shares @ .195 per share to Purefarma.
Heritage will also pay an annual royalty “based on that fiscal year’s gross margin.” The royalty will be 12% for the first year, diminishing to 9%, 6% and 3% each year following.
“The extraction business is difficult to execute,” stated Sharples, “By adding experts from Purefarma, we have provided Heritage and its subsidiaries a platform on the global stage.”
Purefarma is expected to add one person to the board of directors of Heritage.
“We’re installing our fourth co2 extraction unit,” stated Graeme Staley, CEO of Purefarma, “This expansion doubles our liquid co2 extraction output infrastructure.”
“The expansion of the Purefarma puts us nicely on track to achieve our projected revenue in 2019,” added Sharples.
According to New Frontier Data, North American CBD sales are predicted to grow about 400% in the next four years, from $535 million in 2018 – to over $1.9 billion by 2022.
Full Disclosure: Heritage Cannabis is an Equity Guru marketing client and we own the stock.