Youngevity Makes Important Move In Hemp And CBD Sector

|
About: Youngevity International, Inc. (YGYI)
by: Spencer Osborne
Summary

Youngevity announces a deal to acquire all assets of Khrysos Global.

Processing hemp is a critical and profitable industry in the sector.

Youngevity can drive its own growth as well as contract out to others in the industry.

Youngevity (YGYI) announced today that the company has reached a deal to acquire Khrysos Global as well as INX Labs and its testing facilities. The company has created Khrysos Industries, Inc. which will be a wholly owned subsidiary of Youngevity. This turn-key acquisition will allow Youngevity to participate in an already thriving hemp processing sector with existing clients and potential new clients as the sector grows. The $16 million deal is comprised of $14 million in stock with the balance in cash paid out over the next year. Also, included in the deal are warrants allowing the seller to purchase an additional 3,000,000 shares at a price of $10 per share.

Image Source - Youngevity

The warrant program consists of 6 segments which are smartly tied to performance of both revenue and income before taxes. Thus, the warrants only come into play when the subsidiary, Khrysos Industries Inc., is doing well itself.

  1. A six-year warrant to purchase an aggregate 500,000 shares of Common Stock at an exercise price of $10 per share exercisable upon the generation by the Business of $25,000,000 in cumulative revenue during any of the years ended December 31, 2019, 2020, 2021, 2022, 2023 or 2024
  2. A six-year warrant to purchase 500,000 shares of Common Stock at an exercise price of $10 per share exercisable upon the generation by the Business of $75,000,000 in cumulative revenue during any of the years ended December 31, 2019, 2020, 2021, 2022, 2023 or 2024
  3. A six-year warrant to purchase 500,000 shares of Common Stock at an exercise price of $10 per share exercisable upon the generation by the Business of $150,000,000 in cumulative revenue during any of the years ended December 31, 2019, 2020, 2021, 2022, 2023 or 2024
  4. A six-year warrant to purchase an aggregate 500,000 shares of Common Stock at an exercise price of $10 per share exercisable upon the generation by the Business of $10,000,000 in cumulative net income before taxes during any of the years ended December 31, 2019, 2020, 2021, 2022, 2023 or 2024
  5. A six-year warrant to purchase 500,000 shares of Common Stock at an exercise price of $10 per share exercisable upon the generation by the Business of $30,000,000 in cumulative net income before taxes during any of the years ended December 31, 2019, 2020, 2021, 2022, 2023 or 2024
  6. A six-year warrant to purchase 500,000 shares of Common Stock at an exercise price of $10 per share exercisable upon the generation by the Business of $60,000,000 in cumulative net income before taxes during any of the years ended December 31, 2019, 2020, 2021, 2022, 2023 or 2024.

Khrysos product line is recognized as one of the most efficient in the sector and comes complete with existing clients. INX Labs gives Youngevity the ability to own its own quality control. This move by Youngevity is perhaps one of the more critical moves in the company's goal to be a field to finish CBD player. Processing hemp and extracting its valuable CBD oil is an issue that any player in the sector needs to solve. If the CBD space is considered the "gold rush" of this century, this move by Youngevity gives the company a leg up. CBD oil does not simply happen. Quality CBD oil is even harder to produce. Youngevity now has that capability not only for itself but also for anyone in the space trying to cope with the issue of turning hemp into hemp oil.

Youngevity already has a CBD product business in place with its HempFX line. The company is also working on expanding that business in a deal with Icelandic Glacial which will formulate a drinkable CBD product.

As of today, Youngevity has a retail presence and now a processing presence. The only remaining piece in the field to finish puzzle is a hemp farm from which the company can produce its own vertical supply chain integration. That piece of the puzzle may be the easiest to obtain, especially when one considers that the passage of the 2018 Farm Bill has made hemp legal.

Youngevity has learned a lot along the way. The company experience in creating a field to finish coffee business created the ability to swiftly move into the CBD space in a manner which many start-ups simply cannot replicate.

In very simple terms, Youngevity has already become a player in the CBD space, yet many are still not aware. This dynamic presents a valuation play which cannot be ignored by the street and the sector much longer. With direct selling, coffee, and CBD all growing at the right time, this company is poised to get attention. The EBITDA numbers showed dramatic improvement in 2018, and 2019 already has substantial revenue generating contracts to drive the company to positive EBITDA. Some investors may not look at CBD processing capability as sexy news, but remember this... The guy that sold pickaxes, shovels, and pans to miners in 1849 made a killing in the gold rush.

The CBD business will have many participants. All of them will need oils. The best and highest quality oils and isolates will dominate the sector. Those that can extract more oil and better oil will always carry the advantage. Youngevity now has the capability to be a leader in the extraction side of this space. Stay Tuned!

Disclosure: I am/we are long YGYI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.