- Cowen forecasts CBD sales to reach $16 billion by 2025.
- 2018 Federal Hemp Farm Bill legalized hemp and hemp farmers are now struggling to keep up with demand.
- EXDI 200 acre crop underway and reports they are on track to exceed Scaler forecast of $32 million for 2019, with BioResearchAlert projections of $60 million for 2019, $65 million for 2020 and $95 million for 2021.
- Strong potential exists for sales to greatly exceed Scalar forecast . . . See Worksheet.
- Based on traditional valuation metrics and Scalar Valuation Report, EXDI shares appear highly undervalued at $1.00 per share with projections for short-term prices as high as $17.44 as current crop matures to harvest in 3 months.
CBD Boom Is Mushrooming Fast
CBD is booming, but farmers are struggling to keep up with demand for industrial hemp. Suddenly, CBD isHollywood’s new favorite beauty product. It’s the new superfood du jour and the hottest new trend in foods. Demand for CBD is so strong that a broad spectrum of companies are scrambling to infuse their products with it. A typical product contains an average of 750 mg and retails for between $50 and $75.
Congress legalized industrial hemp in December. With it, they also legalized hemp-derived CBD, short for cannabidiol, a cannabis compound that is believed to deliver the calming effects of marijuana without the high from THC.
Last year, retail sales of CBD consumer products in the U.S. were estimated at between $600 million and $2 billion, according to investment research firm Cowen. The bank conservatively forecasts sales to reach $16 billion by 2025, with health and wellness products leading the way and food, beverage, beauty and vapor to also play a role.
Exactus, Inc. Acquired Majority Interest in 200 Acres of Hemp with Experienced Proven Grower
In May 2019, Exactus, Inc., (OTC: EXDI) announced they initiated the planting of high quality genetic seeds. July 3, 2019, the companyannounced that it was pursuing opportunities in Hemp derived Cannabidiol (CBD) products, and is pleased to announce that the Company has made significant progress on the two 100-acre industrial hemp farms located in Southwest Oregon.
The announcement states, “Farming operations are ahead of schedule and the Company is anticipating an initial AAA Top Flower cut of over 20,000 pounds of multiple strains by mid September.”
- Rows are formed and drip irrigation has been installed on all acreage.
- Our effective germination rate and seedling growth was in excess of 95%.
- The last of the seedlings is ready for transplanting starting July 2nd.
- Planting operations are scheduled to be complete by July 8th.
- The last 50 acres will be triple planted for added density and will be completed by July 15th.
- We anticipate a full inventory of successfully rooted plants by July 31st.”
“We have implemented extremely high-quality standards from the initiation of our farming operations and it’s paying off, our farms are on schedule, our plants are healthy, and we look forward to a successful harvest.” said Emiliano Aloi, President of Exactus. “Based on the successful germination and transplantation, we feel confident we are on track to meet or exceed the biomass projections contained in the independent fairness opinion from Scalar, LLC (“Scalar”)*highlighting EOW’s 2019 harvest estimated enterprise value between approximately $55 million and $74 million.”
“Following the September harvest of the top flower, we are forecasting the final production per acre to exceed 2,000 pounds of dry flower biomass, yielding over 40,000,000 mg of active cannabinoids. End consumer product SKUs range from 200mg up to 6,000mg and average around 750mg per sellable unit.”
“Philip Young, Chief Executive Officer of Exactus stated, “We are investing ahead of our harvest to establish multiple commercial distribution channels and sales verticals. The successful planting of the seedlings gives us confidence that we will be able to realize significant crop value which we plan on converting into over forty SKU’s of consumer products which would be valued at multiples of the harvested biomass.”
Sales & Valuation Worksheet
To determinethe sales potential of Exactus 200-acre hemp – CBD - growing operation, we drilled down on the actual numbers. If each acre of 200 acres is expected to yield close to 40,000,000 mg of cannabinoids, the total cannabinoid yield would be about 8,000,000,000 mg.
The average CBD product contains 750 mg of CBD.
8 Billion divided by 750 equals 10,066,666 units to sell
The average price of each unit at retail ranges from $50 to $75.
At $50/unit, retail sales equal over $500 million.
Assuming EXDI sells their CBD B2B at wholesale or on a White Label marketing agreement, their expected sales would be closer to half of the $500 million or $250 million.
EXDI ownership interest is about half of the total, meaning the potential sales to EXDI is about $125 million.
EXDI harvest is 100% on track, and if EXDI is only half way successful, they stand to generate close to over $60 million in 2019 sales (almost double the Scalar Report forecast). And that does not include any top flower sales which the company believes may generate close to $10 million in additional sales for 2019.
Based on actual existing current price to sales ratio of 41 to 1 for 6 well-known cannabis stocks (see table below), a conservative projection for EXDI price to sales ratio of 10 to 1 on 2019 sales of $60 million would yield a market cap of $600 million that with 34.4 million shares outstanding would translate to $17.44 for each EXDI share.
Price to Sales Table for cannabis companies with sales greater than $25 million
Company Price/Sales Ratio
CURRENT INDUSTRY AVERAGE PRICE TO SALES RATIO IS 41 TO 1
Exactus reports they are on track to deliver 200 acres of high quality cannabinoids or CBD before the end of 2019. If successful, EXDI shares have the potential to be priced substantially higher that current price of $1.01. Our analysis suggests a price for EXDI shares that is closer to $17.44 if they report our conservative estimated sales of $60 million. The greatest risk any CBD grower is exposed to, including Exactus, is the experience, capability, and track record of the grower. In the case of EXDI, their grower is a long-time, experienced and successful operator with a solid track record. The company appears adequately funded to achieve its goal and business plan and is therefore a Strong Buy at current levels that appear to be highly undervalued.
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