With an eye on legislation, is it time for your portfolio to grow with Hemp?
Have you been keeping up with the news, lately? On the heels of the Hawaii legislature introducing Senate Bill 2700 to authorize the growth of industrial hemp earlier in 2016, this week the Pennsylvania Senate unanimously passed Senate Bill 50, the Industrial Hemp Act, by a vote of 49-0. If approved by the house, Senate Bill 50 will allow Pennsylvania universities to conduct research into agricultural hemp growth state-wide, joining Hawaii, Kentucky, Indiana, Minnesota, North Dakota, and Tennessee.
While to date only three states, Colorado, Oregon, and Vermont have licensed and registered farmers to grow hemp under state law, that list is certain to grow rapidly. To date, twenty-seven states have defined industrial hemp as distinct and removed barriers to its production. These states will be able to take immediate advantage of the industrial hemp research and pilot program provision under Section 7606 of the Farm Bill. With the Federal government both allowing a 'back door' via the Farm Bill and allowing the states to introduce and pass both hemp (and marijuana) laws without federal oversight, more states are exploring hemp as a new revenue stream to expand local economies.
Hemp advocacy groups predict that in the coming weeks and months, all 50 states will legalize hemp cultivation for industrial use of a durable, natural, and renewable source from which businesses can produce a wide variety of staple goods. In light of the bills being put forth state by state, this prediction does not seem as bold as you may think. In the 2015 legislative season, industrial hemp legislation was introduced to create or amend previous laws in twenty-two states .
Large Opportunities for Market Growth
According to a 2005 Congressional Research Service report, the U.S. is the only developed nation that hasn't developed an industrial hemp crop for economic purposes. As noted above, the United States' singular status is coming under attack. Moreover, experts suggest that the U.S. market for hemp is around $600 million per year and count as many as 25,000 uses for industrial hemp, including food, cosmetics, plastics and bio-fuel. It might surprise you to learn that he U.S. currently the world's #1 importer of hemp fiber for various products, making it painfully obvious that a large demand exists in our country.
Ina recent article by Michael Tanenbaum of Phillyvoice.com, (http://www.phillyvoice.com/pa-senate-unanimously-passes-industrial-hemp-bill/) this existing demand and large quantity of hemp being imported annually has motivated the movement for legalization. Tanenbuam notes that with the U.S. spending as much as $580 million in 2013, 14 additional states were motivated to pass industrial hemp legislation. He also notes that hemp is considered an 'environmentally friendly, climate resilient plant that requires few chemicals and minimal water use to thrive.' With so many of our agricultural issues plagues by drought, opportunity abounds.
As an investor, I am intrigued with the growth opportunity in hemp, and based on my belief that very soon, businesses and politicians alike will decide to grow instead of import, and put those dollars back into the American economy, I asked myself: "Where can I place my money within this sector to (hopefully) capitalize on this emerging sector?" After thoroughly vetting stocks in the sector, I decided to take a 'long shot' position in one stock: SIPP Industries (OTCPK:SIPC). I believe like all OTC stocks, SIPC carries significant risk, but also potential for nice reward as it is well positioned for large scale growth. Every portfolio has room for an upside play, and this quarter, I will swing away with Sipp Industries for the following reasons:
Right place, right time - The hemp sector is primed for massive legislative change, and massive growth. See above.
SIPC has very few existing liabilities - Anytime I consider sticking my toes into any OTC play, my number one concern is toxic/convertible debt. Shell companies and fly by night operations that are built on toxic notes leave the unsuspecting holding the bag more often than not in the wild, wild, west landscape that is the OTC.
In July, 2014, Sipp Industries divested its beverage industries and removed nearly 100% of their convertible and toxic debt, holding only one note in the amount of $62,680 on the balance sheets. Re-organized as a conglomerate corporation that specializes in technology, import/export, and distribution of commercial and consumer products, in early 2015 SIPC entered into the hemp sector by offering advanced plasma lighting for indoor horticulture, gaining sales traction in Colorado, and the mid-year addition of an online store which offered bulk hemp products and co-packaging solutions. Sales in these endeavors, coupled with the clean balance sheet and lack of debt, allowed SIPC to post a modest profit in 2015 Q3 as a start-up hemp-based business.
Having a 'clean' balance sheet and little to no toxic debt separates SIPC from their peers. Compared to one of their peers, HempInc.(OTCPK:HEMP), SIPC's $62K looks far more attractive than the $1.3M in total liabilities stated on HEMP's most recent 10Q, of which $1.1M were toxic notes and interest accrued, that more often than not eventually translates into additional shares being diluted. Moreover, the knowledge and experience gained within the hemp sector laid the groundwork for SIPC to launch a fully-owned hemp subsidiary, Major Hemp, in December of 2015.
In 3 months, Major Hemp has introduced multiple revenue streams - Here's a brief overview of the revenue streams added by Major Hemp since their December 23 launch:
Distribution of Body Care products
According to the Hemp Industries Association (HIA), the estimated 2014 sales for hemp body care and food products was $200M while growing by at least 20% over the last five years. SIPC's Partnership with Hemp for Fitness (December 23) and newly inked distribution deal with WanderportCorp (March 3) to distribute hemp body care products Cannabois and Trompetol give the company a footprint in this sector with the ability to enlarge it as the sector continues to grow.
SIPC signed an exclusive supply agreement with Angel Hemp (monthly shipments, first shipment January 2016) and recently bid on and won the contract for a 4000 Gallon order of hemp oil (ships quarterly, first shipment February 2016)
Advanced Plasma Lights for Indoor Horticulture
2 specific units went on sale February 2016, and also have productive uses in parking lots and commercial applications.
SIPC entered into a supply and partnership agreement with Crazy Mountain Brewing Co. to produce one brand, expected to launch in March 2016. They followed this up with a supply and product development deal with Ute Pass Brewing Co to produce three brands for a 4/20 April 2016 launch. Of particular note is SIPC's 'proprietary ingredient mix of hemp seed, hemp cake and hemp flour that allows any brewer to concoct unique hemp beers.'. Yum. Beer and profits.
In a partnership with Acadia Hemp, SIPC now sells products Cannbois and Tempetrol on the largest U.S. online hemp store, as weld as directly marketing bulk products to consumers (March 2016). SIPC is also closing in on a formal agreement to distribute Colorado grown bulk CBD (March 2016 press release), and finalizing details to market and distribute water-soluble CBD technology with 'plans to provide tech and bulk to beverage manufacturers.' (March 2016 press release)
Equestrian and Horse racing
The pet and animal market is lucrative and very high-growth, but to date no one has capitalized on the health value of hemp and CBD in this niche. Enter SIPC, who has developed and sent specialty CBD supplements in pellet form, as well as oils, to clients this month, and is anticipating 2016 Q2 orders.
Location - Basing Major Hemp out of Colorado Springs allows SIPC to be involved with farmers and businesses directly and provides a 'first mover' advantage. While some revenues will be generated Q1 of 2016, the bulk of Major Hemp's current moves will be revenue accretive in Q2 and forward, making the anticipated July 2016 release of Q2's results of high interest and worthy of continued scrutiny.
Positive share structure/low float - SIPC has 800M A/S and an 548M O/S. Due to their lack of toxic debt, SIPC's share structure has remained stable. In the calendar year between 2014 Q3 and 2015 Q3, the O/S has risen from 508M to 548M, only rising 35M shares as they launched (and turned a profit on) a new branch. The sub-penny share price and low float of just over 115M has allowed for solid moves over the last two weeks of trading, with SIPC shares up over 125% from .0035 to .0078 as of Fridays close. As more investors are taking notice of SIPC due to the overall growth of the hemp sector this month, and the continual barrage of key moves from Major Hemp, traders continue to accumulate shares.
Disclosure: I am/we are long SIPC.
Additional disclosure: Took a very small position Friday, March 18. Risky, but every portfolio needs an upside play. Big reward here is possible.