Smart Companies Finding Sweet Spot in Cannabis Processing, Manufacturing Opportunities

July 19, 2019 08:00:36

CannabisNewsWire Editorial Coverage: In between growers and sellers lie several potential places for companies with expertise to firmly establish themselves in the burgeoning cannabis space.

Savvy companies such as Youngevity International Inc. (NASDAQ: YGYI) (YGYI Profile) recognize the potential payoff of being involved in the back end of the cannabis industry. The company’s wholly owned subsidiary Khrysos Industries Inc. just signed a five-year contract to purchase hemp plant biomass for extraction, end-to-end processing and production of hemp-derived products. Indiva Limited (TSX.V: NDVA) (OTCQX: NDVAF) has successfully received an amended license from Health Canada for three additional grow rooms and three additional processing rooms. Neptune Wellness Solutions Inc. (TSX: NEPT) (NASDAQ: NEPT) recently announced that its wholly owned subsidiary received a notification letter from Health Canada indicating that all requested license amendments have been approved. Other cannabis companies are making strategic moves in the industry as well. CannaRoyalty Corporation (CSE: OH) (OTCQX: ORHOF) has obtained final approval to move forward with its plan of arrangement with Cresco Labs, which will result in the largest-ever public company acquisition in the U.S. cannabis sector. And KushCo Holdings Inc. (OTCQX: KSHB) has partnered with C.A. Fortune, a leading full-service national consumer products sales and marketing agency, with the intent to grant viable CBD companies access to large-scale, conventional retail channels.

  • Youngevity is extending its reach beyond offering products to the potentially lucrative areas of processing and manufacturing.
  • YGYI subsidiary just signed a five-year contract to purchase hemp plant biomass for extraction, processing and production.
  • Company moving forward to implement plan to increase processing capabilities by ten-fold.

To view an infographic of this editorial, click here.

Big Business May Be in the Back

The growth of the cannabis industry has been well touted. Consumer spending in the United States topped $10 billion for the first time last year, and that number is only expected to increase, with numbers projected to reach $23 billion by 2022. Some estimates reach even higher — ranging from $31 billion to an almost incomprehensible $130 billion.

With all those big numbers, smart companies are eager to find their place in the industry. An obvious play might be in retail, focusing on getting the highly sought-after products into the hands of eager consumers, whether it be in the medical field or adult-use recreational sector. However, in the world of cannabis, opportunities for a lucrative payday reach beyond simply selling products. In fact, the space between growers and sellers house a number of potential places for companies with expertise to firmly establish themselves in this burgeoning area of commerce.

Picks-and-Shovel Approach

This picks-and-shovel approach is the strategy employed by Youngevity International Inc. (NASDAQ: YGYI), a leading omni-direct lifestyle company that produces a range of consumer-focused CBD products. Recently, however, YGYI is extending its reach beyond offering products to the potentially lucrative areas of end-to-end processing and manufacturing.

With that in mind, the company completed its acquisition of Khrysos Global, a leading manufacturer of commercial hemp-based CBD extraction and post-processing equipment, and an end-to-end processor of CBD isolate, distillate, water-soluble isolate and water-soluble distillate. The company made headlines recently when it opened a turn-key manufacturing facility for various hemp-related finished products.

“We are excited to offer turn-key product solutions to our suite of services,” said Khrysos president Dwayne Dundore. “We believe this expands our competitive advantage within our hemp enterprise by covering all facets of product development to our growing list of clients. The relatively low minimum-order quantity capabilities of this operation combined with our comprehensive testing services should offer a unique value proposition for our customers and those seeking to enter this growing market opportunity.”

“The Khrysos Industries multi-dimensional business model is capable of providing turn-key solutions in this dynamic marketplace,” said YGYI president and CFO Dave Briskie. “The vertical integration of our hemp enterprise provides the potential of higher profit contribution as it leverages the other selling segments within our company. We anticipate expanding the capabilities within the coming months in order to more fully take advantage of these competencies throughout all facets of our business.”

Multidimensional Business Model Gaining Momentum

In addition to its turnkey product solutions, Khrysos just signed a five-year contract to purchase hemp plant biomass for extraction, processing and production of hemp-derived products. The supply contract with Magu Maiden Farms LLC notes that Khrysos will provide extraction services and end-to-end processing to produce isolate, water-soluble isolate, distillate, and water-soluble distillate hemp-derived products.

“We are excited to add this new long-term contract to our portfolio,” said Dundore. “We have strategically targeted multiple long-term relationships that we believe places Khrysos in a stronger position to leverage the expansion taking place within the post-processing area of our business.”

Based on this contract alone, YGYI anticipates extraction and post-processing fulfillment and revenues to begin in the fourth quarter of 2019, with revenues forecasted at $60 million through 2024 based on current market conditions and assuming, among other things, ability to secure buyers for the produced product and the supplier’s ability to supply the biomass for extraction and processing.

“The Khrysos Industries multidimensional distribution business model is gaining momentum,” said Briskie. “The team at Khrysos has executed multiple projects including the buildout and move to our post-processing facilities and the completion of our assembly operations. We continue to see that our pre- and post-processing expertise, combined with the capabilities of our analytical testing lab INX, provides a distinct competitive advantage within the hemp space.”

Gearing Up for Ten-Fold Increase in Capabilities

The momentum doesn’t end there. YGYI’s Khrysos Industries also inked an $11-million supply contract for the sale and processing of 99% pure CBD isolate powder earlier this year. Shipping under the contract began earlier this year and is expected to continue through March 2020.

“We are excited to reach the revenue stage for the end-to-end processing component of our business model,” said Dundore. “This contract encompasses 50% of our production capacity, and we anticipate executing contracts for the balance of our current capacity within the next few months. Based on customer demand, the company is moving forward to implement its plan to increase end-to-end processing capabilities ten-fold by 3Q 2019.”

“The Khrysos Industries business model is multi-dimensional, and we are just now starting to fully leverage the capabilities of our extraction systems, end-to-end processing platform, and the capabilities of INX Labs,” said Briskie. “We anticipate gearing up our production capabilities across the platform as we move through 2019.”

Making Headway in Cannabis

Other companies are making headway in the cannabis industry as well.

Through its newly announced partnership with C.A. Fortune, KushCo Holdings Inc. (OTCQX: KSHB) plans to offer the first large-scale, go-to-market operation focused on helping compliant CBD brands achieve mass distribution across legal markets in the United States. The combination of KushCo’s extensive network of brands and specific hemp-industry knowledge paired together with C.A. Fortune’s industry-leading reach into all retail channels may offer KushCo clients an additional avenue to activate their CBD products.

Indiva Limited (TSX.V: NDVA) (OTCQX: NDVAF) has successfully received an amended license from Health Canada for three additional grow rooms and three additional processing rooms, bringing the company’s annual cultivation capacity to approximately 1,000 kg. The three additional rooms will be immediately populated with plants, using advanced aeroponic grow technology, with the first harvest expected in less than 10 weeks. Indiva has completed the video-evidence package for an additional five rooms, including additional processing space, with the expectation for those rooms to come online in third quarter 2019, subject to Health Canada approval. Once all eight rooms are online, Indiva’s annual flower capacity will be approximately 3,000 kg.

Neptune Wellness Solutions Inc. (NASDAQ: NEPT) announced that its wholly owned subsidiary, 9354-7537 Quebec Inc., has received a notification letter from Health Canada indicating that all requested license amendments have been approved. The approved amendments permit expansion of Neptune’s cannabis operation areas to include an additional extraction room for cold-ethanol extraction, which is faster and more cost-effective than the CO2 extraction currently used. The amendment will up Neptune’s input capacity from 30,000 kg to 200,000 kg., a seven-fold increase that allows the company to accelerate production and enable fulfilment of commercial commitments. The amendment also includes expansion for an encapsulation room where Neptune will produce cannabis-oil capsules.

In what has been called the largest public-company acquisition in the history of the U.S-cannabis industry, CannaRoyalty Corp. (CSE: OH) (OTCQX: ORHOF) has entered into a definitive agreement with Cresco Labs to form one of the largest vertically integrated, multistate cannabis operators in the United States. CannaRoyalty, dba Origin House, has become a leading distributor and providing of brand support services in the state of California, delivering more than 50 cannabis brands to more than 500 dispensaries in California, representing approximately 60% market penetration. The new agreement will result in the two companies forming the premier distribution company serving California, which is the largest cannabis market in the world.

For more information on Youngevity, visit Youngevity International Inc. (NASDAQ: YGYI)

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