HempFusion To Go Public, Hopes Products Get On Walgreens' And Kroger's Shelves
HempFusion Wellness will soon trade on the Toronto Stock Exchange.
The Denver-based hemp and CBD company will begin listing in late November, under the symbol CBD, after structuring a $17 million offering.
An IPO in Two Parts
In 2019, HempFusion raised $42 million through private rounds. Now, the company is doing its first public offering of $17 million.
A first round of $7 million allows investors to buy up to $10,000 in free-trading common shares with no sale restrictions.
A second round of $10 million will offer units comprising one share and one-half of one common share purchase warrant. Shares from this round have no purchase limit, but include a contractual hold period that prevents them to be traded for four months after the listing date.
The warrants themselves have no contractual hold period.
The company is aiming to go public on November 26, to be confirmed.
A ‘Trojan Horse’ Strategy to Conquering the Global CBD Markets
HempFusion owns a family of brands across the CBD spectrum including topicals, capsules and tinctures that make up 46 SKUs.
Founder Jason Mitchell, who’s a naturopathic doctor by trade, formulated all the products himself.
The company also owns Probulin, a brand of dietary supplements based on probiotics and enzymes to help boost the immune system. Probulin products do not contain CBD, but the brand is of the cornerstones of HempFusion’s overall market strategy for CBD.
“We knew that we wanted to have something that offered us the ability to enter, not only retailers that didn't allow CBD, but countries that didn't allow CBD,” says CCO Daniel Brody.
Probulin, which was founded by HempFusion founder and CEO Jason Mitchell, provides a gateway into distributors and countries where CBD is not yet allowed, but someday will be.
“We've got all these unique non-CBD products that act as a ‘Trojan horse strategy’ for us to really penetrate new distributors, new points of sale and new markets,” said Brody.
Aside from mainstream stores in the U.S., Probulin is currently being sold in Mexico, Brazil, South Korea, Ireland and the United Arab Emirates.
“When these companies and retailers expand their CBD regulations, then we've already got an in with them. That allows us to get entrance into all of these new markets, all these new channels and all these new stores,” says Brodym, adding that the company will look into product formulations combining probiotics and CBD in the future.
Sourcing Organic CBD From Europe
“We actually import all of our CBD in the raw form from Europe because it’s USDA certified organic when it lands in the States,” Brody says.
Products are then shipped to the company’s distribution center in Kansas.
The reason to bring raw materials from Europe has to do with the fact that the old continent has the oldest hemp farms in the world.
“When we go to get any sort of certification or we have any sort of compliance inspection on our raw material, we can trace it all the way back to the source and we can verify -genetically- that it's actually industrial hemp. And because of that, it allows us to have a very high level of compliance,” says Brody.
HempFusion’s main suppliers are in Poland, where the company has closed a five-year exclusivity contract for sales into Europe and the U.S.
The company’s decision to not be vertically-integrated, comments Brody, comes from the many complications involved in cannabis cultivation.
“We're not farmers. I'm never going to claim that we are farmers. We don't want to own retail stores. We don't want to own production," Brody says. "We want to be right in the middle of that value chain, we want to own the sales, we want to own the distribution channels and we want to own the customer.”
Doubts About Canada’s Market Potential
Brody was involved with The Green Organic Dutchman (TSX:TGOD) from its early stages and was instrumental in the company’s IPO of CA$115 million ($88 million). His time with the Ontario-based LP gave him M&A and capital raising expertise.
TGOD also showed Brody that the Canadian adult-use market may not be the great revenue solution that many in the industry once projected.
“I think the biggest thing I learned is the fact that the Canadian recreational market is just not that big. And no matter how big it is, it's still only 38 million people here,” says Brody.
That experience got him to push HempFusion into the U.S. market, as well as the UK and Ireland.
"But that's just the beginning. We've got twenty eight EU countries that have the same or similar hemp regulations,” he says. “Why would we handcuff ourselves staying in Canada, when we have such a massive opportunity south of the border to create a company and products that go for ten times the people?”
Plans for the Future
As of June 30, the company has more than $18 million in cash and no debt.
For Brody, the next best move for HempFusion is to get its products into major retailers like Walgreens, Kroger and Albertsons, in order to expand its distribution beyond the 4,000 points of sale currently in operation.
“Walgreens and Kroger…those are twenty, thirty million dollars accounts, if we can get them, they're huge," he says. "So for us, it's all about pushing towards those channels, all about pushing towards those stores.”
To be able to be featured in the shelves of these retailers, the company has OTC drug listed over-the-counter topicals.
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