Can Naturally Splendid Corner the Hemp-Based Food Market?

Peter Epstein |

Notethis is part 1 of a planned 2-part feature on Naturally Splendid Enterprises, (NSP:CA) (NSPDF). Part 1 describes my opinion of the investment opportunity solely from the company’s existing retail line of hemp-based protein powders and the highly prospective launch of hemp omega products that are 1 bulk order away from sparking a potentially explosive spike in revenues. Part 2 will feature the company’s equally important play in the CBD space where it hopes to commercialize a number of CBD-based products, none of which include THC, the only part of the Cannabis Sativa plant species that enables one to get high/stoned. Part 2 will also profile in more detail the management team, Board of Directors and Advisory Board, and provide background on the handful of partnerships, research studies and relationships with esteemed academic intuitions, distributors and private companies that tie everything together.

I feel the pressure, the pressure to write an article as good as Chris Parry’s piece on Naturally Splendid. A link can be found to that masterpiece at the bottom of this article, (so readers don’t stop reading right here!). Yes, Parry is a skilled journalist and analyst and he hit the nail on the head with his company analysis. A focus of his piece was to point out that the TSX should lift the trading halt on the company. I hope to further explain this compelling investment opportunity and cover some new ground. I have been following Naturally Splendid for several months. Like most emerging companies, there have been some delays and surprises (like the stock halt), but I strongly believe management is on the right track. I have spoken with CEO Craig Goodwin 5 times. Each call lasted well over an hour. Rarely do I find a CEO so excited and one who shows such conviction. Further, he actually listens and learns from his mistakes. Most CEOs don’t admit to mistakes let alone learn from them.

Naturally Splendid is the only publicly-traded company in the world offering investors an opportunity to gain exposure to the hemp-based healthy foods and omega markets. Naturally Splendid and its partners are building an expanding portfolio of patents and proprietary intellectual property focused on the commercial uses of Cannabis Sativa, industrial hemp, and cannabidiol (CBD) compounds in a broad spectrum of applications. What does this mean? Before readers continue, I have an important spoiler alert! Naturally Splendid is not a (weed, pot) stock. It currently has no connection at all with the THC side of the Cannabis Sativa plant. For those not familiar, Cannabis Sativa is the species of a plant that includes marijuana used to get people high/stoned and industrial hemp which is impossible to get high on, but has innumerable commercial uses as well as healthy plant-based nutrition applications.

For investment purposes, think of it this way, a main difference between Naturally Splendid and most, “weed” companies is that Naturally Splendid has revenues (in fact growing revenues) from a sustainable product line sold in almost 400 stores across Canada. If this were the end of the story, no one, including me, would care. This is just the beginning. Management has taken a prudent approach to make sure that its product offerings are safe, consistent and can be produced at commercial scale. As CEO Craig Goodwin says, there’s 2 main problems with product launches, too little demand or too much demand that can’t be satisfied. That’s why Naturally Splendid took the time to secure a scalable operation that can produce up to 20 metric tonnes of product every four days.

Existing Products Generate Revenues and Establish Distribution Chain

What are the products? Currently they offer a number of well packaged hemp protein powders and hemp seeds, both natural and flavored. Sales are growing each and every month even with a limited marketing budget. A key differentiating factor that users are becoming aware of is that Naturally Splendid’s protein powders have as much as twice the protein content of peers. Developing a supply chain is extremely important because later this year the company plans to expand its offerings into hemp omega encapsulated products. This is where things really get interesting. That’s because Naturally Splendid has global access to what they believe is the only patented technology to encapsulate hemp oil and convert it into a powder that’s water soluble. Writing about and investing in a great deal of mining companies, my thought process has become corrupted. I’m skeptical of everything. When the CEO tells me his name I demand that he prove it. Apparently, so does the TSX, but I defer to Mr. Parry on that score…okay, okay, here’s the link to Parry’s piece.

So I was skeptical when I initiated due diligence on this company. The corporate presentation looks nice and the revenue projections even nicer. But I had trouble understanding what the company does. Now I know, and it’s got nothing to do with THC related products, no weed or edibles. Boring right? Not at all. This company has tremendous potential in hemp omega offerings. This segment will not necessary be a big one on retail shelves, at least not initially. The #1 best part of this story is….pet food! Well, not exactly. Yes, they did secure a working relationship with The Alberta Food Processing Development Center to study the use of HempOmega™ to fortify commercial pet foods, but the key to the story is that water soluble hemp omegas appear to be safe and desirable to feed to chickens and cows.

Readers at all versed in the Naturally Splendid story probably are familiar with the study that showed an increase of over 637% in the natural omega content of eggs from chickens that consumed Naturally Splendid’s exclusive HempOmega™ plant-based omega product. The study also concluded that chickens that consumed HempOmega™ not only had substantially higher omega content in their eggs but also showed an increase of over 372% in the omega content of the chicken thigh meat itself as well as lower levels of saturated fats. There, I got that out of the way, boring statistics right? No, this has the potential to be a game changer, especially for a company with a market cap of just C$10 million.

Giant Food Companies Want Access to Super Foods Like Hemp Omegas

Giant food companies such as General Mills, Nestle and Kellogg are after healthier food segments. They have bought into the organic lines, but that’s old news. They’ve largely cut out trans fats and continue to reduce saturated fats where possible. They now offer a wide range of reduced salt alternatives and have even cut back on added sugar in cereals. Including omegas is a different ball game. Sure, it’s a big market, but not something that can be easy used as an ingredient in other foods. That’s where the company’s HempOmega™ stands out. The Big Food companies are now on an omega kick. Small amounts of fortified omegas in eggs reportedly allow producers to charge up to twice as much.

Naturally Splendid, with its superior technology to mass produce water soluble hemp omegas into things like feed for livestock has huge global appeal. But wait, there’s more. Not just foods, but beverages, supplements, infant formulas, body products and meal replacements are listed in the company’s corporate presentation. Recall the 637% increase in natural omega content in eggs from chickens fed Naturally Splendid’s hemp omega. CEO Goodwin was quoted as saying, “Naturally Splendid wants to provide real nutrition, not just a marketing strategy.” It seems to me that the current suite of omega fortified eggs are just that, a marketing strategy. Soon that may change.

To recap, Naturally Splendid’s existing retail line and the roll out of hemp omega products could lead to explosive growth in revenues as soon as this year, but if not in 2015, almost certainly in 2016. This is not a mining project where hundreds of millions need be deployed over 5 years before a single dollar of revenue is achieved. This is not rocket science. It’s product launches of potentially game-changing products. A company led by Goodwin, a career marketing and sales expert. On the Board there’s Russ Crawford, President of the Canadian Hemp Trade Alliance. Talk about industry connections! In my due diligence, I spoke at length with Crawford. He was gracious enough to provide the following quote,

“The industrial hemp industry is experiencing unprecedented growth in the Canadian agricultural sector. Since 2007, both production and exports have increased by 1,250%. This is by far the most significant expansion of a crop in Canadian agricultural history. Until 1997 it was illegal to produce or process industrial hemp in Canada. Since then, the benefits of hemp as a source of nutritious omega, protein, minerals and other products, has propelled the industrial hemp sector beyond all expectations. And it is a very profitable and environmentally friendly, sustainable crop to grow. As new science, markets and processing value-added techniques are discovered for industrial hemp this pattern of growth is expected to continue – possibly elevating hemp into the same level of importance as wheat and canola.” 

And then there’s Charles Brink a huge supporter, President of Naturally Splendid USA and major shareholder. He is the Chairman of Boreal Technologies, a private company that has partnered with Naturally Splendid. Mr. Brink has invested C$ 15 million of hard cash into Boreal to date. He provided me with this quote,

“At Boreal, we believe success is achieved through an unrelenting focus on innovation and execution. There is currently a huge revolution going on within the pharmaceutical and nutraceutical industries. The approach to pain management, developing drug therapies and even creating consumer products is changing and Boreal intends to be a leader in this transformation. We have developed a very precise strategy relative to the accumulation of our unique technology and its commercial applications and are thrilled to be partnering with Naturally Splendid in developing multiple revenue streams.”

The final quote for now comes from CEO Goodwin,

“We have developed an exceptional management team at both the Board of Directors and Advisory Board levels. As with any successful strategic roll out, the strength of a company comes from solid management. We have that in abundance. This is a pivotal time for the Company. We have done much of the heavy lifting in 2014 and now are positioned to monetize all the hard work. We have established a retail presence, secured innovative technology in the $35B global omega market and have the potential to be a front runner in the rapidly growing cannabinoid markets with the world’s first water soluble cannabinoid patent. To think that all these opportunities originate from one plant species, Cannabis Sativa, is truly remarkable.”

Of course, every company on the planet boasts a strong, exceptional, extraordinary, top-tier, world-class management team and Board. I think this team is highly impressive, but don’t take my word for it, go to the company’s corporate presentation and make your own assessment. Remember, this calibre of people all backing a C$ 10 million company. These guys are not in it for the cushy offices and grand salaries.

Comparable Companies (Comps)

In looking at comparable companies, it appears that many are overvalued and/or merely call options on stumbling onto the right product(s) at the right time(s). Consider the following:

Hemp, Inc. (HEMP) focuses on the provision of products made from industrial hemp. The company offers products and services to the medical and recreational marijuana industries. It also develops and operates a website providing entertainment and news related to medical marijuana industry. HEMP trades at an Enterprise to Revenues multiple of 23x and has a market cap of US$ 8 million. (perhaps not the best peer, but with the symbol “HEMP” I had to throw it in.)

Medical Marijuana, Inc. (MJNA) operates in the industrial hemp markets. Its products range from patented and proprietary based cannabinoid products to seed and stalk or isolated high value extracts manufactured and formulated for the pharmaceutical, nutraceutical, and cosmeceutical industries. The company develops cannabinoid-based health and wellness products, and medical grade cannabinoid compounds; and licenses its proprietary testing, genetics, labeling and packaging, tracking, production, and standardization methods for the medicinal cannabinoid industry, as well as offers pre-and-post production tracking, gemplasm references, and packaging and processing services. Its products include Real Scientific Hemp Oil, Cibaderm, Cibdex, and Dixie Botanicals. In addition, it offers cannabidiol based products to consumers; chewing gum-based cannabis/cannabinoid medical products for the treatment of pain and other medical disorders; and cannabidiol hemp oil. MJNA trades at an Enterprise to Revenues “EV/Revs” multiple of 6x and has a market cap of US$ 66 million.

CannaVEST Corp (CANV) is a manufacturer and distributor of hemp and Cannabidiol (CBD) based products. The Company is focused on the procurement and wholesale of the hemp plant extract cannabidiol (CBD), and the development, marketing and sale of end consumer products containing CBD, which is  refined into its own PlusCBD Oil™ brand. CannaVest resells raw industrial hemp product to third parties, acquired through supply relationships in Europe. CANV trades at an EV/Revs multiple of 10x and has a market value of roughly US$ 85 million. 

Neptune Technologies & Bioressources Inc(NEPT), a biotechnology company, focuses on R&D and commercialization of products derived from marine biomasses for the nutraceutical and pharmaceutical industries. It produces marine-derived omega-3 polyunsaturated fatty acids, including Neptune Krill Oil (NKO). ECOKRILL Oil (EKO), and Neptune Krill Aquatein (NKA), a protein ingredient used in the production of nursing feed for young animals. The company is also developing CaPre, which is in Phase II clinical trials for the management of mild to moderate hypertriglyceridemia and severe hypertriglyceridemia, as well as develops and commercializes pharmaceutical applications for cardiovascular and neurological diseases. Neptune Technologies & Bioressources sells its products in Canada, the United States, France, Belgium, Australia, and other countries. NTB trades at an EV/Revs multiple of 10x and has a market cap of C$175 million.

Burcon NutraScience Corporation (BURdevelops various composition, application, and process patents from its protein extraction and purification technology. The company’s patented processes utilize oilseed meals and other plant-based sources for the production of plant proteins that exhibit nutritional, functional, and nutraceutical profiles. Its products include CLARISOY, a soy protein isolate that offers clarity, solubility, and nutrition for neutral and low pH systems; Peazazz, a pea protein, which is soluble with clean flavour characteristics; and Puratein, Supertein, and Nutratein that are canola protein isolates with functional and nutritional attributes. The company’s products are targeted at protein ingredient market, as well as for health and wellness applications. Its patent portfolio consists of 220 issued patents worldwide, including 55 issued U.S. patents covering composition of matter and key processes for producing and using its soy, canola, and flax protein products as functional food and beverage ingredients. BU has virtually no revenues and a market cap of C$105 million.

Cannabis Sativa, Inc, (CBDSWe are in the business of developing, manufacturing, and selling plant-derived lotions, creams, and other formulations for human consumption. The Company’s market will include direct selling to retailers and consumers, and also to other companies under terms of licensing rights to product formulas. Through the Company’s acquisition of Kush our plan is to engage in developing, producing, marketing and selling end consumer products to the nutriceutical industry containing the hemp plant extract, Cannabidoil (CBD). CBDS has virtually no revenues and a market cap of nearly US$ 95 million.

Annie’s Organics– Acquired by General Mills for $820 million in September of last year. Annie’s had about $70 million in sales and profits of roughly $12 million.

Unfortunately, I can’t say that there’s a coherent read through from these comps except to say that as far as call options go, Naturally Splendid with a market cap of about C$ 10 million stands head and shoulders above the rest. Further, on a risk adjusted basis, it has perhaps the most upside and the least downside. Presumably most of the above mentioned comps have blue-sky upside, as does Naturally Splendid. The difference, and it’s a big one, is that the fundamental downside of Naturally Splendid should be far less because it has actual sales that could reach an annual run-rate in the $5-$10 million range within a year. That would be an EV/Sales multiple of just 1x-2x for a company growing faster than most if not all of the above mentioned peers. And, this is only a base case scenario.

If Naturally Splendid is able to win some sizable bulk hemp omega orders, revenues could jump fairly abruptly. Samples of hemp omega are being sent to many prospective customers around the world, some of which are titans in the food business. The capacity to deliver into large orders is in place. Producing 20 million tonnes in four days would equate to C$ 10’s of millions in revenue. I think there’s a good chance that large orders are a question of when, not if. Once a few large orders are consummated, tiny Naturally Splendid will be on the radar screens of many companies. I would not be surprised to see a takeout next year. As strong as the story is, the company is worth more to a larger company with greater financial resources and a lower cost of capital. A larger company could grow Naturally Splendid’s top line faster. With such a small market cap, dozens of companies could comfortably digest an acquisition of Naturally Splendid.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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