SeeThruEquity, a leading independent equity research and corporate access firm focused on small-cap and micro-cap public companies, today announced it has initiated coverage on PotNetwork Holding, Inc. with a price target of $0.25. The report is available here: POTN Initiation Report.
PotNetwork Holding, through its subsidiary Diamond CBD Inc., focuses on research, development, and sale of premium hemp extracts that contain a broad range of cannabinoids and natural hemp derivatives. CBD is one of the more than 85 cannabinoids identified in marijuana and hemp plants and is non-psychoactive, with wide array of therapeutic benefits. Hemp derived CBDs provide a legal alternative to marijuana based CBD (which is banned at federal level) and allows the consumer to enjoy CBD without the risk of getting high and breaking any federal laws. Hemp derived CBD market is projected to grow at a CAGR of ~53% till 2020, positioning it as the fastest growing sub segment within the multi-billion-dollar legal cannabis and hemp market. Diamond CBD is seeing robust sales momentum, with 1Q17 sales of $1.85 million, exceeding the total sales of $1.6 million for the entire FY16. Diamond CBD is targeting a revenue of ~$8 million for FY17. Heavy marketing push via presence in high profile trade shows is expected to yield strong order flow going forward. We see POTN as a speculative play on the burgeoning legal cannabis and hemp market targeting the fastest growing sub segment (hemp derived CBD). The company has made considerable progress over the last few years, with revenues growing 178% YOY in 1Q17. Going forward in FY17, we expect POTN to increase revenues approximately 712% to $8.3 million through new product launches, aggressive marketing initiatives and entry into new markets (specifically China).
Large Addressable Market Opportunity Growing at 53% CAGR
According to the Hemp Business Journal, cannabidiol remains one of the fastest growing market categories in the US hemp and legal marijuana industries, with an estimated CAGR of ~53% till 2020. The hemp industry is projected to grow to $1.8 billion by 2020, with $450 million comprising from hemp derived CBD products. This would represent a 300% increase, from the estimated hemp derived CBD market size of $115 million at the end of the FY2016.
Unlike marijuana, FDA considers hemp-derived extracts produced from imported industrial hemp plants to be legal and as such there is no restriction to their use in the US. However, it is not currently legal to grow industrial hemp in the US, though more and more states are easing restrictions on growing industrial hemp. Recently, South Carolina and Arizona have legalized growing of industrial hemp. Many other states, such as Missouri, are considering to legalize industrial hemp. We believe favorable regulatory environment will provide further tailwind to POTN. However, recent stance by DEA that it considers CBD as a Schedule 1 substance has created some overhang.
Aggressive Marketing Push to Yield Strong Order Flow
Diamond CBD is witnessing robust growth momentum. The revenues in April 2017 grew ~25 times to over $1 million, compared to just $40,000 in April 2016. The company has distributed over 1 million Chill Gummy edibles and has established presence in more than 10,000 retail location across the US. The company continues to invest heavily in publicity efforts through presence at high profile trade shows and conventions. As a result, we anticipate strong growth in order flows, brand recognition and preference for its products.
Since the beginning of the year, the Company has been showcasing its CBD oil and specialty products in some of the busiest industry events garnering more than 500 new accounts. January’s Surf Expo in Orlando, Florida resulted in establishing new business opportunities and the Las Vegas CHAMPS Show reaching more than a quarter million dollars of purchase orders in just three days (~$235,000). Most recently, the company exhibited at the ASD Market Week which is an international event providing exposure to approximately 45,000 buyers from more than 88 countries. POTN is projecting more than $1 million in sales in May 2017 as well.
Initiate Coverage with a Price Target of $0.25
We see POTN as a high risk and high reward play on the burgeoning legal cannabis and hemp industry, targeting the fastest growing sub segment (hemp derived CBD). The target of $0.25 assumes that the regulatory tailwind will result in further expansion of the market and the company is successful in executing its organic growth strategy revolving around aggressive marketing campaigns. . Key risk includes any adverse regulatory stance that could materially damage company growth prospects.
About PotNetwork Holding, Inc.
PotNetwork Holding, Inc. is a publicly traded company that acts as a holding company for its subsidiary, First Capital Venture Co., the owner of Diamond CBD, Inc. Diamond CBD focuses on the research, development, and multi-national marketing of premium hemp extracts that contain a broad range of cannabinoids and natural hemp derivatives. For more information, visit www.diamondcbd.com.
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