Tuesday, February 9, 2016

Something is happening in the hemp space... something big

By Chris Parry
Source: stockhouse.com

And I think I know who’s going to benefit.

For years, those in the hemp world have been saying ‘any day now’ and pointing to big stockpiles of industrial hemp that they swore was going to be plastics, paper, clothing, homes, bridges, space shuttles...

Of course, that promise has, to this point, been somewhat unfulfilled. In fact, Canadian hemp fields that had in previous years been contracted to health food companies like Manitoba Harvest are, this year, unsigned.

Which isn’t to say people don’t want hemp products. They really do. It’s just that corporations aren’t pressed into developing them by a surging market desire they can’t resist. You’ll struggle to find hemp 2x4s at Home Depot. You don’t see a lot of hemp jackets at Aritizia. Where you have found it, to this point, is at the supermarket, and in restaurants, where the promise of hemp and its nutritional benefits is being largely fulfilled.

Edible hemp products, mainly hemp seed or as some call them, hemp hearts, are rich in protein, omegas and fibre and are found in just about every grocery store now. Hemp protein is finding its way into the sport market and hemp oil is seeing a variety of uses. In fact, when I owned a restaurant a few years back, they were a popular addition to seemingly every salad we sold, even at a ridiculous mark up. There’s some in my kitchen pantry right now – and more in the office kitchen at Stockhouse.

Hemp protein is not just good for you…it’s great for you. It has the most digestible protein of any plant on earth.

And, it turns out, Korea just got the memo. Stay with me here because I’m building to something.

Last week, I met a guy who works in the hemp business. That’s a coincidence, I told him, because I write about the hemp business.

“Oh, so you know about Korea,” he tells me.

I lied and said, sure. “Yeah. Korea. K-Town. The big KO. Obviously.”

Turns out he works for a hemp processor. I asked him what his company was doing on the Korea side and he was happy to brag.

“We're on 24 hours shifts,” he tells me. “We’re de-hulling at full speed, max capacity, all we can get. Never been this busy  before.”

Maybe you’ve been in a situation like this before, where you stumble upon someone who has information that, if you do the right digging, could present a crazy opportunity to buy something cheap that’s about to go nuts. When it happens, you’ve got to roll with it.

So I pressed on, “who’s buying all that hemp seed?” He says he doesn’t know the buyer, which is annoying. "We just de-hull, we don't package. Canadians though. They're selling to the Koreans."

Now we're getting somewhere!

“It’s crazy,” he said. “The Hyundai Home Shopping Channel had 10 metric tonnes of hemp seed to sell. It went in 30 minutes. The whole load. So now the other four home shopping channels are killing each other trying to get more. They’re combing Canada for the stuff.”

I did some math on this. Hemp costs around $1.10 per lb to buy clean from the farmer’s gate, best as I can tell. Manitoba Harvest hemp hearts are priced at $22 per lb in retail stores. So that’s some impressive mark up.

Hyundai reportedly sold 20,000 lbs of the stuff, or by my estimates, $440,000 worth in ten minutes.

Turns out, the demand that has been building up cleaned out the Korean national supply of hemp.

Extrapolating all this with lots of assumptions – let’s assume Hyundai wants 10 metric tonnes per month. That’s $5m per year of product based on my assumptive pricing model. If they want more than 10 MT per month, we’re talking about a company changing purchase order.

And the likelihood is they’ll want a lot more. In fact, home shopping is such a thriving business in Korea that it has threatened the viability of large department store chains. Home Shopping is to Korea as Amazon is to North America.

Korean women are more likely to be home-makers than women in any other westernized country, so home shopping in that country, according to the Wall Street Journal, appeals to affluent and middle income women far more than it does the low income crowd that frequents the North American networks of QVC and the like.

This isn’t a trend. It’s a wave. And when one home shopping channel in Korea scores a big win, like the hemp seed deal, the rest jump on board with fervour. In other words, there’s not just one potential client here, there’s five or six, and they’ll pay a premium to be first to market, which explains the 24-hour shifts. Someone is putting hemp seed on a plane, like, this week.

But who?

Well, not the processor. My guy asked me not to mention the company he works for so he won’t get in trouble, but they process, they don’t develop retail end products. Of those who do, there are three potential players in Canada that could satisfy this kind of desire, as far as I can tell.

One is Manitoba Harvest, who you’ve seen in stores across Canada and parts of the US. They were recently bought by Compass, (NASDAQ:CODIForum) a holding company out of the US, for some CAN$132m.

But I don’t think it’s them, because they’ve been pulling back on their hemp field contracting this year and they have in-house processing facilities that could handle that sort of order.

It could also be Hemp Oil Canada, but I don’t think it’s them either, for two reasons. First, Compass just bought that company out too, like, a minute ago. And if there’s one thing I know about a corporate buy-out, it’s that your first few months afterwards are times where you do a lot of planning and paperwork and retooling – especially when you’ve been purchased as a distressed asset. Also, they too have their own facility.

The third option is a familiar option to readers of my stuff: Naturally Splendid (TSXV:NSPForum), a company that is a Stockhouse Publishing marketing client and that I (happily) own stock in.

NSP has a hemp seed product, NATERA, which is expanding to stores all over Canada. And they’ve recently gone through a shakeup at the NATERA warehouse, bringing in some new people and looking to expand outward fast through online sales. And NSP also recently acquired an online hemp product sales portal in Chii. And a 51% stake in a large bio-processing facility to make food formulations. And they’ve signed deals with Cocos Beverages and Laguna Blends to supply those companies with formulations going forward.

So I called Craig Goodwin, CEO and Director of Naturally Splendid, and asked him straight up – are you contracting out a literal boatload of hemp seed de-hulling work right now?

Goodwin has never, ever, been short of words. But he clammed up completely.

“We’re planning some big things with NATERA and Chii and our Pawsitive FX line,” he said, deliberately, adding, “There’s been a lot of interest in those.”

“Not my question, Craig,” I replied. “Are you ordering literally tonnes of hemp seed, to be processed as quickly as possible, right now, from a third party?”

“That would be a pretty big deal if we were,” he said. “I can only point you to our public news releases.”

“Have you contracted hemp processors and asked them to ramp up production,” I asked.

[Clearing of throat]

“Are you sending product to Korea?” I asked.


“…Craig? If I remember correctly, one of your advisors, Don Wood, the former CEO of Arrowhead Water, has been in Thailand recently putting deals together for you. Is he in Korea right now?”

Finally a straight answer: “No, Don is in Thailand right now. But Thailand is obviously not the only country in Asia we are targeting”.


“I can only point you to our news releases that are publicly available, and reiterate that we see a big 2016 ahead for our hemp products, our bio-processing facility, and our eventual move into cannabidiols.”

Damn it, Craig.

“Do you have news coming?” I asked.

“We always have news coming,” he laughed. “That’s why it’s been so hard for us to find a day where we’re allowed to buy our own stock.”

I checked the Canadian Insider filings and, sure enough, NSP execs recently bought some of their own stock. In fact, Goodwin and VP Bryan Carson have been loading the truck, which is fair enough given that, until recently, it was trading at where it was back 18 months ago when the company had a plan and nothing else.

image: http://www.stockhouse.com/getattachment/b887915c-5d45-416c-b390-2830fcb98581/nspbuying.jpg
Click to enlarge

That explosion of green X’s in the last few weeks? That’s NSP insiders buying up. And people have been noticing.
I sent out a tweet last week that I suspect something is cooking in the NSP space and was working on a story, and the stock jumped 31%.

But back to my phone call.

“Other people in the hemp business tell me they’ve been getting a lot of Korean calls,” I told Goodwin. “Have you been getting any of those?”

“..We’ve had calls,” he admitted, adding, “We get a lot of calls from a lot of places.”

“Jesus, man,” I said. “Cough twice if you’re being held hostage and need me to call the police.”

“Haven’t coughed in months because I eat NATERA every day,” he laughed. “Soon as I have something to tell you, you’ll hear about it,” he then said, ending the call politely.

Since that call, people on the NSP Bullboards have noticed NSP’s 51%-owned POS Bio-Processing Centre has been advertising for positions vacant this past week on Craigslist.

I’m gonna say it: NSP is sitting on a purchase order. At least one.

NSP stock was (and is) undervalued to begin with, in my opinion, and investors have been not-so-patiently waiting for a big purchase order to land for some months now. I believe we’re about to hear about that big order, if not more than one. I don’t know when, but I’m damn sure NSP is connected to this particular processor I spoke with, and Craig is uncharacteristically silent right now, and I’ll bet if you go check the trash at their Saskatchewan location, you’ll find labels written in Korean.

10 metric tonnes would be nice, as would cash money. It’d be vindication. And it would open the door to Asia not just for the company’s hemp products, but for all of the other things they can make at the POS bio-processor.

Will it run NSP back up to the dollar we briefly saw last year? Dunno about that, but it will mean the promise was real. And that two years of planning and investing is finally paying off.

ADDENDUM: Because I didn't want to find myself off-base and causing market madness, I sent this piece to NSP before publishing it, for fact-checking. They took their time getting back to me, in fact they dragged it out beyond the point of reason. When they returned the document this afternoon, they said they had no factual objections to it, though they reiterated they had no news to share.

I'm going to bet that changes soon. Watch closely.

DOUBLE ADDENDUM: NSP announces million-dollar contract to supply hemp seeds to Korea. BOOM.

--Chris Parry
Read more at http://www.stockhouse.com/news/newswire/2016/02/02/something-happening-hemp-space-something-big#1E8T4iezO8IdL6Qb.99

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