CBD company deals suggest big year for U.S. market in 2019

As full U.S. legalization of hemp and hemp-derived CBD continues to makes its way through regulation by the Food and Drug Administration and additional regulation at the state level, CBD companies are in no way slowing down. The opportunity is clear, especially for hemp-derived CBD and CBD products, and companies are making a wide range of deals. While general business news and mainstreams news outlets are focusing on celebrity deals and major corporate moves, cannabis industry media is digging deeper with industry news of which investors should be aware. This roundup is intended to highlight U.S. CBD business news on acquisitions and other deals from early 2019.

While many headlines feature projections of the market size for cannabis and such sectors as CBD, actual sales receive less attention. However, over the last three years, U.S. sales of hemp-derived CBD and CBD products have grown strongly prior to passage of the 2018 Farm Bill. In 2016, sales of such products reached $130 million. In 2017, they climbed to $190 million. And, in 2018, they more than doubled to $390 million. With the passage of the Farm Bill, 2019 is set to be a huge year for CBD.

Though news of specific company sales and orders is often difficult to come by outside of quarterly and annual reports, Diamond CBD, a wholly-owned subsidiary of PotNetwork Holdings, Inc. (OTCMKTS:POTN), is letting people know that 2019 is off to a strong start. Diamond CBD recently announced sales orders for its diverse range of CBD products totalling $450,000 at the CHAMPS Tradeshow in Las Vegas. Previously, Diamond CBD revealed sales orders of $200,000 at the Tobacco Plus Expo, also in Las Vegas.

Cannabis industry mergers and acquisitions show no signs of abating in 2019 with numerous CBD-related deals. Both public and private companies are fair game and profitable exits abound. Here are two highlights featuring the Canada/U.S. connection.

Vancouver, BC-based Cannex Capital Holdings Inc. (CSE:CNNX) announced a deal in late February to acquire Pure Ratios Holdings, Inc, based in San Diego, for $8 million in cash and stock. Pure Ratios manufactures and distributes "holistic wellness oriented" cannabis products. In particular, the company combines hemp-derived CBD with traditional Chinese medicines. Pure Ratios sells online, through health food stores and via a "network of holistic and naturopathic medicine practitioners."

A much larger British Columbia-based company, Tilray Inc (NASDAQ:TLRY), is buying Winnipeg-based Manitoba Harvest to add Manitoba Harvest's strength in the hemp and CBD foods sector. Though both companies are Canadian, Tilray acquired Manitoba Harvest to take advantage of the hemp-derived CBD boom in the States. The total deal in cash and stock is valued at $319 million.

Australis Capital Inc. (CSE:AUSA) is a spin-out of Toronto giant Aurora Cannabis (TSX:ACB, NYSE:ACB). The company was created to invest in the U.S. market. In January, Australis announced a $3 million investment in privately held Folium Biosciences. Described as the "largest vertically integrated producer, manufacturer, and distributor of hemp derived phytocannabinoids" in the U.S., Folium has extraction and purification facilities in the States and is currently building a Canadian facility. With a wide range of CBD products, Folio offers Australis opportunities in the U.S. CBD market.

Jushi Inc announced an investment of over $5 million in a Buffalo, NY hemp processing facility to be operated by its subsidiary Sound Wellness LLC. Sound Wellness will produce hemp-derived CBD products under the MEND brand developed by Jushi's Medical Director Dr. Laszlo Mechtler. Jushi is building a portfolio of "cannabis and hemp-derived assets" across the U.S.

Given the growth of the cannabis industry, new leadership announcements are likely to be ongoing. In the CBD sector, Charlotte's Web, a wholly-owned subsidiary of Charlotte's Web Holdings Inc (CSE:CWEB, OTCMKTS:CWBHF) is making major leadership changes in 2019. The company has already made two big hires and announced a change at the top. In early January, Charlotte's Web created a new role, Chief Growth Officer, and hired Eugenio Mendez from Coca-Cola. Mendez was that company's VP, Global Marketing of Water, Enhanced Water and Sport Drinks. Of course, this hire may also indicate unannounced plans for a move by Charlotte's Web into the CBD beverage sector.

The announcement somewhat quietly revealed that current President and CEO Hess Moallem will be replaced as CEO sometime in 2019. He will "transition" to an advisory role, leaving both the executive suite and the boardroom behind. In late January, Charlotte's Web announced the hiring of Stephen Lermer as Chief Operating Officer. Lermer has a rich background in the pharmaceutical industry.

If the above announcements are any indication, 2019 will be a busy year for the U.S. CBD sector. Investors should pay close attention to not only the visible news but to indications of possible future mergers and acquisitions such as investment announcements. In addition, executive level hiring should be monitored since such changes may indicate new directions for CBD companies.