As the cannabidiol (CBD) food and beverage market continues to grow, more companies are taking advantage of this new and quickly developing space.

HeavenlyRx is looking to establish itself as a leader in CBD-infused beverages.


In July, the CBD wellness company announced an investment into Seattle-based craft soda maker Jones Soda (OTCQB:JSDA), acquiring 15 million common shares, which is about 25 percent of the company’s total issued and outstanding common shares.

 

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With the investment, HeavenlyRx plans to develop a Jones Soda-branded sub-line of CBD-infused drinks.

HeavenlyRx CEO Paul Norman told the Investing News Network (INN) that the company is going to use its expertise in hemp and CBD to reinvigorate the Jones Soda brand.

“Jones is a brand … I think where the equity punches well above the weight of the brand relative to its sales,” said Norman.

He added that while Jones Soda is well known in the US, “it’s probably not selling as much as it could and that’s due to lack of investments in the core.

“Job one is to … bring some new energy to the core, rebellious Jones brand that everybody knows,” he continued. “Job two is to bring a twist to the brand by making a range of CBD-infused products.”

HeavenlyRX is an investee subsidiary under SOL Global (CSE:SOL,OTC Pink:SOLCF), an international investment company with a focus on the legal cannabis industry in the US.

On July 29, SOL Global announced the purchase of an additional 16 million common shares of HeavenlyRx valued at almost C$24 million, following an initial purchase of 37 million shares earlier in July totaling over C$15 million.

 

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HeavenlyRx has a focus on hemp cultivation, processing and manufacturing CBD products, including tinctures, oils, topicals and vape-ready products — all markets that Norman said are expected to grow exponentially. He thinks, however, that the nascent CBD-infused food and beverage industries are going to expand just as quickly.

Norman told INN he believes that as more people integrate CBD products into their daily routines, the market for the extract is “ripe to be a very big market from a consumer-branded point of view.”

He was only recently chosen to lead HeavenlyRx in June after more than 30 years as the president of global food juggernaut Kellogg North America. With the investment, Norman is also going to be placed on Jones Soda’s board of directors once the initial share purchase closes.

Norman called Jones Soda “inherently inventive” and said its reputation as a niche craft pop maker is one of the attributes that inspired the investment. He added that its history in the pop market, its unique aesthetic and its national presence set it apart from other smaller soda makers that are more regional.

The Jones Soda buy in isn’t the only big move on the part of the CBD company as of late.

In June, HeavenlyRx announced that it had closed on 51 percent of a controlling equity state in Tru Brands, a plant-based nutrition company.

 

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“The combination of the growing consumer demand for plant-based solutions with CBD wellness make TRU Brands’ current offering … and their pipeline of innovation a perfect fit for HeavenlyRx,” said Norman in a press release.

HeavenlyRX also entered a US$10 million agreement to acquire Airganics, a company focused on developing wellness products, last month. Airganics comes with three established brands with personal aromatherapy diffusers, CBD supplements and nutrient inhalers. The company’s line of products is “uniquely poised to capture the rapidly expanding CBD wellness audience,” according to a press release.

Norman said that the company’s recent activity has been an effort to create a portfolio of “distinct” brands “from seed to shelf that combines the best-in-class farming technology and (CBD) isolates with branded innovation.”

The next month will also prove to be busy for the company. SOL Globals’s year-end financial report, released on July 29, notes that HeavenlyRx is looking to go public and has started negotiations and due diligence for a US listing. Norman didn’t go into detail about the process, but said information about the listing is set to come out later this month.

“The desire is there and there’s a lot of effort going into the process of taking the company public as soon as we can and as soon as it makes sense,” said Norman.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril spent his time learning from traditional investment banks, where he worked on lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who acts as the co-manager of the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now seeing a return to form by way of the excitement for an ongoing opening process in the US.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes for cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

 

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“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro environment pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the current potential of the industry and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the investment scene for cannabis.

Butt explained the current shareholder base still lacks enough institutional support to avoid the day-to-day volatility cannabis has been known for before.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

As such, hedge funds and retail investors still represent the dominant portion of the shareholder base for cannabis stocks. These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“That’s why you see a lot of volatility in the space and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” Butt said.

So for investors asking themselves when volatility will leave the industry, don’t expect that anytime soon.

“It’s not about whether we continue to expect volatility because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update Canadians talk up US business potential, but questions remain

A surge of merger and acquisition deals have taken over the Canadian cannabis sector as more producers see the potential within the American opportunity.

One of the biggest announcements in this regard was Organigram Holdings (NASDAQ:OGI,TSX:OGI) securing a C$221 million investment deal from British American Tobacco (BAT) (NYSE:BTI,LSE:BATS).

 

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Using the funds, the two will work in tandem to develop new branded products designed to work at the international stage, including the US. Organigram CEO Greg Engel previously told INN, the US represents a critical opportunity for Canadian companies, but that entry point isn’t as clean as it could be at the moment.

While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for the Canadians.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD ones some operators have done, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadians, however, still retain the upper hand at times in terms of valuation, which still confuses both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board with year-over-year growth lines and projections for continued positive performance.

However, in his view the numbers still don’t reflect the value. “Those are really being discounted at this point,” Butt told INN.

Ahrens doesn’t see the same kind of stock performance match what the MSOs have been able to produce by way of their financial results.

“We’ve seen the Canadian LPs be really hot stock performance-wise, outpacing the US (MSOs) and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the most recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits for US confirmation from a federal level.

While for some, the Canadians waiting on the sidelines, this development can feel like a major necessity to address current financial struggles, for others, US-based operators, the heat around the corner will represent an increase to their already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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