During this last month, we have been closely monitoring Phivida Holdings Inc. (VIDA.CN) (OTCQX.PHVAF). The shares have been trading at a significant value level as the new Csuite team (the former senior executive of Red Bull) executes a transition into a greatly expanded distribution strategy.
Earlier this week, the shares traded slightly higher after the company announced that it was approved to commence trading on the OTCQX exchange and this was an important graduation prior to a game changing exclusive national agreement with industry leading retail agency Acosta/NSS.
Phivida Holdings is an emerging leader in the massive CBD and hemp oil extract growth market. The company offers a premium line of CBD products which are marketed as functional foods and nutraceuticals. When compared to companies focused on the production of cannabis that contains THC, companies focused on CBD-hemp oil infusions tend to trade at a much lower valuation and we think this creates a significant value opportunity for investors, especially in this rapid growth transition to major national mainstream retail distribution.
Although Phivida has continued to execute, the shares have been under considerable pressure and we think the company is set up for a strong rally in the second half of the year under their new Fortune 500 caliber executive and industry leading agency Acosta/NSS. There are a number of significant market catalysts ahead for Phivida highlighted in the update below.
Signs Exclusive Agreement with Natural Specialty Sales
Earlier this week, Phivida signed an exclusive national agreement with Natural Specialty Sales (NSS), an Acosta company. NSS is recognized as the industry leader in Natural/Specialty channel trade in the United States. Phivida’s soon to be launched products are now the exclusive CBD infused beverage brand and health supplements products represented by NSS accessing over 2,400 retail locations.
This is a significant announcement and provides Phivida with news access to a Natural Specialty grocery channel market valued at over USD $4.1B in retail sales. This major national retail network includes the household names of national banner partners such as; Whole Foods, Sprouts and National Coop Grocers, etc. with the potential to further access over 25,000 national conventional grocery supermarkets, including: Walmart, Target, Kroger, Target, Publix and others via Acosta’s national sales network.
Phivida and NSS are in the process of developing extensive retail sales and in store marketing campaigns to maximize sell-through strategies. This is an important aspect of the relationship as it will help create traction and sell through for major revenue growth on Phivida products.
Joint Venture with WeedMD
Earlier this year, Phivida announced a binding LOI to joint venture in a strategic partnership with WeedMD (WMD.V) (WDDMF) that is focused on producing and selling cannabis-infused beverages to the medical and recreational market in Canada.
The joint venture, Cannabis Beverages Inc., plans to develop what would be the first ever federally legal cannabis beverage production facility in the world. The project has been slated for construction at WeedMD’s greenhouse. WeedMD will be the exclusive cannabis supplier and distributor for CanBev and will provide production space at its 610,000 sq. ft. facility for CanBev’s operation.
Phivida will be responsible for product innovation, research and development, formulation and branding. Phivida will also sublicense encapsulation technologies to CanBev for enhanced bioavailability and solubility and create new consumer brands to serve target consumer segments in the pending adult-use market.
We are favorable on this joint venture opportunity and expect this to be a major growth driver for the companies in 2019, and beyond. The companies recently released a video that provides insight into this opportunity and the video can be viewed here.
An Emerging and Undervalued Opportunity
The trend toward smokeless cannabis products is undeniable and this trend will only become more significant as cannabis markets continue to mature. In 2018, Phivida has made several key additions to the management team and we are favorable these additions. We expect these new senior executives to help drive growth and help the company realize even more value from its proprietary products.
In the coming months, we expect to receive more updates from the company and are keeping an eye on how the shares trade from here. If Phivida is able to execute on its partnership with WeedMD, we would not be surprised to see the company attract investments from companies like Constellation Brands (NYSE.STZ).
Changing Regulations Continue To Drive Growth
The growth of the CBD sector is being driven by a global shift in the legal status of cannabis.
In the United States, regulated cannabis is now legal for both medical and recreational use in a number of states. On a national level, the Senate and House of Representatives are working to resolve differences between the two Congressional bodies’ versions of the 2018 Farm Bill, which include action to legalize industrial hemp. If the pro-hemp language remains in the final version of the bill, it would mark a significant shift in policy at the federal level, making it easier for businesses across the country to grow hemp and produce CBD products derived from it.
In Canada, the passing of Bill C-45 is set to make recreational cannabis legal across the country in October. The bill also includes rules for the production and sale of CBD-infused food and drink, creating a market for companies such as Phivida to sell new products was early as 2019.
Such moves are supported by the work of major global bodies. The World Health Organization (WHO) recently completed a report that found CBD is neither toxic nor addictive, making it safe for consumption. The report also highlighted CBD’s health benefits. The World Anti-Doping Agency (WADA) has removed CBD from its list of prohibited substances, allowing athletes to use it for treatment of pain and inflammations.
Expert Management, Proven Success
The company’s senior leadership are all veterans of Red Bull’s North American operations, where they helped build the energy drink category from nothing to $300 million a year.
CEO James Bailey worked as president of Red Bull Canada and held senior positions at Merrell Outdoors, Beneath Apparel, Adidas, Blue Goose and Salomon. Chief Marketing Officer Michael Cornwell is a former director of marketing at Red Bull Canada and was CMO at both Samsung NZ and Microsoft NZ. Chief Commercial Officer Doug Campbell was previously director of sales at Red Bull North America and director of national accounts at Stoli Group.
The company’s advisers and directors also bring a proven success and experience to the company, including director Bill Ciprick Senior Executive Vice President at Proctor and Gamble, and Chairman of the Advisory Jon Silverman, former Senior Executive Vice President Labatt’s, and as former CEO at Seagram’s International.
This powerful team is committed to ensuring Phivida operates and executes with a strong balance sheet and a tight capital structure. Phivida has more than $15.5 million CAD in cash and no debt. Just over 60 million shares have been distributed or are outstanding. With a fully diluted total of 71 million shares available, the company has ready access to approximately CAD $29 million in cash.