Hemptown President Michael Townsend joined the Investing News Network to provide an overview of what CBG is and how the market for the cannabinoid is looking.
According to President Michael Townsend, Hemptown Organics made US$10 million in revenue in the first half of 2019 and expects exceptional margins on its 2019 cannabigerol (CBG) crop in 2020.
Townsend expects 2020’s revenue to be even higher than 2019’s after the company harvests its first crop of CBG in mid-September. CBG is not as well-known as CBD and THC, but it is the precursor, or stem cell, cannabinoid, and you need to have it before you can get CBD or THC. CBG is antimicrobial, anti-bacterial and anti-inflammatory, so it is good for skincare. Townsend believes that this will be a game-changer compound in the cosmeceutical industry as it is being used to help treat eczema, psoriasis, acne and rosacea.
Due to the industry interest in the compound, the asking price for CBG is 10 times greater than CBD on a wholesale basis. The current asking price for biomass is US$115 per pound and US$11,500 per kilogram for isolates and distillates. Townsend believes that the cost for CBG products will remain high for the time being due to the rarity of the genetics. He does, however, expect prices to come down as interest in the compound increases.
To meet the demand for CBG products, Hemptown has recently acquired the Kirkman Group, which owns a US Food and Drug Administration (FDA)-certified and Current Good Manufacturing Practices (cGMP)-certified manufacturing facility. According to Townsend, the building generates US$6 million per year and could generate up to US$8 million per year with minimal upgrades.
Below is a transcript of our interview with Hemptown President Michael Townsend. It has been edited for clarity and brevity.
Investing News Network: How will your recent acquisition of the Kirkman Group inform future business operations?
Hemptown President Michael Townsend: The Kirkman Group acquisition provided us with an FDA-certified and cGMP-certified manufacturing facility. The facility will allow us to make products that meet FDA requirements, and because we’re cGMP-certified, we’ll be able to export our products overseas.
CGMP facilities are built to specific codes and operate under a set of standard operating procedures. The building is inspected before it’s approved to make sure these standards are being met. We originally planned to build one of these facilities. However, it would take 18 months to get certified, one year to construct and another six months to get it approved for operation. By acquiring the Kirkman Group, we’re able to move this process along a bit quicker.
The building generates US$6 million per year, and we believe that by updating their current business, we could generate up to US$8 million per year. After that, we’ll start adding our SKUs for our Hemptown-branded CBD and CBG-infused products.
INN: What makes CBG such a formidable cannabinoid?
MT: CBG is the precursor cannabinoid. The cannabis plant produces CBG first, and as it matures it develops into THC or CBD. The geneticist that we work with has engineered a particular strain of hemp that we can grow to full-term in Oregon without producing CBD or THC. Our full yield is 1.25 pounds per plant of CBG, which trades for five times as much as CBD on the market today on a wholesale basis. If we sold it as biomass, it would go for about US$115 per pound. If we sell it as an isolate or distillate, it goes for about US$11,500 a kilogram.
INN: Do you believe that the price for CBG will go down or remain high due to the rarity of the genetics?
MT: It’s a combination of both as the genetics are becoming less rare. The prices will come down, but by that time, we’ll be on to the next genetic. We’ll be growing cannabidivirin (CBDV) next year and seeing the same premium we see this year for CBG. However, the amount of interest we’re seeing from the industry players is better than we anticipated, so there’s a lot of demand. People are excited about it. CBG is antimicrobial, anti-bacterial and anti-inflammatory, making it great for the skin. We believe that the cosmeceutical industry will be our biggest buyer because CBG has great value in the treatment of eczema, psoriasis, acne and rosacea, among others.
INN: Is CBG processed differently than CBD?
MT: No, the process is almost the same. The only difference is the temperature, as CBG has a different boiling point than CBD. It requires less heat, and the volatile matter releases more quickly. Everything else is the same.
INN: How do the conditions of the Emerald Triangle influence Hemptown’s crops?
MT: We believe that the appellation in wine has transferred over to cannabis in the Emerald Triangle. For 50 years the Emerald Triangle has been supplying cannabis to the US, especially in northern California and southern Oregon. We believe that the area has the best cannabis growing conditions in the US. We have excellent appellation there. The California government has proposed that cannabis grown in the area should be Emerald Triangle-branded.
INN: How important will the CBD market in North America be moving forward?
MT: We believe that it’s a cannabinoid. CBD is the current cannabinoid that everyone knows and is using, but we feel that others will become popular. CBG will be the next one. Next year, we’ll be growing CBDV, which is a different compound that’s similar to CBD. Then perhaps we’ll grow cannabinol (CBN) and then tetrahydrocannabivarin (THCV).
As part of our business model, we plan to mix CBG and CBD to make proprietary formulations. We’re talking to some channel partners right now and expect to announce a deal in the next 30 days.
Michael Townsend has worked in corporate finance for over 25 years.
Mr. Townsend is the founding partner of Altus Capital Partners, a boutique investment bank in Vancouver, BC, Canada.
Mr. Townsend has been involved in raising over $180 million over the past 10 years. Mr. Townsend co-founded Patriot One Technologies Inc. and Body and Mind Inc.