Hemp Stocks: Is Neptune Wellness set to Double this Year?
Unless you’ve been living under a rock, you probably know that most hemp stocks have languished in the last 18 months, the long-term prospects of this industry still remain attractive. You need to consider several variables before investing in this tumultuous industry. However, cannabis investors with an appetite for some risk can look to invest in hemp stocks that have an established market presence and strong balance sheets. One such hemp stock is Neptune Wellness (NASDAQ: NEPT), a company that sells health and wellness supplements. But is Neptune Wellness Hemp Stock set to double this year?
What is Neptune Wellness?
Neptune Wellness is a diversified and integrated health and wellness company. Its flagship consumer-facing brands are Forest Remedies and Ocean Remedies and it is building a portfolio of natural, plant-based consumer packaged goods in the fast-growing wellness markets that include hemp, nutraceuticals, personal care, and home care products.
Neptune claims it leverages a highly flexible and cost-efficient supply chain infrastructure that can be scalable or downsized into adjacent product categories to adapt to market demand. Its corporate headquarters is located in Quebec where it has a 50,000 square feet production facility. Neptune also has a 24,000 square-foot facility in North Carolina.
In April 2017, the company applied for a Health Canada license to produce cannabis oil under the ACMPR which was then transitioned to an application for a license for standard processing under the Cannabis Act as marijuana was legalized in Canada in October 2018.
Neptune received a Health Canada license in January 2019 allowing it to process and sell cannabis and pursue cannabis-related activities. Last June, licenses were amended to include the expansion of cannabis operation areas to include an additional extraction lab.
The aforementioned cannabis brands Forest Remedies and Ocean Remedies were launched in February this year and Neptune intends to commercialize its lineup of health and wellness products with and without CBD.
Sure, the company seems to have a sound business model and good market penetration – But is Neptune Wellness Hemp Stock set to double this year?
Neptune Wellness Canadian Expansion
The initial launch of Forest Remedies is focused in the U.S. and Neptune is now eyeing expansion in Canada after it received authorization from Health Canada to sell cannabis products to provinces and territories in June 2020.
Company CEO Michael Cammarata said, “The receipt of our sales license is a major milestone for Neptune and significantly expands our cannabis revenue opportunities. We are already advanced in the development of our own brands and look forward to announcing new branded products. We also see the potential for future co-branded opportunities.”
He added, “Additionally, the license enhances our white label business, allowing us to ship directly to provincial customers on behalf of our partners. We plan to further enhance our production capabilities to expand both our branded and white label product solutions and product forms and capture incremental value within the growing Canadian cannabis market.” Will expansion efforts help drive the value of Neptune hemp stock?
Neptune’s B2B Strategy
Neptune Wellness is strategically focused on providing wellness products by leveraging its know-how, large-scale extraction, and application technology capabilities. It aims to become a market leader in the extraction and formulation of value-added cannabis products and hemp extracts.
Its business-to-business strategy (B2B) allows it to pursue multiple verticals. The first is the extraction of cannabis and hemp biomass which is received from customers and returned to them in a concentrated crude oil format. The second vertical provides turnkey formulation, manufacturing, and packaging solutions where it transforms CBD extracts into finished products.
These finished products include sprays, topicals, vapor products as well as edibles and beverages.
Neptune Wellness also signed multi-year agreements with cannabis giants Canopy Growth (NYSE: CGC), The Green Organic Dutchman (TSX: TGOD), and Tilray (NASDAQ: TLRY) to provide hemp-based extraction, formulation, and manufacturing services.
The company provides extraction services to hemp farmers in the U.S. by leveraging its “cutting-edge cold ethanol equipment” at its Conover facility in North Carolina.
However, it has been impacted by a significant level of volatility as pricing for hemp-derived CBD refined oil has fallen by over 60% in the U.S.
Will Declining CBD Prices Hurt Neptune Wellness?
This decline in hemp extract prices had a negative impact on Neptune’s B2B bulk extract sales. Neptune claimed, “Prices for hemp biomass have followed a similar pattern which has put pressure on tolling fees in the United States. Given the nascent nature of the federally legal hemp extract industry, the Corporation has limited visibility on the evolution of future prices.”
Due to this volatility, Neptune is now increasing focus on bulk oil sales, turnkey solutions, branded, and consumer products. It has entered into supply contracts with health and supply companies in the U.S. to supply them with bulk hemp-derived extracts oil which will be transformed into finished products that will then be commercialized. Neptune’s diversified strategy should hedge against declining CBD prices – But is Neptune Wellness Hemp Stock set to double this year?
Neptune Wellness: Is this Hemp Stock a Buy?
In fiscal 2020, Neptune’s cannabis-related sales were $8.1 million and accounted for 27% of total sales. The company’s cannabis-related sales grew by a stellar 68% year-over-year in fiscal 2020. While Neptune’s nutraceutical sales were its primary source of sales in 2020, it fell 13% year-over-year. Overall, Neptune reported a sales growth of 21% for fiscal 2020.
In June, Neptune disclosed plans to launch its line of scented plant-based hand sanitizer products in partnership with International Flavors & Fragrances. The sales are expected to add to revenue from fiscal Q2 of 2021 which ended in September.
Neptune has diversified its existing business but it remains clear that the company’s key revenue driver remains cannabis sales. The recent addition of sanitization products may not outpace cannabis sales in fiscal 2021 but provides the company with another income stream.
Neptune continues to demonstrate to investors that it can adapt to changing macro conditions and diversify its product range easily. The stock has slumped 10% year-to-date but has outperformed peer hemp stocks such as Aurora Cannabis, Canopy Growth, and Tilray.
In the last five years, the stock has gained 100% and we believe this hemp stock is well-positioned to double your investment again in the coming year.
Hemp Stocks: Is Neptune Wellness set to Double this Year?
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