Neptune Wellness Solutions (Neptune Wellness Solutions Stock Quote, Chart, News TSX:NEPT) has a leg up on the competition when it comes to the wellness side of the cannabis and hemp industries.
That’s according to GMP Securities analyst Ryan Macdonell, who delivered a flash update to clients on Tuesday, maintaining his “Buy” recommendation and $9.00 target price for NEPT.
Laval, Quebec’s Neptune Wellness, an extraction and purification company, announced on Tuesday that it has established multiple new customer relationships in the US for whom Neptune will be providing hemp-derived finished products and bulk extracts processed from its extraction facility in North Carolina.
“While our U.S. facility is already generating sales from its tolling services and bulk hemp-derived extracts, we are pleased to have initiated these new customer relationships for finished product forms. Clearly, this is a step in the right direction to support our future growth strategy of expanding core customers and of supporting, consumer packaged goods companies and fragrance houses' expansions into the space,” said CEO Michael Cammarata, in a press release.
Neptune has not disclosed the names of the new partners at the moment but one is with a large, established nutraceutical company. Macdonell, who describes the new event as a positive for the stock, says that the announcement likely speaks to Neptune’s cross-selling with pre-existing nutraceutical clients.
“We expect that the unnamed, large nutraceutical company is an existing client that Neptune works with in its nutraceutical segment. Therefore, we believe today’s announcement is an example of the cross-selling opportunity of providing its nutraceutical clients with a path and platform for launching a line of hemp-derived CBD products. Furthermore, we anticipate that there could be additional clients from the
nutraceutical segment which could be waiting in the ranks and exploring hemp-derived CBD products,” Macdonell writes.
The analyst notes that Neptune currently generates about $24 million in revenue from its Nutraceutical segment —Neptune provide clients with turnkey solutions for functional ingredients like omega-3s. Thus, he sees Neptune’s expertise in white labelling along with its 15 years in the nutraceutical industry as giving it a competitive advantage in building a white label cannabis and hemp business.
Further, Macdonell argues that because larger nutraceutical players likely have rigorous evaluation processes to assess quality control practices of potential partners, Neptune’s pre-existing relationships could give it a head start in terms of the vetting process for quality control.
Finally, with the recent purchase of SugarLeaf Labs, a North Carolina hemp extraction company, Macdonell sees it likely that Neptune will leverage the platform to offer some of its existing nutraceutical clients white label solutions for CBD products as well, with the option of Neptune pursuing its own line of branded CBD products now on the table.
Neptune’s share price has been on a bit of a rollercoaster this year, not unlike the rest of the cannabis space, but the stock is still up 43 per cent year-to-date as of late day trading on Tuesday.
Macdonell’s $9.00 target represented a projected one-year return on investment of 81.8 per cent at the time of publication.
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