Naturally Splendid Enterprises Ltd V.NSP.H

Full Text of NSP Article Today, March 13th

[GUNSS]

On February 26th, an article that I wrote about Naturally Splendid Enterprises (TSX-V:NSP) (OTCQB:NSPDF) (Frankfurt:50N) was posted on a few investment websites. That article, and one by Chris Parry the night before, enabled existing and new shareholders to get caught up on the company. Recall, the stock had been briefly halted (for 100 days!). On January 29, another article served to remind investors of the compelling opportunity in the shares. The stock came roaring back to life on February 26th. Since then, average daily trading volume on Canadian ticker NSP.V alone has been 775k shares. That compares to an average pre-halt trading volume in the ten’s of thousands. Clearly the story is getting out.

As promised this is Part II of the article I wrote on February 26th. [Please note, since then I’ve bought shares in the open market, but I have no prior or existing relationship with Naturally Splendid.] In the past month, there have been a few press releases. One of the most important was [this one] in which a new President of Naturally Splendid USA was announced. I would like to share an abbreviated bio of Mr. Racz. [For the full bio, click here].

As President of Naturally Splendid USA, Mr. Racz’s focus will be directed towards creating and implementing business strategies to leverage the omega extraction/formulation technologies,and cannabinoid extraction/formulation technologies in order to secure recurring, profitable revenue streams states. Mr. Racz held global, senior-level positions with distinguished pharmaceutical companies including Pfizer, GlaxoSmithKline and Novartis. Mr. Racz was Senior Vice President for Mona Vie Inc., the fastest growing private company in the food and beverage industry incorporated in 2003 with annual sales in excess of $942 million and growth of over 100% per quarter for a three year period. I was also impressed with the fact that he served in the U.S. Army as a helicopter pilot, achieving the rank of Major…but I digress.

Typically when I offer a bio, I place it at the end of the article. In this case I highlight two important factors, 1) Mr. Racz is a highly experienced leader, 2) he was instrumental in the growth of a small food and beverage company that rocketed to almost a billion dollars in sales within 3 years. Who better to serve on the Board? I believe Mr. Racz’s choice to join the company is a noteworthy vote of confidence in Naturally Splendid. Another press release to hit the wires announced the launch of a 100% owned hemp-based pet care line trademarked, Pawsitive FX(TM) and the launch of a new company website at www.naturallysplendid.com. I’ve spent A LOT of time on the new website, it’s an essential and effective tool for conducting proper due diligence. To be clear, the pets themselves won’t be buying the food…. However, pet food is a huge business dominated by companies like Proctor & Gamble, Del Monte Foods and Colgate-Palmolive. Perhaps a large purchase order for hemp omega will come from the PawsitiveFX(TM) line before a major food manufacturer or feedstock supplier for livestock.

The next point I would like to touch upon is the March 9th press release. It started out nicely enough… then it took a turn for the worse! Just kidding. The press release might have given more information then could be readily comprehended. For example, consider this quote from that press release,

“FSL has filed a patent application covering the organic and enzymatic synthesis of cannabinoids. This technology will allow for industrial scale production of cannabinoidscatalyzed from Cannbigerolic acid (CBGa) without the requirement to grow large quantities of plants. The process mimics the natural synthesis that occurs in the plant’s bio-pathway. Cannabinoids produced in the bioreactor are pharmaceutical grade purity (>99%)”

Let’s see now, “enzymatic synthesis of cannabinoids,” “cannabinoids catalyzed from Cannbigerolic acid,”the natural synthesis that occurs in the plant’s bio-pathway. Cannabinoids produced in the bioreactor are pharmaceutical grade purity (>99%)” Call me crazy, but I for one don’t understand what this means. And neither did my spellcheck. Rest assured, key management members and esteemed corporate partners do know. I chastised CEO Goodwin about the highly technical and jargon filled press release. His response, and David Racz was on the phone as well, was that the press release was geared towards multiple parties because regulators always want to see more information, not less. Further, the press release contained material information that was required to be shared with readers, no matter that it happened to be written in Geek. I’m hoping to get management to do an investor conference call next whereby shareholder questions can be addressed, hopefully in plain English.

I’ve spoken with CEO Goodwin several times and I had a recent call with Goodwin and Director Racz. I’m happy to report that the two truly compliment one another, the essence of successful team building. Craig Goodwin has over 30 years of sales and marketing experience including Senior Account Executive for one of the largest outdoor advertising companies in the world, The Jim Pattison Sign Group. While with The Jim Pattison Sign Group, Craig was one of the most successful sales executives in Western Canada and received numerous awards for outstanding achievements. There you have it, Sales, Branding and Marketing from Mr. Goodwin and Mr. Racz responsible for long-term strategic planning, development of a professional management team, regulatory compliance and the creation of its manufacturing and distribution infrastructure in the U.S.

I was able to get the following quote from Mr. Racz,

“I’ve been involved in the Cannabis industry for just over 5 years, contributing to regulatory infrastructure, large scale grow operations, analytical services and retail. It is an industry that each day brings changes and challenges. This year’s evolution will provide the opportunity to supply the industry with CBD based products extracted from Hemp and not marijuana. Colorado is expected to produce its first full scale harvest of industrial Hemp this fall. The extraction technology that Naturally Splendid has licensed will put us at the forefront of Hemp CBD extraction. Our patented process will allow us to produce an extracted material that is far superior to what is currently available in the market. Our business model will be that of a bulk ingredient supplier to the infused/consumable cannabis retail industry. CBD’s from hemp (which is largely void of THC) has the same profile as CBD extracted from Marijuana. It is true that you have to grow more raw hemp to extract the same volume of CBD as you would from marijuana, but the cost to grow hemp is exponentially cheaper, safer, less complicated and without regulatory complications.”

I think most would agree that the above quote is more easily digested. Readers can be confident that Racz and his team will be able to source some raw hemp from growers that have licenses to legally grow the crop in Colorado. That crop being industrial hemp, not Marijuana. At harvest in Aug-Sept, raw hemp bought from farmers will be processed using NSP’s patented, licensed technology. The end product will be an oil that’s far superior to other extracted hemp oils. The other oils are very sticky, like honey in a refrigerator, making it difficult to spread evenly or make consistent, reliably-sized doses of medicine. Even better, Racz believes NSP’s processing technology is both greener and less costly. I offer this description in the middle of Racz’s quote in which he finishes by saying,

“As the industry evolves in Colorado they are facing some unique challenges. A few of which stand out, like the requirement for controlled dosing in all consumable products… Our technology will be a tremendous enabler in resolving the ‘controlled’ dosing challenge.”

Make no mistake, plenty of companies in a plethora of industries believe that they have re-invented the wheel or built a better mousetrap. Most haven’t. Many spend hundreds of millions over the course of years or decades trying to accomplish a game-changing revolution, a paradigm shift. While of course there’s no guarantee that Naturally Splendid is one of the few that has access to a game-changing technology developed over several years by Boreal Technologies, investors have a remarkable opportunity to find out. Find out without years of further research or hundreds of millions of additional capital. Investors in this C$ 15 million company will have a lot of answers to their questions before the end of this year. If even moderately successful at processing oils in Colorado with this year’s harvest, I believe the company’s valuation could be much, much higher by then.

So, having delved into the exciting CBD extraction area, let’s get back to the investment opportunity. A key thing that I hope readers recognize is that a trailblazing purchase order could come at any time. As a writer also covering mining and metals, I can assure you that key milestones are typically months or years away. Not so with Naturally Splendid. When (not if) a bulk purchase order of hemp omega is announced, the stock price could spike. NSP.V hit an intra-day high C$ 0.51 on March 4th, largely due (in my opinion) to the expectation of the announcement of a large purchase order. C$ 0.51 is 50% above the current price of C$0.34. Yet, the market cap of the company is about C$ 15 million.

If Naturally Splendid can execute on its announced initiatives, whether or not the stock is at C$ 0.51 or C$ 0.34 might be irrelevant. In the company’s corporate presentation sales guidance for 2015 is C $21 million. Therefore, Naturally Splendid is trading at less than 1x forecast 2015 revenue for a company that could generate multiples of that revenue estimate as early as next year. Many early-stage companies capable of rapid growth, come with commensurate risk of downside. In my opinion, the fundamental downside of Naturally Splendid is low. Why? The company is already in production, with retail sales in hand and warrants being exercised. Sales from the growing retail line alone could allow the company to approach break-even cash flow by year end.

Conclusion:

To reiterate, there are 3 ways to win. First, an ever expanding line of retail products that flourish in Canada and the U.S. and then internationally. Second, substantial purchase orders for bulk hemp omegas from food or pet companies, the first of which could come at any time. And third, a potentially game-changing technology to produce greener, cheaper, higher quality CBD oils. This last opportunity comes in a time and place that couldn’t possibly be more advantageous for the company.