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Neptune Wellness Solutions Inc (TSE:NEPT) Omega 3 Krill Oil Leader Switches to Cannabis

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Neptune Wellness Solutions Inc (NASDAQ:NEPT) (TSE:NEPT) (FRA:NRU) CEO Jim Hamilton explains how the wellness company behind Omega 3 Krill Oil’s popularity is making the switch to the cannabis industry. Neptune Wellness believes cannabis presents a more lucrative return on investment for shareholders and the company’s expertise in wellness, extraction, branding, and distribution meant it was a perfect fight for the space. Neptune Wellness is a B2B company that has an established and profitable nutrition business as it moves its cannabis sites to readiness. The company’s expertise at creating formulated products backed by user experiences demonstrated through data makes Neptune Wellness an excellent partner for cannabis companies with existing cannabis and consumer packaged goods expertise.

Transcript:

James West:   My guest now is Jim Hamilton, CEO of Neptune Wellness Solutions, trading on the TSX under the symbol NEPT. Jim, welcome.

Jim Hamilton: It’s a great pleasure to be here, Jim. It’s always a great pleasure to meet another Jim, actually.

James West:   Absolutely, Jim. This could get repetitive.

Jim Hamilton: Well I have to tell you, Jim, I’m very excited to be here, because I don’t know if you know you have a fan base.

James West:   Oh, really?

Jim Hamilton: Or actually, a groupie base; at least one.

James West:   Oh, okay. Well, that’s –

Jim Hamilton: And she is on our staff, she’s on the West Coast, and she says it’s like I have lunch with James every day.

James West:   [laughter] Well whoever this is, I want to meet her.

Jim Hamilton: You should, you should. But it’s a great pleasure to be here. Thanks for having us on.

James West:   You bet. Why don’t we start with an overview: what is the business of Neptune Wellness Solutions?

Jim Hamilton: You know, it’s a long story that’s a journey.

James West:   We’ve got time.

Jim Hamilton: We are first and foremost nutrition wellness products people. I mean, this is the genesis not only of our business but our team. And Jim, I have to tell you, I never thought I would be in the wellness/nutrition business, but being a grad from Montreal in the mid-80s, it wasn’t so easy to find a job, and I was knocking on doors up and down these buildings here; I think I would have taken a job anywhere, but I got a job at a company called Hoffman Laroche in Toronto, which was at the time the largest vitamin and nutrition products maker in the world.

They said, We don’t have a real job; it’s not in pharmaceuticals, but it’s in wellness products. And I said well, I would take it, you know, of course. But that was really the beginning of a career and an exposure to an industry that I’ve absolutely loved, and I’ve spent my whole time there.

And about three and a half years ago I joined a Canadian-based company, and I’ve worked with them around the world, by the way- a Canadian-based company called Neptune based in Montreal. And these were the fellows that created the Omega-3 krill oil business. Publicly traded, not just on TSX, but NASDAQ, as well.

James West:   Sure.

Jim Hamilton: And we recruited other nutrition products persons, including your fan base out on the West Coast.

James West:   Okay, great.

Jim Hamilton: and our CFO comes from a nutrition products company called Atrium, recently acquired by Nestle. But we’re a one-products business, we acquired another nutrition products company in Montreal, but we weren’t really satisfied by the performance of our Omega-3 krill business. And we did what is actually a little bit gut-wrenching for a lot of companies; the business that the company was founded upon over 20 years ago, we divested of.

And so when the krill oil company sells krill oil, it’s a little bit gut-wrenching, but we decided investors were better served by positioning the company in segments better characterized by growth. And Jim, in parallel, I’m also a believer, and coming from a large company – we worked in 40 countries around the world, we had many, many, many products – it’s nice to be diversified. You know? I don’t know if this is a good analogy, but it’s kind of like a dog or a pet. You know, the purebreds are nice, but a little bit fussy, right?

James West:   right.

Jim Hamilton: and I like diversity, you know, and I like a lot of legs to stand on and good DNA, and we were kind of a one-product company. And so we started in parallel looking at where our core competencies were, and what are those? You know, like extraction and global commercialization, regulatory affairs, all these things, and we had a whole list of stuff that, you know, we could pursue. Because the idea is, if you do something close to home, you know, the chances of being successful are much better. When you get further afield, it gets riskier.

James West:   Just ask Napoleon.

Jim Hamilton: Well, [laughter] that’s right. But I mean, look at Elon Musk; I would never get in electric rocket-ships or cars, no competence, zero. But we do know health, rather, we know extraction, we’re into all those things I mentioned, and cannabis hit our list; this was about two or three years ago, I guess.

And so we started the process, a little bit of us come quirks within the organization, and it’s interesting too – and I don’t know if you see this with your other guests or your industry exposure, but I think everyone I talk to in this industry kind of goes through an experience how I did, which was initially, cannabis? Is that who we are?

But the more you get into this, the more you realize it is really a wellness category. I mean, the benefits and the conditions that it helps people with, you realize more and more how wonderful this category and how impactful this category could be. So we decided we would move into it.

So long story short is, we divested of our krill business, better serving investments by being segments characterized by growth. Cannabis was the one we chose. We still have a nutrition products business, by the way, but we have a brand-new facility in Sherbrooke, PQ that was doing extraction, and the last probably 10-12 months we’ve been investing to convert it to cannabis extraction to make it, you know, of course in conformance with the regulations, the security and everything.

So our site, that was kind of a normal production site now is surrounded by barbed wire and cameras and all this stuff, you know.

James West:   Right, right.

Jim Hamilton: That’s our story.

James West:   Interesting. Okay, so essentially you’re creating wellness products out of cannabis?

Jim Hamilton: We believe the parallels are striking, you know, because, and it’s interesting too, because when you look at what’s successful in health, nutrition and wellness products, it’s I think what will be the recipe for success in this industry, too. And what do I mean by that? It means differentiated products, ultimately. So it’s not just me, two products, but rather formulated products designed to deliver against a specific, you know, ambition, whether that’s pain, inflammation, sleep, anxiety, relaxation. And I think there will be more than sanguinity products; I think there’ll be formulated products. I think they’ll be formulated with pure substances, and I think they’ll be in delivery systems that are attuned to that experience.

And I think it will be backed up with basic research, you know. I’m not talking about pharma research, but really, you know, user experiences that can demonstrate through data, through things that you could then communicate through the dispensary, through the practitioner, about the benefit and the differential of that formulated product.

James West:   Okay. So are you basically creating consumer packaged goods targeting the wellness in people and pets?

Jim Hamilton: I think for us, Jim, first and foremost, we are a B2B company; that’s our DNA, and that’s where we’ve spent our time and the experience. We’re not cultivators, and a lot of people have sometimes, a year ago when we started talking about this publicly, you know, there was this obsession that we weren’t cultivators. We’re not, we don’t have competence in cultivation, but we do have competence in extraction, purification, you know, formulation, and the clinical research that goes with that.

We are not consumer brand people, but we do think we are an excellent partner for companies that are motivated for, again, you know, extracted products, purified, formulated with some science, that we can work together to commercialize.

James West:   Interesting. So if I was a consumer packaged goods expert and I was also a cannabis expert, I would come to you and say, look, I want to create a consumer packaged goods based on wellness extracted products from cannabis?

Jim Hamilton: Well, Jim, I think it’s an interesting question, and I think this this is a dialogue that’s going on with every major multinational around the world. I mean, I come from that world; I have been involved in so many partnerships with these companies in my past career, and it is the conversation today happening with not only consumer product companies, but also the companies that are in the business of serving those consumer product companies.

I think companies have a different tolerance and different level of acknowledgment of where this industry is going. I think Constellation is a great example that is all in, as everybody knows.

James West:   Sure, absolutely.

Jim Hamilton: And I think there’s some companies that are aggressively looking at their strategies. I think others, they call it skunk works, where the guys under the surface are trying to figure it out, but the management’s not totally in favour of it. But I think this is, fundamentally, a global consumer products phenomenon, and I think we will see it dominated, ultimately, by global consumer products companies, and global multinationals that are in support thereof.

James West:   Okay. So from an investor’s perspective, what’s your revenue today, and what’s it looking like 12 months out?

Jim Hamilton: Well our revenue today is approximately mid-20s right now, which is our nutrition products business. Our revenues will kick in, our cannabis business, what we’ve been working towards – so, two businesses: nutrition, cannabis. Our cannabis business, we have been working towards what we call convergence. Convergence of site readiness, convergence of commercial agreements and convergence of the licensing for the business, all towards the fourth quarter of this year.

On the site readiness, our first phase has just been completed in September-ish. We’ve written some commercial agreements, one of whom we published on, which was with Canopy, a major long-term agreement.

And third is the licensing process, where we’ve been about 18, 19 months now, and are living the life that I think everyone in this business has lived with Health Canada. But we think that’s imminent right now, and we’re in the final endings of that whole process. So our ambitions will be commercializing that very shortly.

James West:   Okay. So is this going to be a globally distributed phenomenon, in your view?

Jim Hamilton: totally, James, totally, totally, totally. I think look, let’s be real: there’s plenty of opportunity just here in Canada to begin with, but I think when you look at the momentum that’s happening in so many countries around the world, whether that be Australia – look, we’ve done business globally. We know all the companies in these countries that are active players, we talk to them on a regular basis. I think it’s on the radar of everybody. I think they’re starting to engage on the regulatory front, and I think there’s probably an argument to say that many of these countries will pattern after Canada, which is sort of start off with this kind of controlled, medical kind of health/pharmacy kind of thing, and then as it gets more comfortable, relax and open it up more to retail.

James West:   Once they know the whole country’s not going to rush out and get stoned right away.

Jim Hamilton: That’s right.

James West:   Which is what happened here.

Jim Hamilton: And I think the US, by the way, is an interesting one, and I know you probably talk about that with so many of your guests. But I think in the US context, I mean, it will come; it’s just a question of time. I mean, when you look at the majority of Republican voters are now in favour of some form of legalization, and you look at what, north of 30 states, James, with some kind of legalization happening on the state level, and you look at the Farm Bill.

I think there’s a lot of nuances below the surface there that not everyone respects and understands, in terms of what is CBD and what is THC, etcetera, but I think the US will come with time, as well.

James West:   Well, that’s an excellent sort of example is the differentiations between CBD products and THC products. In the United States, many people don’t realize that CBD is actually legally distributed in all 50 states through wellness products as long as it was derived from a hemp plant with below 0.3 percent THC.

Now, I’ve always found that as a bit misleading, because any cannabis plant can be bred to create sub 0.3 percent CBD, but what does it matter, if you can take a plant and concentrate it to whatever percentage of CBD or THC, what the content is at the plant level?

So this is, I think, a result of the lack of understanding even in the government, and I think companies like Neptune, as a result, are actually educating government as they go. And so do you see the CBD business as separate from the THC side of the business?

Jim Hamilton: I think in the Canadian context, today, clearly not, given the regulatory framework. Whereas, you know, on the government level, absolutely, yes. We’re trying to do that with the Quebec government right now. I mean, the Quebec government seems to be overtly conservative, and the image in my mind is, it’s alcohol lies tobacco, which is clearly not what this business is, and we have to work harder with regulators on the provincial level to make sure that it’s seen and managed in a way that is conducive to the industry and consumers.

I think in the United States, there’s a lot of complexity here that I don’t think is fully appreciated by many in this industry. I think some, yes, but many not, that in the case of CBD, we are very interested in the scheduling from the DEA through the Farm Bill. The FDA is still not allowed to support it. Now, there’s many companies out there with CBD today, and they’re ignoring the FDA guidelines, effectively. So DEA may approve it with the Farm Bill; FDA is still against.

Now, FDA does not govern the dispensaries, but Food Drug Mass, the FDA has said no, it’s not an approved ingredient.

James West:   Despite the fact that there are entities selling these things mail order state and, I mean, federally, across all state lines?

Jim Hamilton: Welcome to America. And look, I was at a lecture with the head of one of the senior deputies of the FDA, and he said, look: we have 24 people in the field to regulate. 24. And we can’t effectively police it all, and we’ll come for you if you’re making egregious claims, cancer, something for children, what have you.

James West:   Sure.

Jim Hamilton: But we can’t police the whole thing. And if you look at statistics like Nutrition Business Journal for example, CBD is a just short of $400 million business at retail. So it’s not Federally legal from a DEA perspective, it’s not Federally legal from FDA’s perspective, yet it’s almost a $400 million business. So this is the conundrum of America.

What is the consequences of that, Jim? I think it’s the following. I think what we’ll see is dispensary business being very much supported with the Farm Bill, which is good news. I think you’ll see regional marketers play a more active role, because they’ll take the risk. I don’t think you’ll see major brands and major retailers move in the States on CBD until the dust settles a little bit more. I think we’re making good progress, regulatory-wise; I think the trade associations are getting behind it and supporting it, but I think it’s going to probably need a little more time on the CBD for the major model to manifest. That’s my gut feeling.

James West:   Wow. Okay, Jim, clearly we could spend a lot more than 10 minutes talking about this, but 10 minutes is the attention span of the average viewer, so we’re going to leave it there for now. But we’re going to follow along with interest and develop an understanding of the story, and we’ll come back to you very shortly and do this again. So thanks for joining me.

Jim Hamilton: Jim – this is a great. Thank you for having us. This is a great industry, we’re really excited to be part of it, and we’re really happy as Neptune to look to the future and the future cannabis business.

James West:   We’ll look forward to following you. Thanks.

Jim Hamilton: All right, man.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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