When it comes to selecting an equity crowdfunding investment to write about, I’m partial to those in the food and beverage industry. However, when I saw Cornbread Hemp’s campaign on Wefunder recently, I couldn’t resist learning more about the company and its investment.
Without getting too deep in the weeds, Cornbread Hemp takes Kentucky-grown organic hemp and turns it into cannabidiol (CBD) products. For those of you unfamiliar with CBD, there are two types of CBD compound: those derived from hemp and those derived from cannabis.
Now, where it gets tricky is that both hemp and cannabis come from the plant cannabis sativa. And if you’re not already confused, the two major cannabis plants are indica and sativa. Indica strains tend to relax you and have lower levels of tetrahydrocannabinol (THC), the ingredient that gets you high, while sativa strains tend to be for a night out and have higher levels of THC.
Legal in All 50 States
That being said, I am far from a cannabis or hemp expert. What I do know is that right there on Cornbread Hemp’s Intro to CBD Oil Cannabidiol, it tells you that “cannabis plants that contain less than 0.3% THC are defined as legal hemp, according to the Farm Bill of 2018.”
That means its hemp-derived products are legal in all 50 states, unlike medical and recreational cannabis.
In the case of CBD oil, the company takes industrial hemp with THC of less than 0.3% THC, extracts the hemp oil using organic sugarcane ethanol, and then blends it with organic coconut oil, producing certified organic hemp CBD products.
You can view Cornbread Hemp’s products at its online shop.
I first became interested in CBD drops because my geriatric cat was having a hard time moving around and getting up flights of stairs. I tried a brand at my local pet store, but she died before I could give it a real test.
As I read the reviews of its Full Spectrum CBD Pet Oil drops, it’s clear that those who’ve tried the product for their pets have been more than satisfied. If you’re one of those 36 people, are reading this article, and have discretionary income, you ought to consider investing in Cornbread Hemp. It’s a no-brainer, in my opinion. Here’s why.
Great Products and an Even Better Equity Crowdfunding Investment
Cornbread Hemp’s original campaign was to raise $107,000. It did that in 17 days, meeting the target on April 17. A month later, due to the unexpected demand for the company’s convertible notes, it reopened the campaign, setting a minimum goal of $50,000 and a maximum of $400,000. About a month in, 517 investors have committed $222,116, or $430 per investor.
As Cornbread Hemp co-founder and chief communications officer, Jim Higdon stated in its May 18 YouTube video letting investors know about the new campaign, the minimum investment is just $100, about the cost of some of its products.
Again, if you like the products, you ought to consider a small bet on these two Kentucky go-getters.
However, it is the company’s financial situation that makes an investment in Cornbread Hemp so attractive.
The business model splits sales 50/50 between direct-to-consumer (online) and wholesale. In the online segment, it generates 80% gross margins. Wholesale, it’s slightly lower, at a respectable 60% gross profit.
On the wholesale front, it is focusing its marketing and sales efforts in the Midwest and southeast cities of Chicago, Indianapolis, Louisville, Nashville, and Atlanta. Those five markets alone approach six million people. That’s plenty of ground to cover for a new startup.
In the three months ended March 31, 2020, Cornbread Hemp had a net income of $15,648 on $75,705 in revenue. Annualized, that’s a profit of $62,592 on $302,820 in sales. In fiscal 2019, ended Dec. 31, 2019, it had sales of $180,907 and a loss of $33,000.
Things Are Going in the Right Direction
One thing I’ll want to get clarification on from the company, are the differences in expenses from fiscal 2019 and first-quarter 2020. For example, it had a digital ad expense of almost $23,000 in 2019, which dropped down to $633 in the first quarter of 2020. At the same time, it had a $4,323 expense in 2019 for influencer marketing. In 2020, it’s yet to have spent anything on this line item.
In the case of the digital ad expense, were they A) unsuccessful, or B) successful, and no longer necessary because word-of-mouth built up its online sales? One explanation for this could be that most of the digital ads were placed in the second half of 2019, and the same thing will happen in 2020.
As for influencer marketing, that’s a much smaller expense. On that, it’s more a function of me nitpicking rather than a real concern.
If you are going to invest in Cornbread Hemp, I would do so on the basis that its expenses will accelerate in 2020, making profitability for the entire fiscal year a longshot. If it happens great, but investing in private companies is a long-term endeavor. That’s especially true for companies with limited operating histories.
The Bottom Line
As with investing in publicly traded stocks, you shouldn’t invest in Cornbread Hemp if you need the money in the next 24 to 36 months, or you can’t afford to lose any of your investment.
That said, if you don’t need the money in the short term, and you can afford to lose your entire bet, I don’t see the problem putting a small amount down on Cornbread Hemp. That goes double for anyone who uses its products and swears by them.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.