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Monday, January 25, 2021

Understanding the Rally on Hemp Inc (OTCMKTS:HEMP)

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Hemp Inc (OTCMKTS:HEMP) shares are vaulting higher today on news that the company’s hemp mill is now operational. The move is a bit odd because it was always going to be operational at some point, so the market usually manages to discount news like this, rather than react to it. In other words, the concept of “active hemp mill” should have been easily priced into shares of HEMP before today. However, for some reason (and we will explore this a bit below), that apparently was not so.

In any case, the press release was hammed up to the roof with jubilant phraseology by the company’s internal communications team, and why not: “A global leader and major player in the industrial hemp industry, Hemp, Inc. (OTC PINK:HEMP), announced today that after 3 1/2 years, millions of dollars spent on purchasing, disassembling, transporting, reassembling, rebuilding, refurbishing, beta testing and debugging, the largest multipurpose industrial hemp processing facility in the Western Hemisphere is now operational and is processing its first product. The milestone coincides with Hemp, Inc.’s installation of its NuAxon Tech CO2 Supercritical Extractor, the planting of hundreds of acres of industrial hemp and high CBD hemp in North Carolina, Kentucky, Colorado, Nevada, and Oregon and the successful establishment and ongoing monthly hemp educational seminars via The Hemp University at Louisburg College in Louisburg, North Carolina. Executives were ecstatic to see the mill processing and packaging for the first time after a laborious 3+ years.”

Hemp Inc (OTCMKTS:HEMP) was founded in 2008. The company’s information is somewhat erratic and difficult to parse through – a bit like its CEO.

However, we can get a broad idea of the goals and operations from their materials. But some of this information, particularly with this company, needs to be taken with a grain of salt.

As they frame the message, the company’s long-term goal is “to be the leader in the industrial hemp industry in America”. That goal is no doubt advanced further with the onlining of its processing facility.

Hemp Inc understands its mission to be a provider of “green solutions that help make the world a better place to live. We support products that are eco-friendly, organic, healthy, and solutions that replace many petroleum-based products.”

“Hemp Inc.’s wholly owned subsidiary Industrial Hemp Manufacturing, LLC purchased the largest decortication plant in North America, which is located in Spring Hope, North Carolina. The plant is housed in a 70,000,000 square foot warehouse on 9 acres. The company will start producing fiber, loss circulation materials (LCM) and absorbents from kenaf and later from hemp.”

That narrative continues forward to include the concept that “Hemp, Inc. will produce a product for drilling rigs called “lost circulation material” (LCM), which is used for maintaining the seals when drilling for water, oil, gas, and any other liquid or gas. This product alone is capable of producing millions of dollars in revenue, since some of the largest oil companies in the world will be our primary customers.”

“Eventually, the company will produce fiber materials for the paper and fabric industries, and other industries that utilize materials from hemp to make products such as plastics, building materials, health and beauty related products and more.” In other words, the concept of “diversified applications for hemp as an industrial material” is the paramount idea.

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One way to conceptualize how Wednesday’s news may not have been priced into shares of Hemp Inc is about credibility. Because investors can see videos and images of the mill actually working, one has to really stretch to assume this is somehow a hoax. That’s important because this company has had its share of scandals in the past and one might easily make the case that the market simply was not giving HEMP shares the benefit of the doubt about coming operations.

Presumably, the hemp processed at the mill will go to market and we will finally have actual revenues to deal with.

Traders will note 70% during the past week in terms of shareholder gains in the stock, but that move comes in the context of a larger bearish trend. The situation may be worth watching. HEMP is a stock whose past is littered with sudden rips. Furthermore, the company has registered increased average transaction volume recently, with the past month seeing just shy of 260% over the long run average.

At this time, carrying a capital value in the market of $4.66M, Hemp Inc reports about $469K in cash on the books, which is balanced by about $7.5M in debt – most of it booked as long-term obligations. The company has very nominal revenues at this point – a fact which new investors are betting will be changing in the very near future. We will update the story again soon as developments transpire. For continuing coverage on shares of $HEMP stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $HEMP, either long or short, and we have not been compensated for this article.

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