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Hempacco Co., Inc. (NASDAQ:HPCO) launched its NASDAQ IPO in late August, but no one has covered this microcrap Cannabis stock yet on Seeking Alpha.
Even though I’m a non-smoker, I see massive upside for Hempacco in a post-tobacco era where smokers become more health conscious and gravitate towards hemp-based products in the future.
The biggest bottleneck to the hemp revolution is U.S. federal legalization against cannabis and marijuana related companies.
The Senate introduced a bill to legalize cannabis on the Federal level, but who knows if it will get passed by the Senate and signed into law by U.S. President Joe Biden.
In this article, I’ll cover exactly what you need to know about Hempacco and why I think it’s worth a gamble in the long run.
Company Overview
Hempacco is a U.S.-based CBD and hemp-based cigarette company with headquarters in California, USA. The company plans to disrupt the $1 trillion global tobacco industry by offering smokers a non-nicotine and tobacco alternative.
The Real Stuff™ is Hempacco’s flagship hemp cigarette, packaged in packs of 20, with 0% THC.
The Real Stuff (hempacco.com)
Hempacco has a 53,000 sq. ft warehouse in San Diego, California that makes hemp cigarette alternatives with the ability to produce 30 million hemp cigarettes per month.
Hempacco is vertically integrated from farm to shelf and even produces private label hemp cigarettes for 3rd parties under its brand, Hempacco Packaging.
The company’s goal is to sell pure hemp-based cigarettes in a machine-rolled fashion (replacing the original look and feel of a regular tobacco cigarette) without the harmful effects of tobacco use.
Hempacco distributes its hemp cigarettes across 600 retail kiosks throughout the United States and could expand even further after a successful IPO.
Read HPCO’s SEC Prospectus for a complete breakdown of the company and its long-term goals.
IPO Details
The company generated $1.2 million in revenue during Q2 2022 and filed for its NASDAQ IPO to tap the equity markets for extra liquidity.
The IPO offered 1,000,000 shares for a total of $6 million. There will be around 23 million shares outstanding once the IPO is completed. Public shareholders will own around 5% of the total shares outstanding.
Insiders have a 180-day lockup period until they can sell shares ending on February 26, 2023.
There are no tradable options available for HPCO stock. You can only buy HPCO shares or short the stock.
Valuation
HPCO trades at a market cap of $130 million. There are 23,010,124 shares outstanding with a current float of 1 million shares.
The company received around $5 million from this offering to fund growth and expansion. That’s definitely a good sign because Hempacco holds just $67,000 on its balance sheet.
Total revenue so far in 2022 reached $2.8, giving HPCO an approx. annual revenue of $5.6 million (assuming growth remains steady).
Revenue Growth Over Last 3 Years
| Year | Revenue |
| 2020 | $345,989 |
| 2021 | $1,187,273 |
| 2022 (so far) | $2,846,223 |
(Source: SEC Prospectus)
If the US senate Marijuana bill gets passed then Hempacco revenue could take off as consumers have the opportunity to choose hemp cigarettes over Tobacco cigs.
My Investment Thesis
Right now, HPCO trades at a Price to Sales ratio of 23. It’s not a cheap cannabis stock at all, but you are paying for long-term growth.
The entire Cannabis industry has been crushed along with other big names such as Canopy Growth (CGC) and Tilray (TLRY).
At under $5 per share, HPCO is a lotto ticket play that could pay off handsomely in the future. Revenue growth is strong, and the company strengthened its balance sheet with $6 million in cash reserves to fund expansion.
I don’t normally invest in cigarette-based stocks, but HPCO is such a small company compared to bigger names such as Altria (MO).
It’s possible that Hempacco becomes an industry leader in the hemp cigarette industry or gets acquired by a larger tobacco company for a premium.
Risk Factors
Hempacco went public to raise capital for expansion. The company had just $67,000 in cash reserves before the IPO debut. That’s not a good sign, and it looks like management hasn’t done a great job of managing cash flow.
There are several risk factors including:
- More cash burn and further dilution if negative cash flow continues.
- Larger competitors such as Altria launch a hemp cigarette line to compete with Hempacco.
- U.S. Federal Marijuana legalization gets delayed and puts more pressure on Cannabis stocks.
- Sales growth stalls out and hemp cigarette consumers go back to Tobacco products.
The good news is that revenue growth signals strong product demand. I believe most cannabis users prefer hemp-based products over Tobacco. So the only problem is future cash burn and U.S. federal legalization.
Conclusion
I like Hempacco stock, but my only concern is the lockup expiration on February 26th, 2023. Early shareholders could dump the stock and send it tanking.
Right now, HPCO is trading under IPO price, so it looks like a safer buy at these levels.
If you’re bullish on the cannabis industry, then Hempacco is a great microcrap stock pick with plenty of future upside.
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