... and why its Business Model must be more diligent to federal action and non-action in the hemp sector.
Combined with lower CBD prices, high processing costs and less than adequate facilities are not the only reason why Commonwealth Alternative Medicinal Options closed its 45,000-square-foot CBD processing facility. The real issue is the Company's Business Model, which did not consider the actions of the U.S. Food and Drug Administration.
A well-defined Business Model is the company's plan for making a profit. It identifies the products or services the business will sell, the target market it has identified, and the expenses it anticipates. In this instance, government regulations and actions are top priorities.
A year ago, Commonwealth Alternative Medicinal Options announced plans to hire an additional 20 employees to its staff of 25 and contract with growers to expand production to 300 acres from 50 acres in 2018. Pennsylvania licensed 324 hemp farmers in 2019, and they produced the crop on 4,000 acres.
Not an isolated incident: Falling prices due to FDA uncertainties have impacted other processors nationwide, including Winchester, Kentucky-based hemp producer and CBD manufacturer GenCanna 1/ and its subsidiary Hemp Kentucky, which filed bankruptcy earlier this month after a year of challenges.
1/ GREENMARK 101 algorithm considered GenCanna "high-risk investment" almost 14 months ago. See Footnote below.
Most companies operating in the hemp sector do not have a specific understanding of the U.S. Department of Agriculture and FDA, their authority or jurisdiction. Government actions, in effect or implied, are the main element of our Business Model and the foundation-marker of GREENMARK 101.
U.S. Food and Drug Administration plans to enforce strict CBD standards. "USDA READY TO ENFORCE STRICT RULES ON HEMP PRODUCTION." We made this statement on November 26, 2019 and reiterated remarks made in January 2019.
While the FDA is taking more time to determine CBD safety, the U.S. Department of Agriculture is preparing to enforce strict regulations on hemp production. In other words, one end of the supply chain is experiencing strict rules while the other end remains uncertain. Indeed, it is unfair to the nascent industry since THC testing focuses on the flower, which products that are made from the flower downstream are not actively regulated by the appropriate federal agency.
The last in a series that focused on the role FDA future that was counterproductive to the disjointedness of the CBD market and the danger of the growers and processors focusing on "low-hanging fruit" markets. If you read our commentaries you know what we are talking about. Be as it may, inaction and uncertainty over how to regulate CBD by the FDA has compromised the opportunities for hemp and CBD companies. Because the FDA has not offered a pathway for accepting something that was an illegal substance.
You need to re- read
1/ GREENMARK 101 algorithm considered GenCanna "high-risk investment" almost 14 months ago:
WINCHESTER, KY. – Feb. 6, 2020 – GenCanna Global USA, Inc. (“GenCanna” or the “Company”) announced today it has filed a petition for voluntary Chapter 11 reorganization with the U.S. Bankruptcy Court in the Eastern District of Kentucky (the “Court”). The filing will allow GenCanna to continue to operate its business without interruption to customers, vendors, partners and employees while working through a reorganization plan that could include refinancing of the Company’s existing indebtedness, or an alternative restructuring transaction such as a sale.
GenCanna has obtained approximately $10 million in post-petition debtor-in-possession (DIP) financing from its senior lender, which, subject to Court approval, will provide the Company with liquidity to maintain its operations in the ordinary course of business during the Chapter 11 process.
“We are taking this action in order to position our business for success in a highly dynamic and rapidly evolving industry.
While this is certainly not the outcome we desired, the bankruptcy process gives us the ability to move forward in a way that allows us to best continue operations and serve customers as we work through our reorganization, resolve an outstanding legal dispute involving our Western Kentucky facility, navigate an uncertain regulatory environment and adjust our annual operating costs to better match the landscape.
Through this restructuring, we plan to address certain structural issues that we could not fix on our own. We are grateful for the continued support of our existing senior lender, who recognizes the strength of our brand, and we will continue to work tirelessly on behalf of our employees, farmers, and vendor partners.”
— Matty Mangone-Miranda, CEO, GenCanna
note: GenCanna has hired the following professionals to assist with its restructuring. Huron Consulting Services LLC is serving as Operational Advisor, Jefferies LLC is serving as financial advisor, and Benesch Friedlander Coplan & Aronoff LLP along with Dentons Bingham Greenebaum LLP is serving as the Company’s legal counsel in connection with the Chapter 11 case. For more information about the Chapter 11 case, including access to Court documents, please visit: https://dm.epiq11.com/GenCanna.
ABOUT GENCANNA GLOBAL, INC.