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As we zero in on a broad-based “generational low” for the hemp-based products space – which continues to stare at a long-term future defined by an historic structural growth boom – we want to keep seeking out ultra-cheap opportunities that offer bargain-basement access to that growth, and we continue to think that Sun Kissed Industries Inc. (OTCMKTS:SKDI) may be the best of breed in that class.

Here’s why.

Sun Kissed Industries Inc. (OTCMKTS:SKDI) offers a basic premise driven by our sense that the market has yet to discount the company’s acquisition of promising CBD products company, Hakuna Supply, which was closed earlier this year.

Hakuna Supply is an award-winning CBD-products company based in California. The company is currently nominated for “Best Hemp-Derived CBD Product” by the California Cannabis Awards after winning the DOPE Magazine Best New Product award for Southern California in the non-cannabis/non-tech category in 2017.

That strong story gets stronger when you consider the built-in distribution footprint in play: 110 retail partners spanning 20 states in the US domestic market. That’s already in the picture. And that picture is growing.

Our sense is that the market hasn’t remotely priced in this acquisition. The stock is currently trading at a market cap of just $3.2 million. Based on our research, Hakuna may well expand to run that type of sales figure on its own this year, which would put the stock at a 1x price-to-sales level in a space growing at over 125% CAGR – which is obviously absurd by any rational standard.


Tightening Up

To help flesh this story out, the company recently announced the initiation of a series of measures to optimize operational efficiency, increase output, and drive a substantial increase in revenue growth over the next several quarters.

According to the release, Hakuna has already begun the construction of a new Clean Room, which represents an important part of this initiative.

“Hakuna has a very strong stable of award-winning products and a large nationwide distribution footprint in a booming market niche,” noted Carl Grant, CEO of Sun Kissed. “But one of the reasons we acquired the company is their optimally positioned stage of growth. This is truly a top emerging brand in the highend CBD-based products space. The capability to increase Hakuna’s output translates into sales growth and a wider awareness of the Hakuna brand. At this point, the story is about scaling up and widening margins on variable cost inputs.”

The company’s most recent communication goes on to note that new measures being taken by Hakuna will include a fully operational clean room, new equipment (industrial mixer, industrial hopper, and capsule packaging machine for coffee goods etc.), and several additional steps to streamline the operational sequence from order to shipment of product.

Hakuna management notes that it believes these steps will reduce the time lag between placement of a new order and shipment of that order by over 50% to just 48 hours and increase overall output by over 50%. The net effect of these adjustments are expected to drive a significant increase in revenue over the next two quarters alone. That plays well with the valuation theme we described above. It creates an explosive potential for this tiny stock if the over-arching tone in the space turns around – which is a matter of “when”, not “if”.

It’s going to happen, and SKDI could be the hottest ticket in town when the turn comes.