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Alkaline Water, offering fresh twist on old product, bolsters balance sheet as revenue growth accelerates

The Scottsdale, Arizona-based company recently received approval for a move to the Nasdaq Capital Market from its old perch on the OTC Markets

A bottle of Alkaline Water
Alkaline Water's core product, Alkaline88, is an 8.8-pH alkaline drinking water

Health professionals recommend that people drink eight ounces of water eight times per day. How you get it is up to you, so it should be no surprise people and companies are searching for something not only better tasting, but also healthier water than what you get from the tap or a well.

While not the first to market with a health-oriented water beverage, Alkaline Water Co (CVE:WTER) (NASDAQ: WTER), may be one of the most unique. The Scottsdale, Arizona-based company’s core product, Alkaline88 water, is an 8.8 pH balanced alkaline drinking water enhanced with Himalayan Pink Rock Salt.

Rather than using chemicals, the company achieves a higher pH for its products through a proprietary Electrochemically Activated Water (ECA) system.

Alkaline water with a pH of 8.8 can be found naturally, but it is not readily available for most in this form. The Alkaline Water Co. has changed that with its products, which are available in over 48,000 stores across all 50 states, including some of the biggest names in retail like Walmart, CVS, Kroger and Safeway-Albertsons. The entire list of retailers is impressive.

Currently, only a few of these claims have been scientifically proven; however, there is evidence of benefits beyond hydration.

Acid reflux targeted

According to a study published in the Annals of Otology, Rhinology, and Laryngology, alkaline water with a pH of 8.8 may help deactivate pepsin, the main enzyme that causes acid reflux. Additional studies hint that drinking alkaline water may help people who have high blood pressure, diabetes, and cholesterol.

Just the possibility of any additional benefit from drinking water makes it no shock to discover sales from Alkaline Water Co. will double to $40 million from $20 million from fisca year 2018 to fiscal year 2019. This continues a trend of record revenue from quarter to quarter on strong growth. Less than five years ago, the company had only $600,000 in revenue.

Alkaline Water strengthened its balance sheet recently raising C$4 million through a private placement bringing its current cash position to US$4.4 million. This should carry the company through its current cash flow negative business period well into 2019 when management expects Alkaline Water to turn cash flow positive. In the event cash flow doesn’t turn positive when expected, the company does have a non-dilutive credit facility available to them in the amount of $5 million.

Given the strong growth and stable balance sheet, the company recently received approval for listing on the NASDAQ Capital Market, a significant move from the OTC.

FDA export approval

Positive cash flow isn’t the only thing management anticipates for 2019. After receiving FDA export approval, the company foresees internationally expansion next year and will do so with more than just Alkaline88. Recently, Alkaline Water partnered with Infusion Biosciences to introduce via its A88 Infused Beverage Division an entirely new line of health drinks that nclude vitamins as well as hemp-derived Cannabidiol, or CBD.

The hemp-derived CBD market is anticipated to explode by 2020, growing 10x its current size to $2.1 billion worldwide. Sales in the United States alone are projected to hit $650 million by 2022. Both of these numbers could be conservative after the US passed the 2018 farm bill on December 12. The passed bill effectively removes industrial hemp from Schedule 1 of the Controlled Substances Act and will allow the Department of Agriculture to federally regulate hemp and its byproducts which include CBD. Furthermore, it guarantees interstate commerce for hemp products, including CBD.

Currently, Alkaline Water is planning three CBD beverage offerings: hemp-derived CBD-infused Alkaline88 water, sparkling CBD Alkaline88 water and viitamin-infused CBD Alkaline88 water, including vitamin B12 and chlorophyll.

The company also plans to expand its core Alkaline88 line, adding vitamin-based “Energy” Alkaline88 water and naturally flavored Alkaline88 water with such flavors as watermelon, blackberry, lemon, blood orange, and peach mango.

Takeover potential

Alkaline Water is looking to take advantage of the 13 straight years of declining soda sales by positioning itself as an attractive takeover candidate for the behemoth beverage companies that generate the bulk of their revenue from soda sales. These same behemoths have been aggressively expanding into the alt-beverage market. Soda giants, Coke and Dr. Pepper, have scooped up Vitamin Water, Bai, Core, and Fuze over the past few years.

With its expanding product line, strong growth, and first mover advantage into CBD-infused beverages, Alkaline Water and its $130 million market cap could find itself on the takeover candidate list the next time a beverage giant goes on the expansion hunt. But Alkaline Water doesn’t need a white knight to find success. The potential combination of alkaline water and CBD should propel strong revenue growth for years to come.

At the time of publication, Tim Collins had no positions in the companies mentioned in this article.

Contact the author at timothyjcollins@msn.com

Follow Tim on twitter @retrowallst and @darknovelisttim

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