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CO2 Gro Inc: A High Margin Business with Proven Scientific Trials

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CO2 Gro Inc. (Ticker: GROW.V) is a Toronto based company with a simple mission: To accelerate the growth of all value plants safely, economically and naturally using their patented advanced carbon dioxide technologies.

CO2 Gro Inc. accomplishes this using their worldwide license to dissolve carbon dioxide gas into water. The carbon dioxide saturated water is then applied to the plant using a foliar spray. The plants respond with faster growth and greater yield creating value for the grower and in turn CO2 Gro Inc.

CO2 Gro provides a clear value proposition to growers which results in high-margin, recurring revenue for CO2 Gro. I hold shares of CO2 Gro and recently added 5000 shares at .305 cents. I believe there is a clear avenue for profitable growth for CO2 Gro. I plan to continue to add to my position as CO2 Gro executes.

BlueOcean NutraSciences Transition CO2 Gro Inc.

In late 2017 BlueOcean NutraSciences pivoted their business model from a producer and marketer of natural shrimp and algae oil products to solely focus on its foliar CO2 spray intellectual property. After the failed attempt to commercialize premium shrimp and algae oil the company brought in current CEO John Archibald to head up the dissolved CO2 spray business model.

CEO John Archibald and Aaron Archibald (VP of Operations) sold gas infusion patent owner Canzone and gas infusion equipment manufacturer InVentures in July of 2017. They joined CO2 Gro full time to commercialize a dormant since 2014 CO2 gas infusion licence that they assigned from Canzone to CO2 Gro in 2012. CO2 Gro has a perpetual royalty-free licence for capturing and dissolving CO2 gases into the water to enhance plant growth. The dissolved CO2 technology was previously used on accelerating bacteria for oxygen growth, algae growth, fish fry growth and finally, they state they have gotten around to plants.

CO2 Gro has a pending PCT patent for dissolved CO2 foliar spray to be used on plants. CO2 Gro states that of the 10 million US patents granted, there were no similar CO2 foliar spray patents granted to date. CO2 Gro believes that their extensive scientific and commercial trials will assist in fast-tracking their patent issuance.

How Does CO2 Gro Foliar Spray Work?

Carbon dioxide is essential for all photosynthetic plant life. When CO2 is dissolved in water and sprayed on leaves, plants can take in ALL the carbon their genetics allow for peak growth. Science-based CO2 plant experiments provided a 400% increase in chlorophyll A creation and an 800% increase in CO2 gas conductance (transfer) on either side of a leaf surface area. The first three cannabis, two pepper and two lettuce commercial grow trial results all showed a minimum 45% value increase.

The CO2 Gro system can be integrated directly into existing indoor and outdoor grow irrigation systems making the implementation of foliar CO2 spray very easy. Not only does it integrate easily into existing irrigation systems but CO2 foliar spray is the only option for a variety of growth scenarios. Until now outdoor growing and greenhouses open to the elements have not been able to utilize CO2 to accelerate plant growth. The traditional method of pumping CO2 gas into the greenhouse was not feasible for outdoor growers.

Not only is CO2 foliar spray the only option in many situations but it is a more efficient way to deliver CO2 to plants than traditional gassing. For example, a 1 million square foot greenhouse uses 3,000 metric tonnes of CO2 gas a year for 33% added plant growth at a cost of $180,000-$360,000 a year. CO2 Gro claims that they can cut the CO2 gas needed in half and deliver an additional 20% plant value on top of the 33% already gained.

Trial Results

In 2018 CO2 Gro completed trials on microgreens, cannabis, lettuce, flowers and peppers. For 2019 they have an astounding 80 indoor and outdoor trials in a wide variety of plants: flowers, peppers, tomatoes, hemp, cannabis, lettuce, medical tobacco and grapes. Eighteen of these trials are licenced cannabis producers in Canada.


CO2 Gro lettuce trials resulted in 33%-100% increase in dried biomass. Peppers grew 20% faster with 30% more fruit and microgreens 8%-35% larger. Trial results determined that the leafier the plant the more carbon dioxide is absorbed causing it to be more effective.


Chrysanthemum and periwinkle flower trials were conducted. This resulted in greater plant health, bigger and thicker leaves, more advanced root systems and flowers were commercially ready to ship 7-10 days sooner than control flowers.


Trials were conducted on small scale grows ranging from 500-2000 plants. The foliar spray provided value to the growers in 3 ways: faster cannabis growth, more buds and weight per bud and more THC and CBD per bud unit weight. The trials did differentiate between Indica and Sativa plants. Sativa plants resulted in a 45% increase in value while Indica plants, due to their wider leaves, had a value increase of 250%.

Not only was value increased in bud weight, growing time and bud quality but in CO2 Gros most recent press release they stated that their CO2 foliar spray dramatically decreased the chances E.coli and powdery mildew. CO2 foliar sprayed cannabis showed a 99% reduction in E.coli while none of the plants covered in powdery mildew showed any signs of disease.

Total Addressable Market

CO2 Gro estimates they have a $9 trillion global plant market that they can start to penetrate. They arrive at this number based on the following estimates:

  1. $8.1 trillion global food market;
  2. $1.2 trillion global tobacco/non-food market;
  3. $340 billion greenhouse crops market;
  4. $72 billion cannabis and hemp market.

This is a massive total addressable market. CO2 Gro has identified some “low hanging fruit” targets like indoor growers in North America that already have overhead boom spraying for their irrigation system. They believe these are their easiest opportunities for revenue generation as their systems easily integrate into these existing irrigation systems and the value proposition to growers is very enticing.

CO2 Gro Business Model

Revenue and Margins

CO2 Gro will generate revenue from site licensing fees of their patented systems. They will split the increased in crop yield 80% to the grower and 20% to CO2 Gro. In their March 2019 fact sheet, they estimate that in a 1 million square foot greenhouse using CO2 foliar spray the grower can harvest one additional crop per year at an increased value of $60 million from higher bud count, increased weight and faster growth. A grower’s 20% cut of the increase in value could result in $1.2 million in revenue from one cannabis grower.

In their 2019 outlook, CO2 Gro projects their EBITDA margin to be a whopping 50% and gross margin of 70%+ in 2020. They project a $10 million a year revenue run rate by the end of 2019.

Operating Expenses

Management has stated that they are only being compensated in stock in the company until they become EBITDA positive. Seventeen CO2 Gro sales reps were hired that are compensated on a 100% commission basis.

Growers will now also be responsible for the costs of CO2 Gro trials on their premise that range from $2,000-$10,000 per trial.

The combination of these factors results in a low cash burn rate for a company that is not generating revenue as of September 30th, 2018. The company showed a cash loss of $650,000 for the nine months ending June 30th, 2018. This loss was offset by the exercise of seven million warrants in October 2018 which raised $1.4 million. Proceeds from these warrants were also used to retire $200,000 in three-year notes leaving the company with no debt outstanding.

2019 Contracts Signed

In December 2018 CO2 Gro announced they had signed their first technology site license with US-based Tumbleweed Farms with installation to be completed in January 2019. Tumbleweed Farms was satisfied with the results of the trials achieved by CO2 Gro so they went directly to a commercial installation.

I think going straight to commercial installation is significant. This will accelerate revenue growth. The grower was confident enough in CO2 Gro trial results that they skipped a trial of their own. This will save time, money, and is a great indicator in the confidence in CO2 Gro’s product capabilities.

CEO John Archibald described this contract as “the first of a series of expected Commercial Agreements…for 2019”. In their 2019 outlook, CO2 Gro announced they had signed their second license agreement.


Since I began researching CO2 Gro there has been a nice run-up in the stock price. During the December 2018 sell off the stock went as low as .13 cents and sat at .20 cents as recently as February 19th, 2019. The stock is trading around .30-.38 cents.

With 76.3 million shares outstanding trading at .305 CO2 Gro has a market cap of $23.3 million. With a $10 million projected revenue run rate CO2 Gro is trading at 2.3x forward sales. With an EBITDA margin of 50%, CO2 Gro. could have $5 million in EBITDA for 2019. These revenues should be recurring. Typically companies with lots of recurring revenue fetch higher multiples than none recurring revenue type businesses. Only time will tell if this will happen for CO2 Gro.

With an estimated enterprise value of $25 million, CO2 Gro is trading at 5x EV/EBITDA using 2019 EBITDA numbers. This is including the very recent run-up in the stock price.

I found it difficult to find a comparable to CO2 Gro as there is no one else in the market with their product. I think 2.3x sales and 5x EV/EBITDA is a fair price for the potential of growth, low cash burn, intellectual property, and scientifically proven results of the company.

Talk With Management

On March 8th, 2019, I sent an email to the company with a couple of questions. About 20 minutes later I received a phone call from Vice President Sam Kanes. He was very gracious and spent about 45 minutes answering my questions. This was my first time speaking with a management team. It was a very good experience and I thank Mr. Kanes for taking the time out of his busy day.

Insider Ownership

Mr. Kanes explained that management holds approximately 28% of the company. Sam Kanes purchased 200,000 shares at .20 cents on February 21st and Chairman of the Board Michael Boyd purchased 56,000 at .38 cents on March 7th. These are both strong signs for the future of the company. Mr. Kanes had a significant stock purchase of 200,000 shares for $76,000 while Mr. Boyd made a purchase at .38 cents appearing to support the run-up in share price.

CO2 Gro As a Possible Takeover Target

I asked Mr. Kanes about the possibility of CO2 Gro being purchased. In my opinion, I’d prefer CO2 Gro to stay independent and continue to grow the business. Mr. Kanes expressed confidence that with the 28% of the company that management owned and a few large shareholders they would be able to exert some control over a possible buyout. He did explain that CO2 Gro would fit nicely into a variety of companies including irrigation companies, and CO2 distribution companies.

Partnership with an Agri-Industrial Partner

I asked Mr. Kanes for a little bit of clarity on their partnership with an Agri-Industrial partner that was mentioned in the March 4th video with Market One Minute. Mr.Kanes explained that their market opportunity is so large that with the assistance of an Agri-Industrial partner they would be able to expand into the market quicker with the assistance of such a partner.

He mentioned that a partner would want a cut of revenue which is understandable. I’m not sure if this was factored into their 50% EBITDA margin forecast in their 2019 update so some margin contraction could occur. With such strong EBITDA margins, there is some room to contract and still have very generous margins.

Possible Capital Raise

I asked if CO2 Gro would need to raise capital in the next year or two. Mr. Kanes expressed optimism that they would not need to go to the market to raise capital. He explained that they would need some financing to purchase the CO2 equipment needed to enter into prospective greenhouses.

A possible avenue to achieve this would be to use debt secured against their recurring revenue to secure funds to purchase this equipment without having to dilute shareholders. In order for this to happen CO2 Gro would need to onboard some large growers to have solid recurring revenue that they can borrow against.

Mr. Kanes also expressed the importance of companies onboarding CO2 foliar spray based on their current research. Tumbleweed Farms installed CO2 Gro’s technology without conducting a trial in their own greenhouse. This saves the grower time and money as they are now paying for the trials and shows a level of confidence in CO2 Gro’s value proposition.

Continued Research and Development

CO2 Gro is continuing their research efforts headed by their Scientific Advisor Dr. Matthew Julius. Dr. Julius is on a sixteen-month sabbatical from St.Cloud State University so he can continue to conduct trials with CO2 foliar spray. The company is currently researching the effects their spray has on diseases and pests that can wipe out crops.

Mr. Kanes referenced reports that some cannabis growers are experiencing crop failure. Their most recent press release showed that CO2 foliar spray has a positive effect on powdery mildew which Mr. Kanes explained is a real problem in cannabis grows.

They are also conducting research on pest prevention. They hope research conducted in 2019 will provide further results that CO2 foliar spray not only improves yield and quality but is also an organic way to combat pests and disease. The current option for growers to fight these risks is limited, many consisting of chemicals that consumers don’t want to ingest.

CO2 Capture Technology

Mr. Kanes mentioned that a company in Western Canada, Cabron Engineering, recently presented interesting technology that could expand CO2 Gro’s market opportunity. Carbon Engineering is developing technology that can capture CO2 from the atmosphere. Partnered with this type of technology CO2 Gro can implement their system anywhere in the world regardless of the availability of food grade CO2.

It appears the technology is still in the development stage as Carbon Engineering predicts a 2021 commercial deployment, however it is an interesting solution to CO2 supply risk for some growers.


Debt-Settlement Agreement

What are the risks? While exploring the Sedar filings I came across the debt-settlement agreement that the company made with management to get the CO2 foliar spray side of the company off the ground.

The agreement was that CEO John Archibald would build his own management team and start conducting trials to confirm the efficacy of CO2 foliar spray. The funding to all of this work was paid for by John Archibald and his team. They were able to restart the foliar spray business, identify potential investors, and arrange trials. The agreement can be read in the March 26, 2018 Annual Meeting beginning on page 11.

As a result, John Archibald, Sam Kanes, and Aaron Archibald were issued nearly thirteen million shares in the company at 0.19 cents to settle $2.5 million in costs incurred to restart the CO2 foliar spray business. This equated to 24% of the companies shares.

When I first read that management was given 24% of the shares just for managing the company I thought this far too generous compensation. It took some time to find the explanation for the twelve million shares that were issued, but once I found the debt-settlement agreement it seemed fair. Management spent their own capital to get the foliar spray company off the ground and was compensated for doing so. If the venture failed they would have been out of pocket for the expenses.

I believe this is a strong sign that management believes in the technology and the value proposition they give to growers. CEO John Archibald has years of experience working with dissolved CO2 and spent his own time and capital to get the new business going. The CEO and both Vice Presidents have significant skin in the game which should help align management and shareholders.

Canadian Cannabis CO2 Licensing

The company is still waiting on approval for CO2 foliar spray use on cannabis plants from the Office of Medical Cannabis. Sam Kanes explains this very well in their May 23rd video. They have been deemed a non-fertilizer but are awaiting Health Canada approval. He says that CO2 Gro has Canadian licensed cannabis growers with fifteen million square feet of greenhouse space that are willing to trial their technology.

While they have passed some of the steps in order to be approved for use on cannabis plants they are still waiting for final approval. The company is confident that their spray is more efficient and safer than CO2 gas and they will be approved for use on cannabis. Until they are approved, this remains a significant risk to revenue growth in Canada.

Expansion Execution

Just the sheer size of their overall addressable market was a concern for Mr. Kanes. The company and its staff are small and their technology could help growers around the world. While this can also be seen as an advantage he explained it will be difficult to service all of these markets without significant capital expenditures. Cost effective execution will be key to maintaining strong margins. Their partnership with an Agri-Industrial business should assist in this execution.

Patent Risk

The company appears very confident in its pending patent for use of dissolved CO2 gas in water to be used in foliar spray on plants. Their patent is pending which Mr. Kanes explained may stay that way for some time as they continue to add trial results to their patent application.

If companies implement their own CO2 foliar spray the company has the ability to file a lawsuit against this company for patent infringement. Being such a small company this may not be feasible until they ramp up cash flow as legal expenses are not cheap.

Is CO2 Gro a Buy?

In my opinion, yes. I purchased shares of CO2 Gro in the .24 cent range and added another 5000 shares at .305 cents.

CO2 Gro has a lot going for it. They have strong gross and EBITDA margins, low cash burn, strong scientific data, and management that is very familiar with the technology.

They have an enormous total addressable market and multiple high-value plant types that can benefit from their technology. It essentially costs growers nothing from their existing cash flow to implement the systems and if they already use CO2 gas it will cut their CO2 usage in half.

I look forward to following the company and eagerly await the predicted revenue growth. The company is projecting a $10 million run rate by end of 2019. There are a number of catalysts that could lead to increased revenue in 2019 and 2020. They are:

  • USA Farm Bill legalization of hemp. New high-value plant for foliar spray;
  • Health Canada approval of CO2 foliar spray on cannabis;
  • Trials or commercial agreements with large Canadian LPs
  • Partnership with Argi-Industrial business to accelerate distribution;
  • R&D to further explore the benefits of CO2 spray and disease prevention

I encourage you to check out the CO2 Gro Inc. website. They have a ton of information about their technology and trial results.

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