Decibel Cannabis is a cannabis cultivation company focusing on high quality products, retail experiences, and strong brands. They are active in five provinces in Canada with high market shares in flowers, vapes, and concentrates. Decibel has had a difficult couple of years but the narrative is changing. Is Decibel Cannabis stock a buy?
Decibel Cannabis Company is a Canadian cultivator which hangs their hat on their brand strength and market penetration. The Canadian market is saturated and very competitive so it takes something special to succeed there. Decibel just may have it but let’s take a closer look at Decibel Cannabis Company to see if it is a buy before we get ahead of ourselves:
Decibel Cannabis Fundamentals
Profile
HQ: Calgary, Canada
Founded: 2017
Symbol: DB (TSX), DBCCF (OTC)
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Decibel Cannabis Company Focus: Strong
Decibel Cannabis Company, formerly Westleaf, is a cultivator in the licensed cannabis market in Canada. They’ve developed three production locations across Canada and have highly recognizable brands such as Qwest and Blendcraft, and Prairie Records.
Company Size: Neutral
Market Cap: US $113.5 million
Enterprise Value: $157.2 million
# of employees: 54
Related: Decibel Announces Net Revenue Increase of 29%
Markets: Strong
Secondary: USA
Majority Subsidiaries: Westleaf Labs; Canndara Canada; Goldport Pty; IGC Aust Pty; Westleaf International
Decibel Cannabis Operations: Strong
Cultivation: They have three cultivation sites. Creston, BC is 26,000 sqft of cultivation and processing space. Battleford, SK is a 80,000 sqft cultivation facility and Calgary, AB has a 15,000 sqft facility for extractions and product development. Branding is this companies focus and as such, they’ve branded these sites as the Qwest Estate, Thunderchild, and The Plant respectively. They are still small however with around 9,000 kg of flower to be produced this year.
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Distribution:
Their products are sold mainly in five provinces in Canada (BC, Alberta, Saskatchewan, Manitoba, and Ontario). They claim 8.4% market share with their Qwest brands (7 flower SKUs) and 29 vape/concentrate SKUs with 21.9% market share in concentrates and 10% market share in vapes. These are very strong numbers.
Integration/Diversification:
Vertically integrated: Yes
Horizontally diversified: No
Company Financials: Neutral
Revenue (ttm): $37.5 million
Outstanding shares (diluted): 349.2 million
Company Management: Neutral
CEO: Paul Wilson (new) – 66k per year salary
CFO: Stuart Boucher – 115k per year salary
COO: Kris Newell
CCO: Gary Joseph Leong
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Decibel Branding: Strong
Their brands include Qwest, their small batch premium brand; Blendcraft, their flower blended products brand; Prairie Records, their creative music themed brand; and General Admission, their low price brand.
Company Valuation: Neutral
Current share price: US $0.295
52 week high/low: $0.06-0.36
Price to Sales: 3.04
EV/Revenue: 4.19
Price/book: 3.12
Financing: Neutral
Decibel has agreed to an authorized overdraft with Connect First Credit Union for $7.5 million CAD at 4.45%. The capital will be used to increase their sales growth. They have $95 million CAD in total assets and $59 million CAD in total liabilities.
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Risks: High
The risks of investing in any cannabis company are very high given the volatility of the industry and the aggressive Canadian competition. The risk of investing in DB are still high given their recent change in leadership, higher debt levels, and growing numbers of outstanding shares.
Bottom Line: Is Decibel Cannabis Stock a Buy?
Decibel Cannabis Company is a Canadian cultivator which hangs their hat on their brand strength and market penetration. The Canadian market is saturated and very competitive so it takes something special to succeed there. DB just may have it.
They’ve had a rough couple of years but the narrative is changing. New leadership, they are on the backend of mergers (Westleaf, We Grow), and increasingly bright financials all are good news. Q1 2021 performance was highlighted by 11% QoQ growth in net revenue, $2 million of adjusted EBITDA, and over 430 kg of flower sold are all turning heads.
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What is really staggering about DB is their brand strength and reported market share numbers. In fact, Qwest, Blendcraft, Prairie Records, and General Admission are their leading brands with 8.4% market share in premium flowers, 21.9% market shares in concentrate sales, and 10% market shares in vape sales across BC, AB, SK and ON in Q1 2021. With 710 licensed cannabis companies by Health Canada, these numbers are impressive.
They grossed almost $15 million CAD during Q1 2021 and have achieved profitability. However, most of the other 710 licensees up north cannot claim the same thing. They have around $1.2 million CAD of cash on hand so they should be ok for the next few months and have lines of credit and banks in their active markets. They may continue to increase their outstanding shares numbers, which we don’t like, but not too much to stay on their current growth curve. For all these reasons, we give them a Strong rating for 2021.
Is Decibel Cannabis Stock a Buy?
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