By now, cannabis stock investors are abundantly aware that the industry is exploding. In fact, the cannabis will have a value of nearly $41 Billion in the next 4 years. Retail investors are now trying to determine the best cannabis stocks to invest in for long term gains. Canada-based Supreme Cannabis (SPRWF) focuses on the cultivation and wholesale distribution of premium cannabis grown in hybrid greenhouses combining indoor technology with sunlight. This cannabis stock soared over 200% in February 2021 but has steadily declined since. Many investors favor Supreme – but is this cannabis stock still a buy?
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Supreme Cannabis Company Fundamentals
HQ: Toronto, Cannabis
Founded: 1979 (Supreme Pharma)
Symbol: SPRWF (OTC), FIRE (TSX)
Supreme Cannabis Focus: Neutral
Supreme Cannabis Co focuses on the cultivation and wholesale distribution of premium cannabis grown in hybrid greenhouses combining indoor technology with sunlight. They operate through their main subsidiary, 7ACRES. Premium cannabis, which is their focus, has better margins and less competition from the black market and from other low-cost producers with lower quality cannabis. Using sunlight, they reduce production costs somewhat versus 100% indoor producers.
Company Size: Strong
Market Cap: US $68.65 million
Enterprise Value: US $115.6 million
# of employees: 750
Secondary: USA, Africa
10695181 Canada Ltd, BlissCo Cannabis Corp
Supreme Cannabis Operations: Neutral
Current production: 450,000 sqft of licensed grow facilities. Kincardine has 440,000 sqft for cultivation, R&D/genetics programs, and packaging. Langley is a 18,000 sqft extraction facility. They have the capacity to fill 1 million tinctures and 1.5 million vapes per year.
Supreme aspires to sell strictly wholesale, to producers and through retail partners, to avoid the costs of running retail operations. They are adding retail partners and considering global markets long term.
Supreme has supply agreements with all 10 Canadian provinces. They also export from Canada to Israel. They have 45 SKUs in retail locations.
Direct sales: None
Store networks: Yes, agreements with retail partners including Zenabis to carry their product
Supply agreements: Canadian provinces
Vertically integrated: Yes
Horizontally diversified: No
Supreme Cannabis Financials: Strong
Revenue (ttm): $40.18 million
Outstanding shares (diluted): 650 million
Company Management: Strong
President, CEO: Ms. Beena Goldenberg
CFO: Nikhil Handa
COO: John Griese
Most executives are very experienced, although not in cannabis. There is a lot of consumer packaging goods experience. We love the rare female led company!
Company Branding: Strong
7Acres was named Brand of the Year at the 2018 Canadian Cannabis Awards. Brands include blissco, truverra, sugarleaf, cambium, KKe, and MG Health. They have a marketing executive with strong branding experience from years at Philip Morris.
Supreme Cannabis Valuation: Neutral
Current share price: US $0.2348
52 week high/low: $0.08-0.358
Price to Sales: 1.61
Company Financing: Neutral
In January 2021, the company raised $23 million through 121 million units priced at $0.19 per unit. There is also 3 year warrants priced at $0.23. They also restructured $100 million in debt last year making strides towards profitability.
Investing Risks: Neutral
The risks of investing in any cannabis company are currently high given the volatility of the market. The risks of investing in this company are similarly high given the Canadian cannabis market as a whole getting slammed in 2020, lack of profitability, and recent negative EBITDA.
Bottom Line: Is Supreme Cannabis Stock a Buy?
Supreme is a small player compared to the 5-7 heavy weights in Canada. Traditionally they operated on the assumption that premium quality cannabis would pay off more than low production cost bulk cannabis. This bet did not pay off.
They’ve focusing on wholesale sales in the past few years but recently have tried more of a retail presence with 45 SKUs in stores now. Fortunately, they have established strong brands like their 7Acres brand, so they may be safe from being edged out in these retail storefronts.
For the last quarter (ended Sept. 2020) they reported $283 million CAD in assets with $95 million CAD in liabilities. Net revenue was almost $12 million CAD which was only slightly better than in 2019. Total losses were $30 million CAD. They are marching towards profitability and restructured debt in late 2020. These are good steps but they are still likely a year from profitability.
The price to sales is 1.61 and price to book is 0.47 which are fairly attractive. The revenue was only slightly up from the same quarter in 2019 but up over $3 million CAD from the last quarter in 2020. This is a good trend. They are also getting some backing from Reddit posts and we all know what those did for Gamestop!
We think they are a Neutral stock now, but not for long. Watch for this cannabis stocks to turn to Strong by the end of 2021.
Is Supreme Cannabis Stock a Buy?
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