Is Supreme Cannabis Stock a Buy?

Primary: Canada
Secondary: USA, Africa

Subsidiaries: 7Acres, Truverra Inc, Bayfield Strategy Inc,
10695181 Canada Ltd, BlissCo Cannabis Corp

Supreme Cannabis Operations: Neutral

Cultivation:
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.

Distribution:
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

Integration/Diversification:
Vertically integrated: Yes
Horizontally diversified: No

WATCH: Supreme Cannabis Technical Analysis

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
EV/Revenue: 2.88
Price/book: 0.47

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?

Recommendation: Neutral

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.