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Cannabis Company Management

MJardin Group 

Should you invest in MJardin Group MJARF (OTC), MJAR (CNX)? Recommendation: See Below

Fundamentals

Profile:
HQ: Denver, CO, USA
Founded: 2014
Facilities: 6 in Nevada, Manitoba, Nova Scotia, Ontario
Symbol: MJARF (OTC), MJAR (CNX)

Focus: Strong
MJardin is focused on leveraging its more than 10 years of experience in enhancing production and extraction of cannabis. MJardin is planning to apply for licenses in US States with emerging cannabis markets and at the same time look for under-performing facilities in mature cannabis markets in the Western US for acquisition. MJardin have developed proprietary software with 8 years of cultivation metrics and ability to monitor plant growth, yield and inventory management.

Size: Neutral
Market Cap: US $62.41 mil
Enterprise value: $79.95 mil
# of employees: 450+

Markets: Strong
Primary:  Colorado, Nevada, Canada
Secondary:   Europe
Subsidiaries: GrowForce Inc., F&L Investments

Operations: Strong
Cultivation:
Present capacity: 130,000 kg
Future capacity: Their directly owned production and extraction facilities will produce an additional 31,000 kg in 2020. Facilities under advisory and management services will produce another 34,000 kg in 2020.

In 2019, MJardin will be focused on managing 8 large scale project of facility upgrades and new construction.

Should you invest in MJardin Group MJARF (OTC), MJAR (CNX)?

Distribution:
Direct salesNone
Store networks: None yet
Supply Agreements: None yet, still management side only

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

Financials:  Neutral
Outstanding shares (diluted): 77.67 mil
Revenue last year: $20.2 mil
Revenue rank in cannabis industry: 18th
EPS: ($1.25)

Management: Strong
CEO: Adrian Montgomery
CFO: Wendy Xue

Branding: Neutral
MJardin branding efforts include the development of their own brands and major third-party brands that can grow in a single market but need a partner. MJardin wants to position themselves as a specialist brand in cannabis cultivation across multiple markets through their tested and consistent production methods.

Valuation: Neutral
Current share price: US $1.00
Price to Sales: 9.38
52 Week Low/High: $0.77 to $6.68
EV / Revenue: 6.51
Price to Book: 0.65

Financings: Strong
In 2018, MJardin generated cash flows from financing were $140.2 million. This  includes$62.7 million received from GrowForce subscription receipts offering, $24.7 million from the issuance of convertible debentures and $52.8 million from a senior lender to partially fund the Company’s investment activities.

Risks: Neutral
The risks of investing in any cannabis or hemp company are currently high given the newness of the market. The risks of investing in this company are higher given the number of approved licenses in Canada and competition in both Colorado and the western United States.

Recommendation: Neutral
MJardin is focused on leveraging its more than 10 years of experience in enhancing production and extraction of cannabis. MJardin have developed proprietary software with 8 years of cultivation metrics and the ability to monitor plant growth, yields, and inventory management.

MJardin branding efforts include the development of own brands and major third-party brands that can grow in a single market but need a partner. MJardin is planning to apply for licenses in US States with emerging cannabis markets and at the same time look for under-performing facilities in mature cannabis markets in Western US for acquisition.

MJardin has a good chance to be a profitable company, as they are expanding in new geographical regions with experience and data from their software. Although they are currently spending more than they generate in revenue, they have a significant amount of cash balance to continue operations to survive till mid of next year.

Will its stock price improve in the long term? Less Likely

Based on the most recent annual filings, MJardin’s price to sales (P/S) is 9.38 which is high for most industries but at the same time not uncommon for this industry. Based on this ratio, MJardin stock is a bit risky, however, if you have the higher-risk appetite you can consider holding this stock till the P/S ratio reach below 6.

MJardin’s debt to equity ratio of 97.17% is very high and makes this stock risky as more debt means more risk. Due to interest rate expenses, high level of debt affected their profitability significantly even though their gross profit is rising in last three years. This is the bad.

The good is that MJardin is showing a persistent increase in its earnings growth for the last three years so investors should keep an eye on its EPS growth rate if they intend to hold stock for the long term.

The price to earnings ratio is used for measuring the company’s current share price relative to its per-share earnings. MJardin’s price to earnings ratio was at 5.62. When P/E is high it suggests that investors are expecting higher earnings growth in the near future as compared to the companies with a lower Price to earnings ratio. We can conclude from this that MJardin is undervalued at its market price.

For these reasons, we think MJardin, at or near its current price of $1 a share, can be a risky investment opportunity—though as earnings improve and debt is reduced then an opportunity can appear.

Should you invest in MJardin Group MJARF (OTC), MJAR (CNX)?


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