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Sunniva SNNVF (OTC)

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Should you invest in Sunniva SNNVF (OTC)? Recommendation: See below


HQ: Calgary, Canada
Founded: 2014
Facilities: Cathedral City, CA, Canada
Symbol: SNNVF (OTC)

Focus: Neutral
Sunniva is focused to become one of lowest cost operators for cultivating pesticide free and premium quality while achieving full vertical integration. They are in the process of building a state of the art cGMP large scale facility for supply of premium cannabis products. Sunniva will achieve a significant competitive advantage by developing brand categories and upstream verticals with large scale cultivation of pesticide free flower.

Should you invest in Sunniva SNNVF (OTC)?

Size: Neutral
Market Cap: US $70.4 mil
Enterprise value: $69.1 mil
# of employees: 148

Markets: Strong
Primary:  Canada
Secondary:   California

Subsidiaries: Five in Canada and Nine in US (Full Scale Distributors, CP Logistics, LTYR Logistics, Sunniva Medical,Sun CA Holdings, Natural Health Services)

Operations: Neutral
Present capacity: None (facility under construction)
Future capacity: In Phase One, (Q3 2019) the production capacity is expected to be around 50,000 kg per year of premium indoor cannabis

Direct salesNatural Health Services’ Network Acquisition for direct-to-patient sales
Store networks: A dispensary at the facility under construction with distribution delivery license (Q1 2020)
Supply Agreements: Their supply agreement with Canopy Growth will not go into action as all current development plans for Sunniva Canada are suspended now as focus is on US operations.

Vertically integrated: Yes, around 75,000 patients
Horizontally diversified: No

Financials:  Strong
Outstanding shares (diluted): 31.8 mil
Revenue last year: $18.8 mil
Revenue rank in cannabis industry: 9th
EPS: ($0.91)

Management: Strong
CEO: Dr. Anthony Holler
CFO: David Lyle

Branding: Neutral
Sunniva is in the process of launching branded products at many different price points and product categories which include pre-rolls, vape cartridges, flower and premium quality concentrates. Sunniva branded products will be placed at their flagship pharmacy meanwhile marketing and distribution department will aim for distribution of Sunniva products at licensed pharmacies throughout California.

Should you invest in Sunniva SNNVF (OTC)?

Valuation: Neutral
Current share price: US $1.78
Price to Sales: 3.27
52 Week Low/High: $0.77 to $5.72
EV / Revenue: 8.32

Financings: Strong
The Phase one facility capital expenditures once completed is estimated to cost US$54 million. For Phase One, Sunniva signed a strategic financing agreement with BPG which is a real estate management company. For Phase two, capital expenditure of US$20.63 million will be funded through future cash flows. Sunniva completed its last brokered private equity financing for CAD$6.75 per special warrant and has raised over $50 million so far.

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 California.

Recommendation: Neutral
Sunniva is focused on achieving significant competitive advantage by developing brand categories and upstream verticals with large scale cultivation of pesticide free flower. They are in the process of building a state of the art cGMP large scale facility to supply premium cannabis products to their markets.

Sunniva is forming strategic partnerships with independent craft cultivators to supply high quality flower and trim for their branded products. They have acquired in-house automated packaging equipment and licensed distribution for delivery across California. Sunniva’s management has a proven history for adding shareholder value in both biotech and healthcare industries.

Sunniva has a good chance to be a profitable company, as they are in the expansion phase of their production and cultivation facilities. Although they are currently spending more than they generate in revenue, they have a significant amount of cash balance to continue operations.

Will its stock price improve in the long term? We think so.

Based on the most recent annual filings, Sunniva’s price to sales (P/S) is 3.27 which is ideal for company in Cannabis industry. Stocks which are non-cyclical in nature with Price to Sales ratio of more than six should normally be avoided, however, it does depend on the risk appetite of an investor. Based on this ratio, Sunniva stock is not risky, which makes it ideal for investors with low risk appetite.

Sunniva Debt to equity ratio of 0.28 is low and makes this stock tempting as less debt means less risk. However, Sunniva is aiming to borrow more inthe  near future so this ratio will get higher.

Sunniva is not showing any persistent increase in its earnings  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. Sunniva management holds 33.4% of company outstanding shares listed which shows their confidence in the long-term outlook of the company.

Sunniva holds a lot of potential as it is fully vertically integrated through a series of acquisitions and construction of their large production facility though it still has to sell its product to derive revenue.

For these reasons, we think Sunniva, at or near the its current price of $0.13 a share, can be good investment opportunity—though as the stock price rises this opportunity will eventually disappear.

Should you invest in Sunniva SNNVF (OTC)?

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