Most cannabis stock investors are now aware that cannabis and hemp are among the fastest-growing industries globally. Growth investors are continuing to warm up to the idea of placing their bets on pot stocks – especially, non plant touching, cannabis ancillary ones.
According to Grand View Research, the global cannabis market will expand to $66.3 billion by 2025, at a CAGR of 23.9%. As the cannabis industry continues to explode, you’re probably wondering which cannabis ancillary stocks are a buy. But is Surna the cannabis ancillary stock you’ve been waiting for?
Surna Inc. (OTC: SRNA) supports cultivation businesses with agricultural products, controlled environment solutions, and cultivation technologies. The company sells lighting and HVAC equipment, chillers, fans, dehumidifiers, and more to cannabis business across the USA. Surna also provides MEP engineering and odor mitigation services with installation and maintenance plans. They focus on supporting cannabis and hemp businesses. Surna’s headquarters are based in Boulder, CO.
What Do We Like About this Cannabis Ancillary Stock?
For starters, as stated above, Surna has maintained a strong focus. They supply products and services to the rapidly growing cannabis industry. They have strong market penetration in the USA and in Canada.
Additionally, the company has strong branding. Many of their products (chillers, air handling units) have names such as the Packaged DX HVACD Unit. Not exactly catchy but when is an air handling unit ever memorable? Surna is a trusted name in cannabis grows.
Follow Stephen Goldman as he reviews the technicals for SURNA
Finally, we see this stock as a safer investment than other cannabis stocks. The risks of investing in any cannabis company are currently high given the newness of the market. The risks of investing in this company are lower given they are cannabis ancillary and not plant touching. They have low revenue however and must continue to focus on improving this to increase their share price.
This is all great news but is Surna really the cannabis ancillary stock you’ve been waiting for?
What Could Surna Improve Upon?
Well, Surna’s market cap only sits at $15.5 million and their enterprise value sits at $14.7 million. Their revenues are only $11.9 million and they have 237.5 million outstanding shares. We remain neutral on this as well as their valuation:
Current share price: US $0.0659
52 week high/low: $0.015-0.215
Price to Sales: 1.31
Additionally, we remain neutral on their financing. A 2017 equity plan allocated 50 million common shares for equity to raise funds. To date they’ve marked 21.6 million of those. At the end of 2020, they had $2.28 million of cash and cash equivalents. Currently they have $1.64 million with debt of under $1 million. While this certainly does not count them out, is this the cannabis stock you’ve been waiting for?
Is SURNA The Cannabis Ancillary Stock You’ve Been Waiting For?
Surna designs and sells environmental control technologies for the controlled environmental agriculture (leafy greens, vegetables, cannabis). They have been in business for 15 years but are still pretty small with only 30 employees and $11 million in revenue.
Surna needs to increase their revenue to get their stock price ($0.065 currently with P/S of 1.31 but price/book of 48.22). To do so they’ve planned to increase organic sales growth by vertically integrating their products and services (think not only sell the air handlers but install and maintain them). They will also seek to uplist SRNA (currently on the OTC) to give them access to more liquidity. These are good goals but executing them will be slow.
They had 3 projects with the large MSO’s of the USA and 9 with smaller organizations. These need to grow 10-fold for them to be a major player in this space. Current competitors are urban-gro and Agrify, both listed on the NasdaqCM with market caps over $100 million.
They do have good signs in their financials, however. They have very little debt (less than $1 million) and are almost profitable. Q2 2021 was their best yet, with revenue up to $4.5 million (up 168% YoY) and gross profit at $1.3 million. The new income (loss) was $0.4 million. These are good trends but they need them to continue for the next 3-4 quarters. They are cheap ($0.06) so if you are in for the long haul, these shares are a low risk bet (P/S 1.31).
For all these reasons we rate SRNA as Neutral.
SURNA: The Cannabis Ancillary Stock You’ve Been Waiting For?
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