One conference call - much to discussThe comments related to Labs Q4 and Full Year results have been very interesting. The full spectrum of reactions and emotions are all there as would be expected given the details provided in the conference call.
It’s undeniable there has been an improvement in Gross Margin and Revenue and a reduction in Operating Expenses. These important levers of business are all moving in the right direction. The company is still not quite making money – but there are headwinds to this business in the form of taxes and other regulatory requirements that other businesses don’t’ have to deal with. The acquisition of Vivo could have turned out quite differently if management wasn’t focused on the right things so that is a positive.
In my opinion profitability for this company will happen at some point either with or without any Excise Tax changes so I’m not too worried about that, although sooner would be better as $18m in cash is nice, but as a business you tend to burn through that if not making money. It’s quite admirable that they are so close to profitability given the business headwinds. As pointed out in some of the comments, just look at the financial position of the some of the other cannabis companies like Canopy Growth.
Sales increased by 50%. That seems eye popping at first glance but that was generally accepted as being the case. After all they acquired Vivo and by extension their associated sales. Same for the reduction in OPEX. If you can't find synergies in an acquired business - you're not doing the job right.
There is understandable frustration in discerning the segments of business – Canada vs Germany vs Australia vs Brazil. From the transcript we do know that international sales are 30% of total sales, which makes Canada worth 70%. After that I haven’t had the patience to work out the portions for Australia and Germany, while Brazil is a work in progress. I’m sure with some relational digging the numbers could be worked out. I might just try e-mailing the company to see if they are willing to provide that detail rather than poking around in a muck of numbers.
All in all the general direction of the basic levers of business are moving in the right direction. Q1 results will probably come around May and those will tell us even more. At this price potential returns are quite lucrative, and a takeover is always possible.
Everything indicates that a bit of patience is all that is required for this one (as frustrating as that may be).