Q1-20 Results (New World)This is starting to look like a differing opportunity.
PRICE: Retail dropped from C$3.59 to C$2.80 from Q4-19. Wholesale is back in play to the tune of C$9.5M (nice surprise). BUT you can calculate they were getting C$1.29 for that wholesale product. On C$9.5M that delivered about $3M of GM (31%). That is a huge discount to their historical margins and in the conference call management was sketchy around mix of retail/wholesale into the future. Yes cost per gram is high at $0.88 this quarter but this price move raises concerns around PSF and VFF valuation.
1x ITEMS: PSF had a C$6.1M gain for the EMH settlement in Q1-20 (41% attributed back to EMH). Back this out of the PSF #’s and PSF results are terrible. In addition VFF had a separate US$4.681M gain for EMH settlement + their US$2.496M portion of the PSF EMH settlement noted above. If you back this out of the VFF #’s the VFF results are terrible.
MIX (retail vs wholesale): They did 10,365 kg’s and the mix was retail 30% and wholesale 70%. Without massive retail growth or market penetration it will be difficult to swing the retail mix over 50% this year. They already have over 14% of the market share. Even if you get to 50%, using the existing Q1-20 pricing the average price per gram will be around C$2.00 or just up slightly from the C$1.74 this quarter.
DELTA 2: It is hard to see how they are going to get to 75,000 kg’s delivered this year. That will mean that VFF is carrying this D2 facility idle for a full year without any revenue. This will be a drag on performance and has tied up major capital. The market is going to sniff this out as asset values tumble through the year with continued write-offs. Lots of assets are now sitting idle or on the market.
Valuation of PSF/VFF is going to be questions here.