A Path to ProfitabilityI'm reposting my profitability post because a) I think it should have its own thread and b) it was full of typos, which I believe I've fixed.
Since Greede speculated that EAT may be in profit by next quarter, I haven’t been able to stop thinking about it. Using my napkins and the Q3 numbers, I wanted to outline what gap NH would need to close trying to close revenue v. expenses. The net loss from the last quarter was $9.7 million. They took $2.2 million in inventory losses, which I hope they address immediately, and they took $3 million in one-time non-reoccurring losses.
Net Loss: $9.7
Inventory loss: $2.2
One time/non-reoccurring net loss: $3
(I will guess they will still have about a million in non-reoccurring expenses relating to inventory procedures: $2)
They last reported making $6.2 in revenue or $2.1/mo:
$9.7-$5.2 = $4.5 / 3 = $1.5/mo or 75% of current monthly revenue (assuming no non-reoccurring expenses)
$9.7-$4.2 = $5.5 / 3 = $1.8/mo or 90% of current monthly revenue (assuming 1 million in non-reoccurring expenses)
From last year NH has grown Calyx by
92% per quarter, based on the reported 368% year over year from the Q3, 2019 financials. I believe that kind of growth is easily repeatable, after they are distributing in Southern California but not with the current footprint (unless, I’m underestimating the growth in the California market - which I outline below). But, with any expansion we can also expect costs to increase at first and decrease as the learn-by-doing and get initial costs under control. So, this exercise is a bit dubious in its value (as I thought when the Q3 numbers were first released).
If were to just double the revenues and the costs for the new operation in Southern California, the new margin would be $1.1 million/mo higher, which would lead to a revenue v. expenses gap of $0.4 - $0.7 million/mo (which is trivial). It’s never that simple and the California market continues to grow massively. This article has the legal market up 23% from last year (
https://www.latimes.com/california/story/2019-08-14/californias-biggest-legal-marijuana-market). And, this article says that basic flower, is where the cannabis market continues to function illegally, whereas vape cartridges sales are increasing in the legal market:
https://mjbizdaily.com/california-cannabis-market-poised-for-growth/. And NH makes Fli branded vape cartridges among other edibles.
The last time we received a report on GT in Nevada it was making about $0.5 million in monthly profit, which would virtually close my mock-up of the revenue v. expenses gap. I’m not sure what GT looks like now. Its best selling brands were sold to Australis but it has an amazing cash position and it has the only dispensary in Douglas County. Also, because NH will be running them now, they’ll soon be doing distribution. And, I believe they will be layering their operations with Australis, which could be a powerful partnership.
While I doubt profitability is coming in the next quarter, I’m bullish AND for good reason.