RE:RE:RE:RE:MomoWell said Life. I think there's potential in this deal for both sides to benefit. The knee jerk reaction on Friday had to do with the immediate dilution and outdoor harvest results which I'm hoping we get more clarity on in the coming days. We know they are towards the end of the drying and curing process for the outdoor grow and hopefully can expect a press release with more details in the future.
The company now has a solid cash position (similar to Supreme's) so they can focus on exanding their revenues through difference channels. As mentioned previously, if they can hit their 2020 target of 20,000 patients, that's 30M in annual recurring revenues. For a small cap valued at under $200M still (with the dilution), this is a substantial revenue stream.
Q3 was expected to be subpar as they incurred the majority of their harvest costs without the ability to recognize any revenue for the quarter. This impacted their gross margin negatively for Q3 dropping them down to 29%. If you dig into their MD&A, you can see their all-in cost of growing is continuing to go down as they utilize economies of scale from $1.84 to $1.42. This will bode well for their COGS going forward which I don't think the general market realizes.
Going forward, the company will have no issues getting product to market and I think we will begin to see the QoQ increases of revenue and margin that we expect from these guys.
Lifexprt wrote:
Thanks for this Momo. I really enjoyed your company here over the last several months or so. I am not sure how this will end up, are you making the correct decision by selling or am I by holding. I managed to gid deeper into this over the weekend, harvest, deal, starseed, future etc. I am deciding on staying put and giving them a chance.
Friday.
Can't blame them for being completelyunprepared for the CC, details of the deal were leaked that morning and as far as I kno wthey were not to be released yet, compleetely of guard.
Harvest.
Overall successful, I understand they aimed for 20,000 kgs and as I am aware they got close to that in total mass. Problem being economics have drastically changed over the last few months and what was considered usable biomass a few months ago is no longer viable for extraction due to insufficient cannabioid content. They decided to set the bar higher (10%+) and still managed to collect ovr 8 tons of premium bud and biomass for extracts (finished product) no branches, stems, other unusable parts. When i say premium I mean it, potency is on par and above indoor.
Results.
We were all expecting a mediocre quarter no surprises there. Lower revenues, lower margins.
But we also got lower cultivation costs as lower COGS, lower S&GA expenses, even though by weight we did manage to sell more product. Why so much wholesale? There are pckaging bottlenecks that have not been fully resolved yet. Lets not forget we are booking the cost of outdoor as well as 10 new rooms in this qusrter with zero revenues attributed. This will pay off in Q4 and Q1 numbers.
Starseed.
There are several angles here.
Liuna is the main one, $25 million inbestment at $1.08 in today's market is a huge deal.
We are giving 71 million shares for starseed, what are we getting in return?
1. $17 million in cash (starseed balance sheet)
2. Facility (processing/packaging) this will allevaite our pckaging issues (facility also has a pre rools production line)
3. 6,500 of medical patients (union mmembers) with further access to another 57,000 (need to qualify first)
4. Each member is entitled to $1,500 - $2.000 for cannabis coverage through starseed (CAPTIVE) i need to capitalize this as they can only purchase through starseed.
5. Patient growth is off the charts here with 100% Q over Q. I beleive they are forecasting 20,000 members by end of 2020.
6. If we add 17 in cash and 13 for the facility (initial 7 plus various improvements) we get roughly $50 million for remainder of starseed, if they edn up getting anywhere close to 20,000 members by end of 2020 we are only paying 1.5 - 2.0 of reveues.
7. Liuna owns majoruty of starseed and they will make sure this new ventire suceeds.
8. Starseed is working on various other captive agreements with unions across the country.
9. Margins are higher than elsewhere, average achieved price per gram is over $8.
10. The biggest benefit of all this is that we no longer have the risk of illiquidiy hanging over us for the next 1-2 years at which point there should be enough revenue from starseed ans retail to carry us through.
To be honest i was deer in the headlights on Friday, but the more I dwell into this the more i think this is a correct strategic decision.
I wish you the best but do take another look as underneath it may end up being a win for all parties invilved.