Competitor for Outdoor Grow - Company ThoughtsI've never come across this Company - EASY on the CSE. 100 million shares out, trading at $0.48 for a market cap of $48M. Their first outdoor harvest is underway this fall. Seems to be a mixed strategy of outdoor and indoor grow - perhaps a year round production play rather than once a year. In any case, no revenue at present. Production and quality of physical product not proven.
EASY has 290 acres of land to grow on for 80,000kg of projected production - only 60 acres seems to have been developed at present. Captiva through Solargram has 285 acres outdoor for total projected production over time of 76,000kg. Very little difference in projected production between the two.
If I'm not mistaken, Captiva's market cap is around $38M at present (100+ million shares out, not too dissimilar to EASY). A few observations:
1) The cost structure of EASY should provide lower margins on any products it does produce - only a portion of their total grow will be outdoor, this is lower cost relative to indoor. Captiva is all outdoor and will have industry leading margins when it harvests and sells into the market (even better if product is refined into products such as cbd oils, etc.).
2) EASY is primarily an indoor grow company once they receive the amendment to their production license for their indoor facility to increase square footage from 10,000 to 63,000. Production from indoor facilities will dominate financial results. As we have learned in past, this is costly and simply does not provide the profitability of indoor growth. Overall, less attractive long term.
3) Look at the difference in the balance sheet - For a company without production, EASY is fairly leveraged at the moment. To note, several loans payable - one of roughly $2.5M that bears interest of 55% per year - this was extended on terms worse than junk debt. To me this indicates the significant uncertainty surrounding future cashflow stability to make repayment. With the upcoming harvest, maybe the company can pay this off, maybe not, in any case, its convertible at $1.00 per share. Point is, this company was unable to do what they have done without debt. To develop the additional low margin indoor capacity (6 times current capacity) they will undoubtedly have to take on more debt or find money via an equity raise. If debt, thin profit on indoor grow will suffer even further.
4) EASY has not proven that they can strategically achieve what they set out to do. They're cash burn on an annual basis will be in the $8M - $10M range. How about future debt to complete construction of the indoor facility? A lot more money going out the door - not seeing a huge upside on this in the absence of controlling cost on the grow (hard to do with primarily indoor operations).
5) EASY has strategic partnerships for CBD production, online sales distribution through a CBD product marketplace (unproven, not sure on the viability of this domestically or globally), and a processing/extraction facility presently being completed (fall 2020).
A few things to note about Captiva:
1) Balance sheet and costs: All of this work to date, including planting, licensing, facilities, etc. has been done without debt and huge cash burn of $8M - $10M a year. Management should be applauded for their ability to do this - certainly not easy and costs are minimal. The financial savvy to pull this off requires a top notch team. The company will have no issue with the prospect of being strangled by debt to grow operations.... Production should be enough to get them to where they need to go, perhaps with some future equity raise thrown into the mix.
The commitment to producing low cost high quality product will be a significant advantage for the Company and will allow it to outperform its competitors - I trust management on this front given their track record to date and successes achieved.
2) Organic plants, access to freshwater and proprietary technology for growing and extraction: I see the water source as a significant advantage (quality and cost wise), the proprietary technology is unique from what I can see and also will provide a long term advantage and hopefully a better quality product.
3) Strategic partnerships with the distribution channel: The company seems to have already worked on this and has relationships and ability to bring these into place. From my perspective, I see no issue with capturing full value for the cannabis product through processing and reaping the rewards of creating a higher value product from their cannabis yield.
4) Premium products: CBD oil, etc. The company has this covered as discussed. I believe that there was an angle with certain brands that they had the rights to as well that were well known in the marketplace. Another strategic advantage.
5) ESMERALDA & SAGE RANCH: Where is the value on these ventures??? This is a sweetener that the market has ignored and is not currently reflected whatsoever in the stock price. The upside on mushrooms in Mexico alone is ENORMOUS - if you don't believe it, have a look at recent news releases. The market is locked up, company has the only medical license to produce and has a somewhat guaranteed market, distribution and sales process..... Sage Ranch is not far off and will provide significant value to the company..
LASTLY:
1) Market Cap and Stock Price: Market Cap and Stock price of Captiva is a bit of a joke. $0.28 captures very little value of the company at present when comparing to a business like EASY - just to make a point. Captiva has immensely greater portfolio of projects and initiatives to provide shareholder growth. How Captiva could trade with a market cap of $38M while EASY is $50M is beyond me....
2) Market focus/transparency/investor relations: The only criticism I have of management is their inability to capture market value for investors through having a proper investor relations/corproate development function. You cannot tell me that any efforts have been effective while trading at $0.28 when compared to a company like EASY. You simply need to step up your game, pound the concrete, get out to the investment community and get them to believe as well. The story and results are there, the action in this regard is entirely missing. Your website is lacking and it is very infrequent that updates are produced. You hired an investor relations firm - not sure if they have done any work. If they have FIRE THEM, they are useless and are pissing away cash that would be better put into a fireplace. Find a good firm, come up with an investor relations strategy and EXECUTE.....
3) Short selling and continued selling: You have had your asses handed to you by short sellers. There are also parties out there with large blocks of shares selling them off to depress price - quite obvious looking at trading data. Who is this? Why do they have a hate on for the company? I hope that they take a hike - but if they have not burnt out their supply of stock, what do you intend to do to counter this? Strategically these twits need to get on board or get out....
4) How will you communicate that you will lead the outdoor growth market for Canabis... Likely falls under the investor relations strategy...
I have other thoughts on the Company at this point but I'll reserve them until we get more news on the current harvest that's underway.
Overall, congratulations to management for a job well done. I'm looking forward to seeing if you can capture the value of these successes and anticipated future ones for shareholders.