TLDR: I like $FIRE
So over the past few months, we’ve seen a large rise in the stocks for most cannabis companies. It kinda seems like the cannabis 2.0 boom is upon us with all the chatter of decriminalization/legalization in the US. This is all exciting stuff - especially to me as a bag holder on some larger-cap companies that I originally invested in 2017.
I created a watchlist of cannabis companies, hoping for the day we’d see this rise again.
On that list was The Supreme Cannabis Company or $FIRE on the TSX. This has been an extremely volatile stock over the years and they’ve had some extreme troubles. I originally began watching them because there was big hype initially in the Cannabis 1.0 craze. But like many pot stocks…it fell…and fell hard.
There was mismanagement involved. There was biting off more than they can chew. There were inventory issues. Pretty much the issues we have become accustomed to in the cannabis industry.
But then something changed with Supreme. Q1 in 2021 we saw PROFIT in a quarter for the first time from a company that seemed to be dead. But they’ve since risen from the ashes and seem to be gaining momentum.
In the last 5 trading days they have gained 68% and don’t seem to be slowing down. I have a hunch this gain is in prep for their Q2 2021 earnings that come out on Thursday, Feb 11th 2021.
I’m now on the Supreme long train and here’s my actual DD to why:
So what changed with Supreme?
The biggest change with Supreme came in 2020 with a complete overhaul of their management team. The biggest change coming right at the helm of the ship with Been Goldberg. Since her taking over the company in April of 2020, we’ve seen massive changes to the core business of Supreme and that’s reflected in their financials.
About Beena Goldberg:
Beena Goldenberg is a proven business leader with over 30 years of experience in CPG and a background in marketing and manufacturing. She joined Supreme Cannabis from Hain-Celestial Canada, a wholly-owned subsidiary of The Hain Celestial Group (NASDAQ: HAIN). Ms. Goldenberg led Hain-Celestial Canada since 2005, including as Chief Executive Officer since 2016, where she strategically grew the company through innovation, increased distribution and acquisitions, which resulted in sales growth from $40 million in 2005 to approximately $300 million last year.
She knows what she’s doing.
Source:
https://www.supreme.ca/about-supreme-cannabis/beena-goldenberg
The outgoing CEO Navdeep Dhaliwa was not well-liked by the company and its shareholders and was seemingly forced out of the company in Jan of 2020. (https://thedeepdive.ca/dhaliwal-departs-supreme-cannabis-moore-named-as-interim-ceo/). He made a lot of bad calls early on in the history of Supreme that has kneecapped the company since.
In early 2020 interim CEO became Colin Moore - the former president of Starbucks Canada. He saw the transition into Ms.Goldberg and has stayed on as the Board as a Director. He's a smart cookie too and knows a bit about branding.
We have forward-looking leadership now at this company and its dark days are over.
Why do I think the dark days are over? Bull point #1: Improving financials drastically.
I'm bullish long on $FIRE. It may be getting pumped right now, but for an ACTUAL REASON. It's grossly undervalued, especially when factoring hype in.
Let’s get into their growth over the time since Ms. Goldberg has taken over the company.
https://preview.redd.it/j83falcohjf61.png?width=1312&format=png&auto=webp&s=9629b3505103d4de413b4a9fa3e8a9497b378010
Q4 2020: https://20svzg1dnkkl1csghiov9dk5-wpengine.netdna-ssl.com/wp-content/uploads/2020/09/Consolidated-Financial-Statements-June-30-2020.pdf
https://preview.redd.it/rvkujnkohjf61.png?width=1198&format=png&auto=webp&s=f31a21f6919ae0998333ce2490cb5273b38123ce
So they went from a net loss of 72.328mil to 33,252 in their first quarter with the new CEO.
Now let's take a look at Q1 2021 ending Sept 30, 2020:
Q1 2021: https://20svzg1dnkkl1csghiov9dk5-wpengine.netdna-ssl.com/wp-content/uploads/2020/11/Supreme-FS-Sep-30-2020.pdf
29.768 million Net Income. We went from a -73.396mil loss to -33.252 loss to 29.768 mil net positive. In half a year. If this isn't impressive, not sure what is. That's six months with new CEO.
EDIT: this has been pointed out that the positive income statement is due to debenture restructuring. Therefore, they aren’t necessarily a profitable company day to day, but rather have loosened up some debentures in order for the opportunity to operate cash positive and not be weighed down by debt.
The Q2 earnings come out next week and I'm really looking forward to what this company has to show for their Q2. If we see net positive again, this company is going to fly.
Ms. Goldberg states this in the 2020 annual report:
While I acknowledge the frustration and disappointment some shareholders are feeling, the progress we continue to make – though not yet reflected in our share price – is genuine. I am confident that Supreme is built to last, and the positive changes we made will manifest themselves in robust results and ensuing shareholder value.
Their Assets: Bull Point #2
My next bull case comes in their assets category.
So as of close on Feb 4th, 2020 their Market Cap is 185.34mil.
Let's take a look at their market cap vs. the assets they currently have.
https://preview.redd.it/bsspewrshjf61.png?width=1357&format=png&auto=webp&s=a7b7062209034c285bc4155bc1e1dfeea4d57cbd
https://20svzg1dnkkl1csghiov9dk5-wpengine.netdna-ssl.com/wp-content/uploads/2020/09/Consolidated-Financial-Statements-June-30-2020.pdf
So with a market cap at 185mil, they have total assets of 283mil. Undervalued.
We also see a massive improvement of liabilities. Almost HALF of the year prior. You can chalk this up to streamlined production and shaking the dead weight off.
Bull Point #3: Market Share
To quote this post on https://stockhouse.com/companies/bullboard/t.fire/the-supreme-cannabis-company-inc?postid=32455178
I know this is a crude comparison not taking into consideration asset values, cash, and debt, and also not including margins and efficiencies but thought I'd piont this out:
APHA market share: 12.2%
FIRE market share: 3% which is 24.6% of APHA's market share
APHA market cap: $5.97B
FIRE market cap: $0.095B which is 1.6% of APHA's cap.
if FIRE were worth 24.6% of APHA's cap, it would be $1.46B which is $2.32 per share.
So are pot stocks hyped? Yep. That's par for the course. But let's start comparing companies apples to apples for a sec. If we are going off the 3% market share estimation...the fair value if we compare it to larger companies in the same sector should be around the $2 per share mark.
We also have a strong short position here. I'm not comparing this to GME at all - it's not - but it's the same situation in that a company with assets is market valued under their asset price.
Here's a post on r/Baystreetbets that caught my eye:
https://www.reddit.com/r/Baystreetbets/comments/lbho3m/fire_supreme_cannabis_company_is_one_of_the/?sort=new
This post was confirmed: https://shortdata.ca/stock/FIRE.TO/
There's a current 22% short position on the stock. It has the potential to be squeezed with the next earnings. This was updated Jan 31st, so it seems the shorts have doubled down before the recent rise this week. Hmm.
A graphic on that post says 3% market share of the Canadian Cannabis industry for Supreme.
I can't verify this graphic but can verify a few numbers:
The overall market was 3.16B in Canada for 2020. (https://www.bnnbloomberg.ca/sales-in-canada-s-pot-sector-forecast-to-hit-3-16b-in-2020-amid-slower-growth-canaccord-1.1340822)
And Supremes revenue for 2020 was 44.622 Mil - so roughly a 1.5% market share in Canada for 2020. So can't really verify that graphic. But we also know by Q1 2021 that these numbers are increasing and market share is rising.
Bull Point #4: Their High-Quality product
This one is a key in my book. Right now, the Cannabis sector is a swim or sink industry with branding and quality product starting to take over. We have started to weed out the diluted market a bit and the structure of the industry is starting to come out. Bad quality pot stores are closing down, and the rise of high-quality retail is starting to boom. You can see this reflected in the streets of Canada. In Vancouver alone, I've seen high-quality pot stores opening up that market themselves to affluent, wealthy clientel. I'm seeing more and more boomers and health forward-thinking Millennials dip their toes into cannabis. And they want that high quality "Apple store" experience to go along with it.
So let's get into Supreme's products - and they are quite diversified.
Their physical cannabis 7ACRES:
https://www.supreme.ca/brand-portfolio/7acres
The bull point here is their partnership with PAX (a preferred Vape pen by smokers)
7ACRES has partnered with Pax Labs, Inc. to become a brand partner and supplier for the PAX Era in Canada, pending the federal legalization of the vaporizable products.
PAX is a leader in this sector (just look at how great their product and packaging is) and the partnership is exciting and has a HUGE potential once this is a thing. See: JUUL.
BLISSCO:
https://www.supreme.ca/brand-portfolio/blissco
Tinctures and diversified product offerings.
HIWAY:
https://hiwaycannabis.com/
This is the "high quality" play I was speaking to earlier. Their branding and packaging lead the industry. Plus it's fun.
TRUVERRA:
https://www.supreme.ca/brand-portfolio/truverra
Their medicinal side of the business.
As you can see this is all pretty great in terms of branding and product. Again - branding is key in this industry right now and I'm bullish with how this is all looking.
Aside from their physical products, their internet presence is really great. This may not matter to some investors, but it does to consumers. Especially new consumers looking to get into cannabis for the first time.
They have a tight website:
https://www.supreme.ca/
And a tight Instagram and social presence.
All this to say, I like the stock. I'm not a financial advisor and this isn't financial advice. Just my DD into a Pot Company I think is great. I'm not really that experienced with these types of posts, so please, if I've made any mistakes in this, please point it out.