Adastra Labs Holdings Ltd. (
CSE.XTRX,
OTC: XTXXF,
Forum) is a leading manufacturer and supplier of innovative ethno-botanical and cannabis science products designed for the adult-use and medical markets and forward-looking therapeutic applications. This unique company is focused on cannabis extraction and associated analytical testing, with a mission to develop and deploy large-scale cannabis and hemp extraction technologies, and…provide turnkey processing solutions to help licensed standard and micro-cultivators maximize the value of every harvest.
When we last caught up with Adastra back in
October, CEO Michael Forbes updated our Stockhouse audience on its supply & purchase agreement with Sitka Weed Works, expansion of its Phyto Extractions product line distribution into the Yukon, and other important company news. Stockhouse Media’s Dave Jackson was once again joined by Mr. Forbes to get our investor audience up-to-date on all things Adastra.
(CLICK IMAGE TO PLAY VIDEO)
TRANSCRIPT BELOW:
SH: For those you may not have seen your last conversation with us, can you tell us a little bit about yourself and the history of the company?
MF: Sure. I've been CEO of Adastra now for about six months. I graduated from UBC with a degree in pharmacy and then I did the specialty in drug manufacturing followed by an honoring MBA. So I've been a serial entrepreneur my whole life. I run and operate many private businesses and also public companies. I have a lot of experience getting companies to cash flow, run them streamlined and lean and get to cash flow positive, which is super exciting about Adastra in Q3 because we are cash flow positive, there was a couple anomaly one-line items in our financials that we had to pay to move on from and so that's been done. So we are, we are cash flow positive in Q3 but I'm really excited about looking at Q4 cause a lot of the hard work that we've been doing over the last six months which has been up to this moment where we bring online pre-rolled infused flower now, Dave, I don't know if you're aware, but down in California in other markets, the fastest growing segments is actually infused pre-roll.
So we have friends down there and we were watching the markets. We're really pumped about automating the process as well. We're going to be keep playing into our strengths, which is excellent shatter and distillate extractions and we're going to be infusing that into automated pre-rolls and that should get us to or at least close to the 5 million a month mark that we embedded for. Meanwhile in the background, we have another few skews coming out that will be in addition to the phytoextraction line and it will serve another market that we think is very strong and we're going to be very aggressive with that. We're going to use our over 1500 retailers across the nation to it's kind of like a shoehorn, so they are already aware of our brands.
So they'll be very familiar to bring on more products from us and just to add to that in Ontario, we actually proved that model very well by bringing on shatter and we were able to add another five hundred that to our bottom line. In the Q3 financial zone I want to point out that each month in there, so August, September, October was sequentially record-breaking months each month. So really if you look at our year for Adastra, it's really been the last months that we've really rocking. So we're going to carry that in Q4 and investors are going to be really happy.
SH: Let’s pivot back to those strong Q3 2021 financial results. Can you unpack some of those numbers for our audience?
MF: Sure. We were record month in August, September, October and so each one we beat it by about 150 grand each month in sales. Our output from the factory was, I think our record was 61,000 carts and I think that was done in, I don't have my sheet in front of me but I think that was in September. So it's been very exciting. We've actually moved now to 24 hour shifts because of the volume. So I wish I had a little video to show you, but it's quite the impressive scene to see, 30-40 people all packing these carts and getting it all boxed up and ready to ship out. Our numbers for I'm going off the top of my head. We're doing about 2 million a month in sales and our net though is a lot higher. So we almost doubled our net from Q2 to Q3. Q2 was about 500K net and now in Q3, we 900K net. So it's going in the right direction for sure and like I said, we are cash flow positive. It's just without those anomalies in there which have been dealt with and we're moving forward with very slate and excited about making our investors happy,
SH: Michael, you also provided a product growth update in mid-October. Can you tell us some of the highlights here?
MF: So I've got a few things we've all been working hard on, so we are bringing more skews to market. So we're doing very well with our shatter pen. We're doing very well with our line. We're bringing on another line that will fill a hole in the market we feel and that's coming on in I would say two months and then we're bringing on the infused pre-rolls. So this is our mission for the next three to six months is to execute very well. Keeping our existing lines rocking. We want to add to it and be creative with our product offering or being very smart. We're not just throwing any old product at it. We're doing ones that we know will be very successful in the market and in the background, we're still working on medical sales, it's the pharmacies when they come online to be next year. That will be a big market. So we have all the isolates for CBD and CBN and CBG. So there'll be a whole plethora of new drugs coming online that we want to really leverage our capabilities to do and then also the psychedelics. So we would be a contract manufacturer for other psychedelic companies. So we're still working on the license in the background.
SH: The Company looks set for strong growth in 2022…looking to continue to set sales records. How are you placed to expand operations to meet this kind of demand?
MF: We have a very big facility, so it was built smart and it was built to house the growth. Also its efficiencies. So we're adding more machinery to deal with the increased demand and we're also adding 24-hour shifts and seven days a week shifts, so that that's starting in January. So it'll be running 24/7.
SH: Simply put, what separates Adastra from the competition and makes your business model so unique?
MF: Well, we're running very efficiently so we've tightened the purse strings a lot to have only the right expenses for the job and we're empowering staff to be their best and I believe that the strongest part of a company is the people. So we've been putting a lot of foundational work into systems and training, standard operating procedures and empowering staff to learn and to be more efficient at what they do. Meanwhile, we have a state-of-the-art facility, so we have the best equipment. We have a very good location we're right near all the shipping lines right in Langley and we own the building. We own all the equipment. We have a very tight share structure. So it's very internally held. So there's very little downward sales pressure. I don’t know if the market kind of slowed down but we've stayed flat and so once our marketing is in line and our US capabilities, we can market into the US, I really think that we're going to have a very good run here.
SH: I have to mention your stock has been on a bit of a roller coaster ride the past three months. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s a good buy right now?
MF: Well, I mean personally, I've been buying the stock. So, I'm putting my money where my mouth is and so at this level when you look at what our competitors are doing and where the market is, there are very few companies that can say they are cash flow positive and very low debt, like our debt is the building. The building's worth 7, 8, 9 million and we have a $3 million mortgage on it. All the machines are paid off. Everything else is paid. We have millions of dollars of inventory and our balance sheet is strong. We're triggering some warrant to cash up the piggy bank so we look even stronger. We've spent very little money on getting into the psychedelic realm. We have everything already there. We have Kenya, which is a fully built out laboratory that we've only spent I think, $4,000 on getting in of the whole dealer's license realm for psychedelics. We have all the capabilities to creatively add more products to our mix, and we have a very, very strong Salesforce that is nationally.
They're rocking and it's been proven to put, like when we bring out new skews, the retailers trust us to carry the product and it's been selling. So I think it's a buy, I know the shareholders, they aren't selling. This is a long-term plague. Our targets is $3 and over. So we want to have a triple from here on out and to get there, we just need to execute on the basics, which is getting to that 5 million a month, being smart with our new pre product additions, it's basic business. We don't have to do anything silly and go out there like a lot of companies will do to try and you know, spend too much getting into new markets that haven't been established. We're doing this where it's measured and it's calculated and it's going to work.
SH: What’s the long-term strategy for the company moving forward and what should retail, institutional and private equity players out for?
MF: Yeah, that's a good question, Dave. Like I have been getting more calls from institutional investors. I think the big thing though, is watching what the US is going to do. So right now it's get our OTC listing in the US and start positioning down there because there is going to be a big tailwind once the US comes online and at that point, I think that you're going to have more of an organic buy happen with Adastra. It's always been our play to not, pump up the stock. It's been more about prove it with cash flow and good business metrics and the investors will come.
SH: Can you tell our audience a little bit about your corporate management and board teams, along with the experience and innovative ideas they bring to the cannabis space?
MF: Yeah, so we have a number of very experienced board members. So they sit on other companies, they have experience in this, another gentleman IS a lawyer who owns actually some of his cannabis retail. So he has experienced with that and he's done a lot of M&A and other deals in cannabis. He's been in the market for, oh gosh, 5, 6, 7 years. Donald is a great chemist and COO, so he really knows the operations, the business he's my right-hand man and then we have a lot of legacy knowledge from the Phyto days. So Phyto is a very popular brand in the legacy market. I'm very experienced with a lot of the providers in the legacy market from Sitka and my retail stores.
So I can kind of see the market very well with what's selling in the retail stores and also at L D which is Sitka. So we're seeing a big shift from the kind Budweiser of weed, the 20 THC stuff that all the are growing to much more refined, like THC are becoming more important and think there's going be a big craft Bush going forward and the laws are coming in line with that as well. You're going to see that the governments are targeting preference to some of the craft players coming online to give them a spot. So, yeah, I do some good knowledge from all market to help us drive this ship and give the people what they want.
SH: And finally, Michael, if there’s anything I’ve overlooked, the floor is all yours.
MF: I think we’ve covered it, Dave!
For regular updates, visit
adastralabs.ca/home.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.