The Supreme Cannabis Company (SPRWF) has been fighting to gain sustainable traction for some time, and it appears it has put the pieces in place to make a run at the top of mid-tier cannabis companies.
It had a decent last quarter, but what really separated from its peers was its robust guidance, along with the announcement it should reach positive EBITDA in the not-too-distant future.
In this article we'll look at some of its numbers, guidance, and how it could more than double its share price.
Some of the pieces that should drive growth
Even though Supreme Cannabis made a few moves in the past to generate interest in the company, nothing was really impressing investors much.
For example, last quarter it announced its partnership with Wiz Khalifa and Khalifa Kush Enterprises Canada to offer branded, premium products in Canada and in the limited international presence it had. Then and now, I look at that as more of an add-on business until proven otherwise.
At the international level, it has a presence in the tiny nation of Lesotho, located within the borders of South Africa. It has a population of about 2 million. The company is working on producing cannabis oil products for the medical market that it can deliver to other nations via its Medigrow brand.
It also has Supreme Heights2, an investment platform which focuses on brands in the early stage of development that target the EU and UK CBD markets.
These are interesting, but they don't do much to push the needle in the near term.
One of the more exciting segments of Supreme's business is its 7ACRES brand, which has been transitioning from a wholesale business to a consumer brand. That is expected to be completed by the third fiscal quarter of 2020.
Up until May 2019, the facility had 180,000 square feet that was operational. It received approval from Health Canada to add another 50,000 square feet to the facility, bringing the total to 230,000 square feet. That is expected to generate approximately 33,580 kilograms of dried cannabis annually. The company plans on increasing the facility to more than 440,000 square feet, which would bring the annual production rate to 50,000 kilograms of dried cannabis. Some of the square footage will be allocated to office and grow space.
Two recent acquisitions are going to help separate Supreme Cannabis from the rest of the mid-tier cannabis companies. It recently closed its acquisition of Truverra and Blissco.
Truverra is an extraction and purification business that also has a CBD hemp business in Europe. Blissco, which is focused on the international CBD markets, should be able to produce tincture bottles at an annual run-rate of 7,000,000 by December 2019.
The combination of its old and new businesses should be a strong catalyst for growth over the next couple of years.
Supreme recently announced some of its expected revenue, earnings and guidance for its upcoming September 17, 2019, earnings report.
For the fourth quarter the company is looking for revenue of about $19 million, an increase of 90 percent sequentially. That's roughly 45 percent higher than current consensus estimates of $13 million. For fiscal 2019, it should come close to $40 million in revenue.
Also important, it's guiding for positive EBITDA for the reporting period, the first time it will have achieved that, and also for all of 2020.
Fully guidance for 2020 is for revenue to jump to a range of $150 and $180 million, significantly above the consensus of $130 million.
With 7ACRES scaling and the addition of Truverra and Blissco, it has some strong tailwinds that will boost its pace of growth.
I haven't thought much of Supreme Cannabis in the past, primarily because of its lack of meaningful catalysts that would allow it to be competitive in the cannabis market.
Now with 7ACRES scaling and its newest acquisitions poised to boost revenue and shrink margins, the company is ready to be a legitimate player among the mid-tier competitors, and if it continues to improve, could possibly push its way into the lower tier of the major players in the industry.
Either way, Supreme Cannabis has an excellent chance to grow its share price, and shareholders should be rewarded nicely over the next year or so, as the company stands today.
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Disclosure: No position.