As we head into 2020, we look for companies with substantial growth prospects and an attractive risk-reward profile.
The US cannabis market is in the middle of a major transition where more than half of the states have legalized some form of cannabis. In the US, the domestic cannabis legalization train has left the station and we have been focused on this burgeoning market opportunity for the past 5 years. In 2020, we expect to see existing medical and recreational cannabis markets to record strong growth. We also expect to see new markets come on-line and are bullish on the growth prospects associated with the US cannabis market.
Last month, we highlighted 1933 Industries (TGIF.CN) (TGIFF) as an underappreciated US cannabis company after we found the company’s products for sale in dispensaries across Colorado. When looking at the states 1933 Industries is levered to, there is a lot to be excited about and we expect to see the business should benefit from the legalization trend that is sweeping across the country.
During the last year, 1933 Industries has been nothing short of an execution story. The company is in the middle of transitioning into a much larger cultivation facility in Las Vegas. The company has also been laser focused on expanding into the California market and expect the market to be a major value driver for the business.
Fourth Quarter Financials Show Strong Growth
Last week, 1933 Industries reported fourth quarter financial results that showed impressive growth, and this is an opportunity that seems to be under-appreciated by the street. During the quarter, the company was able to significantly advance a number of important growth initiatives and we are bullish on this in terms of enhancing the overall fundamental story.
When we analyze 1933 Industries, we see an opportunity that has several substantial revenue streams, significant potential catalysts for growth, and represents a multi-faceted growth story with leverage to some of the most exciting verticals within the cannabis industry. Going forward, we expect to see the business benefit from the increasing number of revenue streams that are going to the business and will monitor how the management team is able to drive the story forward.
From a capital standpoint, 1933 Industries is well positioned and has a substantial amount of resources to further grow the business. In 2020, we are very excited about the company’s leverage to the California cannabis market and expect this to prove to be a major revenue generator for the operation. Going forward, we are also bullish on the leverage that 1933 Industries has to the cannabidiol market through Infused MFG., and on the THC side of the business through Alternative Medicine Association (AMA).
Infused is a wholly owned subsidiary of 1933 Industries and is selling CBD products in 46 states across the US. We are bullish on this aspect of the business and are favorable on how the product line has been gaining traction. We expect Infused to play an important role in the way the company is able to expand into new markets and will monitor how the business is able to continue to penetrate new markets and capture market share.
AMA provides 1933 Industries with attractive leverage to the THC side of the cannabis industry. When looking at the growth prospects associated with the company, there is a lot to be excited about with AMA. In Nevada, the company has begun its move into a facility that is significantly larger than the previous one and expect the operation to be generating massive revenues in the back half of 2020. In the near term, we expect to see the California market have a major impact on the AMA side of the business and will monitor how the operations continue to advance.
California Represents a Major Market for Growth
California is the world’s largest cannabis market, and this is an opportunity that 1933 Industries has been laser focused on. In 2020, we expect to see the California market come on-line and start to generate significant revenues. We expect this market to be a major catalyst for growth and believe that this aspect of the story is flying under the radar.
A few months ago, 1933 Industries announced a management services agreement with Green Spectrum Trading, a California licensed cannabis cultivator, manufacturer and distributor, that holds a pending home delivery business license. We believe that Green Spectrum represents a strategic partner and are favorable on the relationship between the businesses. According to Statista, the California cannabis industry is projected to generate more than $6.59 billion in sales by 2025 and we are excited about the leverage that 1933 will have to this market.
From a geographic standpoint, the expansion into California makes a lot of sense. By focusing on the most attractive cannabis markets on the west coast of the US, the company is not spreading itself too thin from a human capital standpoint and we find this to be significant. From an execution standpoint, we believe that it will be easier for the company to manage these markets and expect California to be a major revenue driver in 2020 and beyond.
We believe that the relationship between 1933 Industries and Green Spectrum is attractive due to the expertise that each company brings to the partnership. We are of the opinion that the market does not associate much value from this relationship to the company’s 2020 expected numbers and believe that the market is missing out on something substantial. In the near future, 1933 Industries expects its California based manufacturing facility to become operational and for this to be a catalyst for the entire business. Following this, the company also expects to bring on additional cultivation capacity for its premium AMA flower brand, and we are bullish this aspect of the story.
Attractive Risk-Reward and Growth Profile
During the last few months, 1933 Industries has been under pressure and has traded lower with the rest of the cannabis sector. At current levels, we find the opportunity to be attractive based on the existing and future growth prospects, the balance sheet, the assets in place, and the valuation.
At current levels, 1933 Industries has a market cap that is below the $60 million level and we believe that the operation is trading at a substantial discount to its peers. As of September 30th, the company reported to have almost $18 million of cash on hand and $22.5 million of working capital. When compared to the same period last year, 1933 Industries has been able to significantly improve the strength of its balance sheet and we expect to see the capital used in ways to grow the business.
During the last year, 1933 Industries has been nothing short of an execution story and we believe that the company has attractive catalysts for growth. From a visibility standpoint, we are of the opinion that 2020 will be a break out year for 1933 Industries and expect to see revenue ramp up throughout the year.
To learn more about 1933 Industries, please reach out to email@example.com to be added to our distribution list.
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