During the last few months, several leading US cannabis companies have reported quarterly financial results that show impressive growth and this is a trend that is expected to continue for the foreseeable future.
When we look at the size of the US cannabis market, we see an industry that is still in its infancy and are bullish on the growth prospects associated with this burgeoning opportunity. One of the most important factors to look at when trying to analyze a specific state markets is related to the type of cannabis products that are sold (medical or recreational).
Following the legalization of recreational cannabis in Colorado, the size of the state’s recreational market quickly dwarfed that of it’s medical market. Over the last few years, we have seen a similar trend in several states that have legalized recreational cannabis. We are bullish on the growth prospects associated with these markets for two primary reasons: 1) The margins associated with the sale of recreational cannabis products are more attractive, and 2) The total addressable market is considerably larger on the recreational side.
Over the next few years, we expect to see a significant increase in the number of US states with a legal recreational cannabis market. This change should be a catalyst for the companies that are levered to these markets and for that reason we have been focused on identifying businesses that would benefit from this transition. Today, we have highlighted three US cannabis companies that recently reported strong revenue growth and that are well positioned to benefit from an increase in the number of states with a recreational market.
Vapen MJ Ventures: A US Cannabis Concentrate Leader
Last month, Vapen MJ Ventures Corporation (CSE: VAPN) (OTCQX: VAPNF) released strong quarterly financial results and we continue to closely monitor the cannabis concentrate company. During the quarter, the company reported a $1.2 million profit on $6.7 million of revenue. When compared to the same period last year, Vapen recorded a 43% increase in revenue and we are bullish on the growth prospects associated with this opportunity.
So far this year, Vapen has been been nothing short of an execution story and has expanded into additional markets across the US. The move into new markets represents a major potential catalyst for the cannabis concentrate company.
At this time, the cannabis industry seems primarily comprised of companies that continue to record huge losses and cannot seem to generate a profit. When analyzing a cannabis business, the market tends to focus on the amount of revenue that is being generated while the vast majority of cannabis businesses are not even close to acheiving profitable. We are impressed with Vapen’s ability to generate a profit and find this to be an important aspect of the story.
One of the reasons we are excited about Vapen is due to its strength of the balance sheet. The company is well positioned to take advantage of strategic growth opportunities as it reported more than $5 million of cash on hand as of June 30th. Although compared to leading Canadian companies, this amount of cash might not be significant, it is more difficult for US cannabis companies to raise capital and under such conditions Vapen has enough capital to execute on its strategy. Over the next year, we expect to see the management team use its capital in ways that are accretive to the overall business and we are bullish on the growth prospects associated with this.
Going forward, Vapen is a company with significant potential catalysts for growth. With a leading position in Arizona’s medical cannabis market, the company will record incremental growth once recreational cannabis is legalized. Initially, Vapen was only focused on the Arizona opportunity (third largest medical cannabis market in the US) and has distribution in more than 100 dispensaries in the state. Although, the 2016 recreational cannabis ballot initiative in Arizona failed to pass, we expect to see a different outcome in 2020.
During the last few months, Vapen has expanded into several new markets and is focused on the CBD and THC opportunity. In the coming months, Vapen will be highly focused on closing and announcing additional domestic and foreign extraction partnerships, which should prove to be a major catalyst for the business. Based on the second quarter financial results and the recently reported developments, we believe that the company is in the early innings of a major growth cycle and this is an opportunity to be watching.
1933 Industries: A West Coast Growth Story in the Making
In early July, 1933 Industries (TGIF.CN) (TGIFF) reported impressive third quarter financial results and this is a trend that we expect will continue. The company has been laser focused on the Las Vegas cannabis market and recently announced plans to expand into California. The last few months have been significant for the US cannabis company and we are bullish on the growth prospects associated with this opportunity.
When looking at the 1933 Industries opportunity, one of the most exciting initiatives is related to the move into a state-of-the-art cultivation facility that is almost 10 times larger than the existing facility. The new facility is expected to produce 5 times more cannabis than the current facility and we are bullish on the amount of revenue that can be generated by this expansion.
When you combine the growth prospects associated with the new facility with the growth prospects associated with the California cannabis market, you have a business that is well positioned to record incremental revenue growth in late 2019/early 2020 and we find this to be significant.
California is the world’s largest cannabis market and we are favorable on the leverage to this opportunity. California and Nevada share a border and from a geographic standpoint, the move into the California cannabis market makes a lot of sense. Last month, 1933 Industries signed a two-year management services agreement with Green Spectrum Trading, a California cannabis business licensee (medical and recreational). Under the agreement, 1933 Industries will oversee the general management of the business, product manufacturing, distribution efforts, staffing, sales, marketing, accounting, and compliance.
According to Statista, the California cannabis industry is projected to generate more than $6.59 billion in sales by 2025 and we are bullish on the growth prospects associated with this opportunity. The new manufacturing facility is expected to be operational by the end of October and Green Spectrum is allowed to use, to produce, to manufacture, market and sell 1933 Industries licensed products within California (on a non-exclusive basis).
When it comes to the California market, Green Spectrum represents a strategic partner and we will monitor how the relationship continues to evolve. The agreement serves to establish a presence for 1933 Industries outside of Nevada and expands the footprint of its CBD and THC products. The entry into California represents a major development for the cannabis business and we expect this market to prove to be a major growth driver in 2020 and beyond.
Going forward, we expect 1933 Industries to report strong revenue growth on a quarter-over-quarter basis. The expansion in Nevada and the entry into California represents significant potential catalysts for growth and we believe that the market underappreciates this aspect of the story. With a market capitalization of approx. $100 million (CAD), 1933 Industries is trading at a significant discount to its peers and we find the risk-reward scenario attractive.
CV Sciences: A CBD Growth Story to be Watching
Following the passage of the 2018 Farm Bill, we have seen a significant increase in the amount of demand for CBD products in the US. CV Sciences, Inc. (CVSI) is a business that has been highly focused on the US CBD opportunity for several years and last month, the company reported second quarter financial results that showed strong growth.
During the quarter, the company generated $16.9 million of revenue (a 36% increase when compared to the same period last year) and reported a slight improvement from a gross margin standpoint. One of the primary drivers of the revenue growth is related to the increase in the number of stores that carry the company’s products and CV Sciences reported a 39% increase in the number of retail stores that carry the company’s products.
As of June 30th, CV Sciences reported that 4,591 stores were carrying the company’s products and we expect this number to significantly increase by year-end. A few weeks ago, the company announced a strategic relationship with The Vitamin Shoppe, Inc. (VSI), which will start to offer the CV Sciences products in more than 380 stores. Going forward, we will monitor how the improved distribution will benefit the business and this is a relationship to be excited about.
During the second quarter, CV Sciences announced plans to increase production capacity by 500% with the addition of a new 45,500 square foot facility. The company is also focused on increasing production capacity through domestic sourcing initiatives and we find this to be significant. Over the next year, CV Sciences should benefit from its focus on increasing production capacity and this is a CBD business that we will continue to monitor.
Pursuant to an agreement between StoneBridge Partners LLC and 1933 Industries we have been hired for a period of 180 days beginning July 15, 2019 and ending January 15, 2020 to publicly disseminate information about (TGIF) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month for a period of 6 months. We own zero shares of (TGIF), which we purchased in the open market. We plan to sell the “ZERO” shares of (TGIF) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (TGIF) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
Pursuant to an agreement between StoneBridge Partners LLC and Vapen MJ Ventures we have been hired for a period of 180 days beginning May 13, 2019 and ending November 13, 2019 to publicly disseminate information about (VAPN) including on the Website and other media including Facebook and Twitter. We are being paid $6,500 per month (VAPN) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero (0) shares of (VAPN), which we purchased in the open market. We plan to sell the “ZERO” shares of (VAPN) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (VAPN) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.