CLS Holdings Is Proving That Their Business Strategy In The Nevada Market Is Built To Last

Last week, CLS Holdings USA, Inc. (OTCQB: CLSH) (CSE: CLSH) released financial results from June that showed impressive growth and improvements in several important areas. We believe the US cannabis operator is flying under the radar and will continue to monitor how it executes on a planned expansion.

At current levels, we believe that CLS has a compelling valuation when analyzed by several profitability metrics. Based on the June numbers, we believe the diversified cannabis company is trading to a steep discount when compared to its peers and have issued an update on the business.

A Diversified Opportunity that is Capturing Additional Market Share

CLS is a diversified cannabis company that operates as Cannabis Life Science. The company operates as an integrated cannabis producer and retailer through its City Trees and Oasis Cannabis subsidiaries in Nevada.

In 2015, Oasis Cannabis opened its first cannabis dispensary in Las Vegas and has been recognized as one of the top retailers in Nevada. The location is strategically located near the Las Vegas Strip and offers customers access to its delivery service.

In 2017, City Trees was founded and is a Nevada-based cannabis cultivation, production, and distribution company. During that year, CLS started to sell City Trees branded wholesale cannabis products (cannabis concentrates and infused products) in Nevada and we are bullish on the growth prospects that are associated with the brand.

Reports Strong Growth in June

In June, CLS reported to have generated $1.8 million of revenue and a 56.2% gross margin. During the month, the company’s City Trees brand announced an endorsement agreement with UFC welterweight fighter, Sasha Palatnikov. We are favorable on how the business has grown and believe that our readers should be aware of CLS.

When compared to June of 2020, CLS record more than 60% of revenue growth while gross margins improved by 4.6%. We find these improvements to be significant and are favorable on how the management team has ramped revenues while making the business more profitable.

One of the reasons we are favorable on the results is due to the performance of two key business units. CLS is comprised of a retail subsidiary that operates under the Oasis Cannabis banner as well as a wholesale division that operates under the City Trees banner.

In June, Oasis Cannabis reported an almost 50% increase in revenue on a year-over-year basis, while City Trees recorded a 110% increase in revenue on a year-over-year basis. Gross margins for the two business units in June were 49.2% and 72.7%, respectively. When compared to the same period last year, combined revenue for the divisions increased by 63.1% on a year-over-year basis.

When compared to the prior month, City Trees recorded a more than 10% increase in gross margin in June and we find this to be substantial. Going forward, the business is well positioned to record strong growth and will monitor how the story evolves from here. The increase when related to higher third-party sales of tetrahydrocannabinol (THC) distillate oil as well as bulk amount branded City Trees products.

Traffic and Transactions are Two Key Metrics That Are Improving

On the retail side of the industry, CLS recorded a 36.8% increase in the number of transactions as well as an 8.8% increase in average size of each transaction. One of the key metrics that was reported by the company is related to the mix of customers that visited a CLS retail outlet. When compared to June of 2020, the company recorded a 10% increase in the number of tourists that were visiting the dispensary and we find this trend to be significant.

Although most customers are locals, we believe the growing number of tourist traffic is an important metric. During June, approx. 80% of customers were locals and we expect the percentage of customers that are tourists to rise as Las Vegas continues to benefit from the re-opening theme across the US.

Last month, the City Trees brand announced its endorsement of UFC welterweight fighter, Sasha Palatnikov. Earlier this month, the Nevada State Athletic Commission decided not to enforce restrictions on cannabis use by fighters and the development has bolster the endorsement.

We are favorable on CLS’s City Trees brand and expect the division to continue to report strong growth. Market interest for the City Trees brand and CLS’ toll-processing capabilities at its extraction and conversion facility has been steadily increasing and we are bullish on this aspect of the business. The company operates out of its state-of-the-art extraction and conversion facility in North Las Vegas and the management team is executing on a short and long-term growth strategy.

An Opportunity that is Flying Under the Radar

During the last year, CLS reported significant improvements on a variety of important growth and profitability metrics. So far this year, a few broker-dealers have raised their respective price target on CLS and we believe the story is starting to gain traction.

Over the next year, we expect the management team to provide updates on a planned expansion and this should prove to be a significant catalyst for growth. We are impressed with how the story has advanced so far this year and believe the market is discounting the amount of value that can be generated via the planned expansion.

We believe CLS is led by a management team that has a proven track record of execution and is focused on entering strategic markets. Going forward, we will monitor how the business continues to advance and believe that our readers need to be aware of the opportunity.

We are of the opinion that CLS has substantial potential catalysts for growth. From capturing additional market share in Las Vegas to expanding into New Mexico, CLS seems to be is in the early innings of a multi-faceted expansion and are favorable on the partnerships that have been formed to support the growth of the business.

When compared to other US cannabis operators, we believe that CLS is trading at a considerable discount and find this to be an important aspect of the story. If you are interested in learning more about CLS Holdings, please send an email to support@technical420.com with the subject “CLS Holdings” to be added to our distribution list.

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Pursuant to an agreement between StoneBridge Partners LLC and CLS Holdings (CLSH) we have been hired for a period of 90 days beginning July 7, 2021 and ending October 7, 2021 to publicly disseminate information about (CLSH) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (CLSH) for or were paid “0” shares of restricted common shares. We own zero shares of (CLSH), which we purchased in the open market. We plan to sell the “ZERO” shares of (CLSH) 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 (CLSH) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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