Last month, we published an article on 1933 Industries Inc. (TGIF.CN) (TGIFF) and wanted to provide an update on the opportunity after it reported an important milestone. The company has attractive leverage to the cannabis market in Las Vegas and is executing on a strategy to penetrate the California market.
The last few months have been busy for the US cannabis company and we are favorable on how the story has advanced during this time. We believe that 1933 Industries is in the early innings of a major growth cycle and believe that the market does not fully appreciate the amount of value that can be generated by the business.
Although the coronavirus outbreak has put additional pressure on the cannabis industry, consumer demand has been considerably higher than normal and we expect this to be a tailwind for the business. 1933 Industries is well positioned to capitalize on the US cannabis market and is an opportunity that we are bullish on.
Executing on a Continuous Harvest Strategy
Last week, 1933 Industries reported an important milestone from a production standpoint and announced that it has commenced its second harvest of cannabis plants from its cultivation facility in Las Vegas. The reason why this is significant is because it marks the beginning of continuous harvests for 1933 Industries in Nevada .
During the last few months, 1933 Industries has been working to optimize the facility as it moves into full production while enhancing the genetics program to develop strains and cultivars that are meet the needs of consumers. The company plans to use the cannabis from the second harvest for the production of Alternative Medicine Association (AMA) branded concentrates and for Blonde and Denver Dab Co. We are favorable on the amount of value that can be generated from the transition to a continuous harvest model and expect it to have a positive impact on margins.
1933 Industries expects to start selling that products that are created with the input product from the most recent harvest by the end of April. The transition to a continuous harvest model will result in fewer purchases of biomass from third-parties and we are favorable on this aspect of the story. By not having to rely on third-parties, the company should record lower costs that are associated with the production process. We expect this to play an important role in the advancement of the business and will monitor how the management team continues to execute.
A Growth Story that is Focused on the Entire Value Chain
One of the reasons we are favorable on 1933 Industries is due to its focus on the entire cannabis value chain. The vertically integrated cannabis producer has been highly focused on improving margins, ramping revenues, and entering new markets. Over the next year, we expect the US cannabis company to record strong growth and better margins.
During the last two quarters, the US cannabis company has been under considerable pressure and we think the decline is overdone. At current levels, the company has a compelling valuation and a favorable risk-reward profile. We believe that 1933 Industries represents a multi-faceted growth opportunity and are favorable on the brands that fall under its portfolio.
From a cost control standpoint, 1933 Industries has been nothing short of an execution story and has been working to conserve cash for high-growth initiatives. The company has significant potential catalysts for growth and is an opportunity that we are excited about. Later this year, 1933 Industries is expected to start capitalizing on the California cannabis market and we believe that the market has not assigned much value to this aspect of the story.
1933 Industries is led by a management team that has a proven track record of success and this is one of the most important aspects of the story. The management team has proven its ability to execute on a high-level and we believe that the market does not fully appreciate this aspect of the story. 1933 Industries is an opportunity that is flying under the radar and one that our readers should be aware of.
Reports Second Quarter Financial Results
Last week, 1933 Industries reported second quarter financial results and announced a decline in revenues when compared to the prior quarter. The reason for the decrease is related to the transition into a larger cultivation facility in Las Vegas and a slower than expected recovery of vape and distillate sales. We expect the decrease to be transitory and are bullish on the growth prospects that are associated with the larger facility.
1933 Industries ended the quarter with more than $9 million of cash and is well positioned to execute on previously announced initiatives. During the quarter, the company announced a management agreement with California-based Green Spectrum Trading to support its portfolio of consumer packaged goods and licensing partners. This represents a major growth opportunity for the business and we are favorable on its leverage to the California market.
During the quarter, 1933 Industries announced several significant developments on the brand side of the business and continued to increase the number premium brands partners that it has in Nevada. Going forward, we expect to see additional premium brands sign agreements with 1933 Industries and are bullish on this aspect of the story.
Over the next year, we expect 1933 Industries to benefit from the transition to a larger production facility in Nevada. The move will allow the company to purchase less biomass from third parties and this move is expected to significantly improve profit margins. We believe that 1933 Industries is well positioned to record strong growth in the back half of 2020 and is an opportunity to be aware of.
An Undervalued Opportunity
The last two quarters have been difficult for 1933 Industries and we believe that the market has overly punished the stock. At current levels, we believe that it has a favorable risk-reward profile and a compelling valuation. We believe that 1933 Industries has visible catalysts for growth and is an opportunity that is flying under the radar.
1933 Industries is focused on some of the most attractive markets in the US and we are bullish on this. The company is also targeting some of the fastest growing verticals within the cannabis industry and we find this to be significant when it comes to the long-term opportunity.
The US cannabis company is led by a management team that has a proven track record of success and we are favorable on the direction that they are bringing the business. If you are interested in learning more about 1933 Industries, please send an email to firstname.lastname@example.org to be added to our distribution list.
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