California is the world’s largest cannabis market, and this is an opportunity that we have been bullish on since we started to analyze and report on the cannabis industry. During the last year, we have seen a significant increase in the number of companies that are focused on this market.
Last month, shockwaves went throughout the cannabis industry after Select, a leading cannabis concentrate brand, was acquired for approx. $1 billion (CAD). During the last year, we have been talking about the importance of building a leading cannabis brand and when it comes to this opportunity the acquisition of Select is all the proof we need.
California will be the birthplace of several leading cannabis brands and this is an area that we have been closely monitoring. Plus Products (PLUS: CSE) (PLPRF: OTC) is a prime example of a leading cannabis infused product brand and is an opportunity that investors need to be watching.
A Leading Cannabis Brand to be Monitoring
One of the biggest potential catalysts for Plus Products will be the expansion into additional cannabis markets in the US. The company has been laser focused on the California opportunity and we have been favorable on this approach since we started covering the company. Going forward, we would expect to see Plus Products announce a strategic partner when it comes to conducting a national expansion and this is something to be watching.
One of the reasons we are favorable on Plus Products is due to the type of investors that it has attracted. The company has received large investments from some of the most significant hedge funds that are focused on the cannabis industry and this is a testament to the quality of the opportunity. This leaves us confident that when it comes to the level of quality that the company is looking for in a strategic partner we are bullish on this aspect of the story. One thing that we have noticed when it comes to selecting a strategic partner is quality over quantity and we expect the company to only work with one of the best available partners.
When we started covering Plus Products, the management team was the first aspect of the business that was attractive to us and this is an area where the company continues to excel. In late April, Plus Products appointed Marc Seguin as Chief Revenue Officer and we find this addition to be significant as Marc will be driving all aspects of marketing and consumer relations in leading the marketing and sales teams. He will spearhead consumer education about the cannabis industry, lead responsible and conscientious branding and marketing strategies, and is one of the first veteran food marketers to enter the cannabis space.
Marc brings more than 30 years of traditional food and retail branding experience to Plus Prodcucts. Most recently, he served as the President and CMO of Popchips, one of the largest privately held snack food companies in the world. While at Popchips amongst other initiatives he debuted the brand’s first TV advertising and led the “one snack at a time” local campaign, which resulted in a 72% lift in velocity in target cities for the brand. Marc has an impressive track record and we are favorable on this addition to the team. He will report directly to Plus Products CEO Jake Heimark and we will monitor how he helps drive value to overall business.
Plus Reports Strong Fourth Quarter Financial Results
In early May, Plus Products released its fourth quarter and full-year financials results and these numbers showed impressive growth. During the quarter and the year, the company generated $3.1 million and $8.4 million in revenue, respectively, which represents a 681% and 770% higher over the same periods last year, respectively.
The increase was driven by sales of Plus Products’ concentrated brand portfolio (four full-time SKUs and one rotating seasonal). During the quarter, the company continued to increase its production capacity, which allowed its distributor to build up inventory to better service over 300 dispensary customers throughout California.
One of the reasons we are favorable on Plus Products is due to the strength of its balance sheet. As of December 31, 2018, the company had $22.4 million in cash and this is significantly higher than the $11.1 million it had as of September 30, 2018, prior to the initial public offering (IPO) in October. Plus Products is led by a management team that has a proven track record and we are favorable on their ability to operate efficiently.
One of the important numbers to highlight in the earnings report is the gross margins, which hit a record level in the fourth quarter and for the full year. The company attributed the increase to the higher production capacity as well as the streamlined operations at its production facility to meet the demand of the recreational market in California.
According to BDS Analytics, the company’s retail sales in the fourth quarter were $10.53 million, an increase of 39.6% over the prior quarter. According to the retail analytics firm Headset, the Plus Uplift Sour Watermelon gummy was the top selling branded product of the more than 20,000 products sold across all cannabis categories in California in 2018. According to BDS Analytics noted that the Uplift and Restore products remained the #1 and #2 best-selling edible products in California, respectively.
Although the company reported strong growth for 2018, BDS Analytics also found that California legal cannabis sales in 2018 were 17% less than in 2017 as the market struggled with licensing challenges, regulatory changes, taxes, as well as new testing, labeling and packaging requirements. This sheds a positive light on Plus Products and this is a testament to the strength of the management team.
Plus Products Expands into Nevada
Earlier this week, Plus Products announced a major development and will be expanding into the Nevada market through a definitive agreement to partner with TapRoot Holdings, a vertically integrated cannabis company with cultivation and manufacturing facilities in Las Vegas. When it comes to significant cannabis markets, Nevada is one of the first markets that come to mind and we find this to be a major development.
Plus Products believes that TapRoot has the facilities available for the company to easily and quickly deploy its machinery, ingredients, and personnel to ensure that the product remains consistent both in California and Nevada. As the company expands into new markets, it will serve as the manufacturing operations partner to ensure quality and consistency across markets. We find this to be significant when it comes to creating a consistent product and are bullish on the growth prospects associated with this relationship.
When it comes to selection a strategic partner, Plus Products conducts significant due diligence and believes that it can leverage TapRoot’s extraction capabilities as a part of a supply agreement. In addition to TapRoot’s extraction capabilities, it has also received 7 of the 61 newly issued retail licenses in late 2018. TapRoots is led by a management team with a proven track record and we are favorable on the value that can be created in Nevada.
We have been bullish on the Las Vegas market and believe that this will prove to be a major growth driver for Plus Products. According to Arcview Market Research and BDS Analytics, Nevada surpassed retail sales expectations in its first year of recreational sales, and sales are expected to surpass $700 million in 2020. Las Vegas attracts over 45 million visitors a year and is a key market to building an internationally recognized brand.
An Opportunity to be Watching
During the last quarter, Plus Products has come under heavy pressure and the shares have come well off its recent highs. The recent pullback is looking to oversold and this decline has created a great opportunity for investors to look at a quality California cannabis brand on weakness.
One of the reasons we are favorable on Plus Products is due to its focus on growth. The cannabis-infused product company is in the middle of a major expansion (fully funded) and is constructing the largest dedicated cannabis food manufacturing facility in the US. The facility will be able to generate $150 million worth of products per year, with the potential to expand to $450 million.
Another reason we are favorable on Plus Products is due to its early mover advantage. The company holds the eighth temporary manufacturing license granted in California and was one of the first to introduce fully compliant products in the state. If you look at a cannabis brand like Select, which was recently acquired for approx. $1 billion, you will see why we believe the focus on creating a leading cannabis brand is important.
Plus Products has significant potential catalysts for growth and has been executing flawlessly in the California market. With a nationwide expansion on the horizon, the growth prospects for Plus Products are becoming even more enticing and this is an opportunity to be watching. We believe that the company has significant growth potential and to learn more, please contact firstname.lastname@example.org.
Pursuant to an agreement between StoneBridge Partners LLC and PLUS Products Inc. we have been hired for a period of 365 days beginning March 21, 2019 and ending September 21, 2019 to publicly disseminate information about (PLUS) including on the Website and other media including Facebook and Twitter. We are being paid $5,000 per month (CASH) for or were paid “96,000” shares of restricted common shares. We own 156,000 shares of (PLUS), which we purchased in via private placement. We may buy or sell additional shares of (PLUS) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information. On November 1st 2018 StoneBridge Partners LLC sold 50,000 restricted shares of (PLUS) to a private investor via a direct sale.