During the last few weeks, Surna Inc. (OTCQB: SRNA), operating as Surna Cultivation Technologies, has been nothing short of an execution story and has added new state-of-the-art products to its portfolio of offerings consistent with the updated organic growth strategy it announced on May 4, 2021.
Although Surna has reported several significant developments, the market has not responded as we would have expected, and the stock has been trending lower. The volatile price decline started after the company announced the largest sale in the company’s history and we believe the market does not fully understand the growth potential that is associated with the business.
From increasing the number of products that are available for sale to selling products to non-cannabis companies, we are favorable on how the story has advanced and find the risk-reward profile and valuation to be favorable at current levels.
New Product will Provide a Recurring Revenue Stream
Last week, Surna reported to have added Preventative Maintenance to its services portfolio that will help its customers ensure that their HVACD systems are professionally maintained and are delivering optimal performance. At the same time, the service is expected to provide Surna with a recurring revenue stream and we believe this service has positively impacted its growth profile. One of the important aspects of this service is related to how it makes the company’s relationship stickier to the customer and we expect it to extend the life of its contracts.
HVACD systems are considered to be one of the most important components of the cultivation process and maintenance programs are crucial to the longevity and energy efficiency of these systems. Without proper maintenance, operators will typically see rising energy bills and a shorter equipment lifespan. If not properly maintained, operators could potentially experience catastrophic crop loss and we are favorable on this addition to Surna’s product portfolio.
Surna’s team of design and application experts help to precisely dial in the cultivation facilities’ environment while maintaining their systems. The company’s HVACD facility maintenance services are customized to meet the goals of each individual facility and owner. As a result, Surna Cultivation Technologies can manage a variety of maintenance tasks and provide a detailed maintenance plan that falls in line with a client’s requirements and ensure that each system is operating at peak performance.
An Execution Story that is Flying Under the Radar
The new service comes a few weeks after Surna added heat recovery chillers to its EcoChill™ product portfolio. The product falls in line with the company’s strategy to offer energy efficient products that drive down operational costs.
EcoChill Heat Recovery Chillers are expected to lower capacity requirements and energy consumption which are two key benefits for any cultivator. When compared to traditional chilled water systems, EcoChill Heat Recovery Chillers are easier to maintain and can be installed inches apart from each other.
A key reason for our favorable view on this product is related to how it helps cultivators protect their cultivation environment against outside contaminants. The EcoChill family of chillers is designed specifically for indoor cultivation applications to deliver benefits that other cooling systems cannot provide.
So far, two multi-state operators (MSOs) have already installed the EcoChill Heat Recovery Chillers. The companies purchased the products to execute on a strategy that is centered around lowering operational costs. One MSO operates a 90,000 square foot facility in Illinois and the other MSO operates a 40,000 square foot facility in Ohio.
Trading at a Substantial Discount to its Peers
At current levels, Surna’s market capitalization is below $17 million and we believe that it is trading at a significant discount to other companies that are levered to the ancillary side of the cannabis industry. Two comparable operators to Surna are GrowGeneration Corporation (Nasdaq: GRWG) and urban-gro, Inc. (Nasdaq: UGRO) which are valued at $2.5 billion and $100 million, respectively, and we find the disconnect to be substantial.
Although Surna has recorded impressive advancements so far this year, the response from the market has been muted and we believe that the disconnect creates an opportunity for investors that are looking for companies that are trading at a discount (when compared to its peers) and have attractive growth prospects.
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