Russ, we need official disclosures to answer your questions on valuation.
1. Not all revenue is equal. We know from disclosures that in the 9 months through 09/30/19 EXDI was selling at negative gross margin. If that continues, obviously the more they sell the more money they lose, so the higher the revenue the lower the valuation should be. What is particularly bothersome is that - according to the only official disclosures we have - their COGS were to a related party (Ceed2Med). In other words they were using Public Co. money to purchase inventory from a related party which they would later sell at a gross loss. That's fishy.
But generally we need to know more about the revenue, in order to assess its value.
2. One comp we can use for valuation is CVSI, they just reported 2019 results this week. Their revenue was $53.7M with a gross profit of 65% (that's a gross profit, not a gross loss). Their valuation is $36M or 0.68x of TTM revenue. (I use CVSI because I follow them. If you want to use another comp, you can do the same exercise with them). So accordingly, your $6-8M in revenue should carry a valuation of $4-5.4M. However if you look at gross margins (GM) CVSI is valued at 1.02 x GM. Since EXDI has a negative gross margin, it should have a negative market cap, according to this metrics.
Hopefully, they stop with the questionable practice of transferring money from EXDI to C2M, and do in fact turn some positive margin. What would realistically that could be? Depends on how much revenue is derived from their own grown inventory, relative to resales from C2M and Hemptown. I would assume that wholesale-to-wholesale re-seller would have pretty thin margins, so the more they sell from their own inventory the better. In any case, I'd think that 65% margin is unrealistic, so the valuation should be at lower revenue multiple than CVSI.
My general view is that since all three parties are interrelated (EXDI, C2M, Hemptown) they would probably try to book as much revenue through EXDI as possible, while still getting full economic value to C2M and Hemptown. The reason is that naive investors in the public markets often only look at the headline revenue numbers and their growth, without bothering to look into the quality of revenues. So if EXDI prints high revenues, while Hemptown and C2M still get their money, everyone wins. That would mean, however, that gross margins of the C2M or Hemptown re-sales would be expected to be a wash at best.
3. Total valuation (market cap) is meaningless to most people here, they are interested in prices per share (PPS). In order to know that, we need to know the capital structure of the company, for which again, we need official disclosures. What we know is that at the beginning of February there were ~48M common shares outstanding. Sine then we know that Mr. Du Chesne got another million, but not much else is known. Has there been more common issued? Has any of the Class A,B,C,D,E preferreds been converted? Any shares converted by the Note holder? Then we have to know how the Note factors in the capital structure? How many shares do you attribute to a potential conversion by the Note holder? The Note has a ratchet conversion price, so that number could vary tremendously from 0 (repayment in cash) to n00s of millions of shares, really...
So bottomline is that in the absence of official disclosures it is very hard to put a valuation on EXDI and its shares. In my personal opinion, based on what I know and have researched, I'd say fair value is between $0.002 to $0.02 per share (i.e. less than 2 cents per share). So in my view the stock is overvalued here. However, that assumes that they don't plant in 2020, and their only potential for revenue through q4 of 2021 (next year) is running down the inventory of their 2019 harvest and near margin-less wholesale-to-wholesale resales of C2M and Hemptown products. If they manage to plant in 2020 there may be upside.
AI
