Lexaria Bioscience Corp (LEXX)

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https://www.stockwatch.com/News/Item?bid=Z-C:*MKTPOT-2935804&symbol=*MKTPOT®ion=C
Cannabis Summary for July 17, 2020

2020-07-17 20:24 ET - Market Summary


by Stockwatch Business Reporter

The S&P/TSX Cannabis Index lost 1.2 points to 152.96 Friday, ending the week up 6.74 points. The Canadian Securities Exchange Composite Index, meanwhile, slipped 1.88 points to 431.04 today, finishing the week up 11.68 points. In company news, Chris Bunka's Lexaria Bioscience Corp. (LXX) gained two cents to 42 cents on 103,300 shares again today after rising six cents yesterday. The modest gains, which brought the stock out of 52-week-low territory, came on news that Lexaria completed phase 1 of its nicotine delivery technology research and development (R&D) program.

The program is researching Lexaria's DehydraTech technology. It is being conducted jointly with Altria Ventures Inc., a subsidiary of tobacco giant Altria Group Inc. and an investor in Lexaria subsidiary Lexaria Nicotine. Lexaria is researching to see if its oral nicotine technology reduces the health risks associated with traditional tobacco use (through smoking or chewing tobacco). Phase 1 of testing was more about safety than effectiveness. The tests concluded that the technology demonstrated "acceptable chemical and microbiological stability" and there were no adverse effects in a seven-day test with rats.

Altria Group has a licensing agreement that would allow it to use Lexaria's DehydraTech technology in its tobacco products. Lexaria will receive royalty payments if Altria decides to use the technology. The tobacco company has invested $1-million (U.S.) in Lexaria Nicotine so far. That can increase to up to $12-million (U.S.) if Altria decides to exercise outstanding warrants. The conclusion of phase 1 R&D gives Altria 90 days to decide if it wants to acquire Lexaria shares under the first warrant tranche. If it does, it would allow Altria to retain its exclusive rights to use Lexaria's DehydraTech as a nicotine delivery method in the United States. Whether Altria exercises the warrants or not, the tobacco company will retain its current ownership and its non-exclusive licence to use the technology internationally. Eventually, Altria could have the option to acquire all of Lexaria Nicotine "commensurate with then-current fair market value." If Altria were to acquire Lexaria Nicotine, the royalty payments would stop.

Shareholders should temper their excitement for now: Lexaria makes clear that Altria has not yet even confirmed that it will use the technology commercially. In the meantime, Lexaria is showing the technology to other tobacco, nicotine and pharmaceutical companies. Lexaria says it is in discussions with two other companies that are "each one of the world's 10 largest tobacco firms."

While its nicotine division seems to have many promotional possibilities, the company has similar oral delivery technology on the cannabis side. Lexaria reached a deal at the start of 2020 to provide its technology to Cannadips CBD, a smokeless CBD dip brand. Cannadips' product is similar to a Snus pouch, where the consumer tucks the pouch under his lip. Lexaria's technology is supposed to make the pouches more effective (higher CBD absorption) and quicker to take effect.

The above all sounds promising, but the company has yet to produce any sales of substance. In an optimistic note at the start of the year, Lexaria chief executive officer Chris Bunka projected the company's revenue to "more than double" in 2020. Instead, the growth has been slow. In fiscal Q1, which ended Nov. 30, the company had $62,000 (U.S.) in revenue. Lexaria followed that up with revenue of $107,000 (U.S.) in fiscal Q2 but that pulled back to $81,000 (U.S.) in fiscal Q3.

While the market responded favourably to the R&D program, before that move Lexaria was near its 52-week low of 31 cents. Today's closing price of 42 cents is an improvement, but still nowhere near the company's 52-week high of $1.30. Mr. Bunka holds 13.4 million shares in Lexaria, which would be worth about $5.6-million today.

1933 Industries Inc. (TGIF) slipped half a cent to 6.5 cents on 3.11 million shares after arranging a $5-million financing. The financing will be for up to 66.66 million units at 7.5 cents (the company has 285 million shares outstanding). Each unit will come with a share and a half warrant, where each full warrant will be exercisable at 12.5 cents for 24 months.

If the company finds enough investors to raise the $5-million, it would replenish 1933's bank account nicely. As of April 30, the cannabis producer had cash of $4.8-million (and no debt). It had gone through $4.3-million of cash in the quarter ending April 30 though, so that balance would not likely have lasted long.

That being said, the company says it has cut costs significantly. The cost-cutting has come with declining sales though. 1933 had fiscal Q3 sales of $2.6-million, down from $3.1-million in fiscal Q2.

On Wednesday evening, Dan Bilzerian's Ignite International Brands Ltd. (BILZ: $0.92) quietly released its first quarter results for 2020. Yesterday, the stock rose 10 cents from 85 to 95 cents, and then gave three cents back today.

For the uninitiated, the CEO of the company, Dan Bilzerian, is somewhat of an Internet celebrity. With 32 million followers on Instagram, he calls himself a former professional poker player but he became famous for posting photos and videos with scantily clad models, private jets and luxurious yachts. He seems to be more of a hands-off CEO as he rarely if ever provides commentary in the company's news releases. In any case, what he does indisputably provide the company with is brand awareness. He constantly posts photos of models dawning Ignite-branded bikinis to his Instagram account (presumably these women are paid - part of the company's exorbitant marketing budget).

The stock rose despite Ignite only recording revenue of $1.6-million in Q1 2020, down sharply from $2.6-million in Q4 2019. On the bright side, Ignite only lost $9-million in the first quarter, an improvement over its $33.5-million Q4 loss (although the Q4 figure included impairment charges for $21.8-million).

Ignite's losses have largely been the result of spending on marketing and promotion. The company has dialed it back to some degree, but its Q1 marketing spending of $2.1-million still exceeded its revenue in the quarter. That was at least down from a marketing expense of $3.4-million in Q4 2019 and a ridiculous $6.6-million in Q3 2019.

Investors may have held out hope that Mr. Bilzerian's Instagram account would be a useful marketing tool. That seemed like a reasonable theory, but it has not played out. Most of Ignite's shareholders would be underwater by now. Today's 92-cent closing price is down from a 52-week high of $3 but better than its COVID-19 low of 61 cents. Given all of the facts mentioned, the company may need to find a new promotional angle if it is to keep investors on board.

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