A Spoonful of Sugarmade Inc (OTCMKTS:SGMD)?
By Gavins Felicity - July 23, 2020
Every industry goes through an evolutionary process. It’s path-dependent in many ways, and you know conceptual factors, at least analogically. Cannabis is no different. The legalization wave is the prime mover. It’s a moving gate that keeps backing off, allowing the total addressable market (TAM) number to keep rising. But capital knows it. And labor knows it. And expertise knows it. So, the bar is moving on both sides of the equation, with demand and supply moving in step.
Inside of that basic framework you get wiggles of real innovation. One of them is mobile retailers – you know them as cannabis delivery services. But this isn’t “grubhub of weed” even if it feels that way from the app side. These are true mobile retailers. They have wide margins. They have “distributed dispensaries”. They sell week legally in a manner that is simply more convenient than the other folks.
Perhaps the best pure play in this space right now is Sugarmade Inc (OTCMKTS:SGMD), a cannabis player that operates now mostly through its controlling stake in BudCars, a leading California cannabis delivery company that operates on a traditional retail model with consistent 50% margins on products sold to the door.
This is interesting because we are coming into period that seems likely to be full of interest and hype around anything cannabis – with the election playing the part of the ground as the US electorate jumps off the building of the campaign season. It’s coming. It won’t be fun. But it will probably come with more T-A-M for P-O-T. And SGMD is remarkably well situated to be of interest in the process.
This Bud’s for You
Sugarmade Inc (OTCMKTS:SGMD) has been doing quite well. It’s not a contentious idea. The stock is acting in a manner that probably reflects obscurity more than anything else – according to our simple framework of analysis.
To spell that out, most people haven’t heard of SGMD because it’s on the OTC and isn’t yet a multi-state operator. In addition, its primary business is BudCars, which is obviously a different name.
At the same time, the stock is trading at a valuation far under other stocks in the space that have comparable topline growth rates. That all suggests the main factor here is a process of awareness.
But, in performance terms, the company is racking up consistent record months for most of the year despite what has been a challenging environment across industries and in the pot space as well.
As a case in point, the company just issued a mid-month performance update for the month of July, which is now on pace to set multiple new company performance records for sales, gross profits, and total customer orders. According to the release, SGMD is on pace to meet or exceed its target of $650,000 in total sales in July, with well over 5,000 individual customer orders likely this month, suggesting that sequential month-over-month topline growth will be at or above the company’s target 30% level.
“Our BudCars Sacramento hub continues to demonstrate accelerating growth that suggests we still haven’t really found the ceiling here in terms of period-over-period upside potential,” commented Jimmy Chan, CEO of Sugarmade. “Ultimately, this is gratifying to see because we have taken a unique approach to retail cannabis product distribution.”
Back to Evolution
As noted at the outset, every industry goes through systemic and structural change over time. The basic force behind each instance of punctuation in the fabric of the equilibrium varies.
Sometimes it’s about a major change in another industry; sometimes it’s about a change in consumer attitudes; and sometimes it’s a new technology horizon. In this case, it’s a process that gets to the very core of the end-market: if you want cannabis, you don’t have to drive all the way to a physical dispensary and wait in line and deal with a cashier and then drive back home. All of those steps are superfluous. You can just order what you want and sit back and watch something on Netflix. At some point, your doorbell will ring, and you have your weed.
It’s a process better in tune with the relevant end market. But very few options exist in the space that take full advantage of this insight while preserving strong gross margins through vertical operations.
Sugarmade Inc (OTCMKTS:SGMD) is rare in that capacity. And the trend in operational data is very clear at this point.