My DD, spread the word:
Alright everyone, here’s the rub…
Surna (SRNA) is one of the most underrated, undervalued, and under the radar cannabis stocks in history. Here’s why:
Surna designs, engineers, and sells climate control systems for cannabis grow facilities all over the world. This includes HVACD, Air handling/sanitation, biosecurity, and automation controls. Now, you’re probably thinking “why should I care about a company that makes equipment for growers? I just care about the actual growers that sell the cannabis.” That’s fair, but here is why you should care…
You’ve probably heard of CGC APH, ACB, TLRY, CRON, FIRE / SPRWF, etc., if you are an investor in the cannabis space. Now… What do these companies all have in common, besides the fact that they all grow weed? Let’s break it down:
These companies aim to grow the most weed for the least amount of money
These companies aim to grow the highest quality weed for the least amount of money
As more states in the US and more countries legalize cannabis, competition will increase, and prices will go down. This means the company that grows the best weed and has the best margins (lowest cost per gram) will survive and thrive.
These 3 points are exactly why you should care about Surna and why Surna is one of the most important company’s in this entire industry. You might be thinking “couldn’t any big HVAC company do what Surna is doing?” Maybe, but they are far behind Surna.
Would you rather hire a company to design and build your grow facility because they’re a big company, but haven’t done this before? Or would you hire a company that has designed and built hundred upon hundreds of cannabis grow facilities, because that is all they do? You would choose the second option, and that is why Surna is so important.
Now, let’s look a little deeper into Surna:
Surna has been in the business for over 14 years. The company was founded by Stephen and Brandy Keen, a husband and wife that had a passion for growing weed. Stephen designed a lot of his own equipment that was specific to cannabis. They grew the company into a million dollar revenue generating business, but when the company outgrew them, it was time for them to pass the torch.
Unable to control costs and turn a profit, and unable to handle the growth of the business, several management changes have led us to the NEW Surna, with Tony Mcdonald at the helm.
Tony is a Harvard and West Point graduate, with many years of experience in the HVAC sector. He built a company called Coolerado, which was acquired by Seeley International, one of the largest HVAC companies in the world. After Tony worked at Seeley, he returned to his roots.
Tony joined Surna as a director, and later became president and CEO. Tony rebuilt the company from the ground up and turned it into a lean, organized, and quality operation, with the vision of growing Surna like he did Coolerado, but with a twist – A technology and engineering company specializing in every facet of the cannabis grow facility.
Let’s look at the numbers:
Tony had taken control of Surna late 2018 into 2019. Here are the numbers for 2019:
Q1 Rev. - $1.7mil
Q2 Rev. - $4.2mil
Q3 Rev. - $5.5mil
Q4 Rev. - $3.3mil
Surna posted a profit in 2 of the 4 quarters in 2019. Considering Surna has never turned a profit until 2019, this is a big deal. Surna landed bigger and bigger contracts, and as more states legalize cannabis, and the regulatory landscape becomes more favorable to growers, this will allow growers to more quickly build and finance their operations, which will lead to Surna’s revenue growth and consistency.
Below are the numbers so far for 2020. We all know what happened in 2020. It was ugly for everyone. Surna’s 2020 numbers are no exception, but what we do see here is something very interesting:
Q1 Rev. - $1.8mil
Q2 Rev. - $1.7mil
Q3 Rev. - $1.6mil
Q4 Rev. – TBA
During 2020, because of the pandemic, a lot of growers delayed or straight up cancelled their builds, which means Surna lost contracts and revenue. Surna, for most of 2020, generated little backlog and even lost backlog. But here’s the thing – Even in this worst case scenario environment, Surna generated at least $1.5mil every single quarter, and INCREASED their cash position to over $2mil by Q3 2020 even when they were losing money per quarter and without ANY dilutive financing. This is evidence of disciplined cash management and sales execution, even in a terrible environment. Tony steered the ship through uncharted waters and came out stronger than ever.
Now, once the pandemic began to slowly subside, Surna showed its resilience – They signed a record breaking $2.8mil contract, and 6 months later, signed an even bigger $3.2mil contract. This doesn’t include the typical smaller contracts they land and don’t disclose. Now, think about what happens when you add in these small contracts to the whale contracts they just landed, which will only become more common as the cannabis landscape becomes more favorable.
So… Here we are. The beginning of 2021. Surna is about to announce their Q4 earnings, which will include their first $2.8mil contract. This means Q4 will be have at least $2.8mil in revenue. Now, if we assume Surna recognized another typical $1.5mil from their smaller contracts, then Q4 should be at least $4mil, which is pre-covid revenue. We also have the feds talking about full legalization, and as of this writing, New Jersey just officially legalized cannabis.
In 2019 Surna generated $15mil in revenue. As of today they have over $8mil in backlog, NOT including the recent $3.2mil contract they just landed.
As of today Surna’s stock price is $.1124. Their market cap is around $26mil. Surna typically trades around 1-2x their annual revenue, which is a lot smaller multiple than almost every other cannabis company, that trade between 5 – 25x their revenue.
Because Surna is not “sexy” and doesn’t grow cannabis, and doesn’t post a lot of PR’s, they are under the radar and unknown to investors. As Surna posts more contracts and revenue growth, they will be recognized and trade at the same multiples as everyone else. With Federal legalization looming and more states legalizing cannabis, Surna’s revenue streams will grow.
To take it a step further, legalization will mean the big boys will want a piece. These companies don’t start from scratch when entering a sector, they buy smaller companies to quickly gain market share. This makes Surna an acquisition target, or even a company that will acquire smaller companies.
My price target for Surna in 2021 is $1.00.
