Terra Tech reported second quarter earnings yesterday and despite the better-than-expected demand for recreational marijuana in Nevada, the company left its full-year guidance unchanged.
While we are favorable on these numbers, many investors were expecting Terra Tech to guide higher.
During the quarter, Terra Tech recorded a $454,000 net loss on $7.84 million in revenue. When compared to the same quarter last year, revenue declined by more than 19% while its gross margin improved by 3.3%.
Cannabis Related Revenue Surges
One of the most interesting statistics from the quarter was the significant increase in percentage of revenue from its cannabis division.
More than 75% of Terra Tech’s second-quarter revenue was from its cannabis division. Last year, the cannabis division accounted for less than 40% of total revenue during the second quarter.
The increase in revenue from this division is due to higher sales from the Blüm dispensary in Oakland, sales from its four Nevada-based Blüm dispensaries, and sales of IVXX cannabis products.
The Start of a Margin Improvement Story??
Although Terra Tech recorded significantly lower revenue when compared to last year, gross profit barely changed. During the quarter, the company generated $1.51 million in gross profit, which is slightly below the $1.55 million generated in the same period last year.
During the quarter, the company had a 19.2% gross margin, higher than the 15.9% gross margin from the same period last year.
The improvement was due to the expiration of the floral product contract at Edible Garden and was partially offset by a decline in margins in the cannabis segment as the Nevada dispensaries discounted the cost of the products sold to gain market share.
A Story to Watch
While we are favorable on the better results from Terra Tech’s cannabis division, it will be interesting to see how the market responds to these numbers.
Terra Tech is well positioned to capitalize on the recreational marijuana market in California and Nevada, which should support growth over the coming quarters. We continue to see more value in the cannabis division and believe that this needs to be the company’s only focus.
Although the Edible Gardens business is complimentary and supports free cash flow, we continue to believe that the firm would benefit by divesting this subsidiary and further investing in its cannabis operations.
Authored by Michael Berger
Michael Berger is the Founder of Technical420 and Managing Partner of StoneBridge Partners. Michael continues to be one of the top authorities on cannabis equities in the industry.
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