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Replies to post #374 on Green Growth Brands Inc (GGBXF)
Green Growth Brands Generates Solid Sales Growth in Q1
But the U.S. cannabis company's bottom line got a little worse in the first quarter.
Keith Speights
May 30, 2019
Green Growth Brands (NASDAQOTH:GGBXF) hasn't had a great year so far. Its stock is down 12% year to date. The U.S.-based company also failed in its attempt to acquire Canadian cannabis producer Aphria (NYSE:APHA) earlier this year.
But Green Growth Brands had an opportunity to provide investors with some good news for a change with its first-quarter update after the market closed on Wednesday. Here are the highlights from the company's Q1 update.
By the numbers
Green Growth Brands (GGB) reported first-quarter revenue of $5.5 million. That was an increase of 77% from the company's revenue in the previous quarter of $3.14 million.
The company reported a GAAP net loss of $15.1 million, or $0.07 per share. This reflected deterioration from the prior-quarter loss of $12.83 million, or $0.08 per share.
GGB reported cash, cash equivalents, and short-term investments for the period ending March 31, 2019, of $33.6 million. This total was higher than the company's cash stockpile in the prior quarter of $31.5 million.
Behind the numbers
Green Growth Brands makes its money in two ways. The company sells cannabis products and cannabidiol (CBD) products.
GGB's direct-to-consumer cannabis business generates most of its revenue, with Q1 sales of $4.4 million. Wholesale cannabis revenue in the quarter totaled $688,590. In addition, the company made $462,117 from sales of CBD products in Q1.
The company isn't anywhere close to profitability yet. GGB's total operating expenses in Q1 topped $17 million. Roughly half of that amount was spent on general and administrative functions. The company also incurred substantial legal and professional fees of nearly $6.2 million.
Other key developments for GGB during the first quarter included:
Closed the acquisition with Just Healthy LLC, which allows the company to operate with up to three dispensaries
Announced a licensing agreement with Authentic Brands Group to create branded Greg Norman CBD personal care products
Announced an agreement with Simon Property Group (NYSE:SPG) to lease around 108 CBD kiosk shops located throughout U.S.-based shopping malls
Launched the company's e-commerce website for consumers to purchase of Seventh Sense CBD personal-care and beauty products
Looking ahead
Investors can probably expect aggressive expansion efforts by Green Growth Brands in the future. The company will likely move ahead quickly with launches of new CBD retail stores throughout the U.S.
GGB will also almost certainly closely watch the progress of the U.S. Food and Drug Administration (FDA) in establishing regulations for CBD products. The FDA is set to hold a public hearing as an initial step in defining those regulations on May 31. While it will take a while for the regs to be finalized, Green Growth Brands could benefit over the long run from clarity regarding the legal status of CBD products.
Green Growth (GGBXF): A Cannabis Stock to Consider for Long-Term Gains
June 6, 2019
SmarterAnalyst - Yahoo Finance
Green Growth Brands (GGBXF) has decided to aggressively go after the retail cannabis market in the U.S., and it is quickly surpassing some of its competitors that have been in business for many year, in the number of outlets it has.
While an aggressive strategy has its risks, in my view it's far more risky to embrace a more moderate growth strategy that can easily leave companies unable to compete with competitors scaling out quickly, and the associated benefits included with economies of scale. This is especially true in the retail segment of the cannabis market Green Growth Brands competes in.
With that in mind, investors will have to throw out the latest earnings numbers, because in a short time it has already added 18 more retail outlets, and has a lot more that will open by the end of the year.
That said, there is one number that is important to watch as it grows, as well as keeping an eye on its balance sheet.
Earnings
In the reporting period ended December 31, 2019, Green Growth generated $3,142,620 in revenue, producing gross profit of $1.34 million. Adjusted EBITDA for the quarter was -$8.5 million. Net loss before taxes was -$12,828,815. At the end of the year cash and cash equivalents was at $31.5 million.
Breaking down sales by segment, cannabis accounted for $3 million of revenue, and its CBD sales was $64,763.
As for the most important number to watch going forward, it is the revenue the company generates per sq. ft. That number was among the best of any retail business, coming in at $15,177 on an annualized basis.
While it'll be close to impossible to gauge the company on its overall earnings report for a few quarters because of how fast its adding locations to the business, the one constant that will remain in place is how much the company sells per sq. ft. That will determine demand, but also how accurately management is identifying high-traffic areas.
Growth trajectory of its retail shops
As mentioned, Green Growth is ramping up the number of retail outlets it will sell from. In the last reporting period the numbers were based upon six shops. By the time of its earnings report it had already increased that total to 27, and by the end of June the company said that number will stand at 100. By the end of 2019 it expects the total to soar to approximately 280.
One thing investors should keep in mind for your models is there is a lag effect in the retail world, by which I mean the stores all open at different times during the remainder of the year. That means each quarter the number of stores opened with be at a staggered pace. As it relates to its earnings performance, it will result in uneven results through the remainder of the year.
We're unlikely to see the full potential until the company releases its first earnings report some time in the second quarter of 2020. By then the stores will have at least a quarter of sales to measure, with many of them having been in business for a couple of quarters.
In its last earnings report management said it had performed a blind product test against some popular brands as a benchmark, and found in side-by-side sales, it either matched sales of the highly regarded brand, and in some cases sold three times as much of its product against that unnamed brand.
The one caveat is the products were priced at about twice what Green Growth products are, so there is a concern of the company commoditizing its brand by competing on low price.
At this stage of its growth this isn't a concern to me because one its own products are more well known, it can take steps to boost prices or lower costs ones it scales sales out. You have to generate revenue first, and then improve efficiencies later.
Big acquisition just announced
Green Growth announced on June 4 it has acquired Florida-based Spring Oaks Greenhouses, Inc. for $55 Million.
Spring Oaks has a medical marijuana dispensary license in Florida, and is authorized to operate as a Medical Marijuana Treatment Center in the state. It received a license in April 2019 to produce, process and dispense medical cannabis and cannabis products in Florida.
Per the license, the company is allowed but not obligated to open as many as 35 dispensaries in the state, and if Florida Medical Marijuana program exceeds 300,000, it can open up five more dispensaries for a total of 40.
Terms of the deal were $26,150,000 in cash; $17,100,000 in issuance of common shares at $2.35 per share; and an $11,400,000 convertible secured promissory note with a maturity date 12 months after the closing date. These shares will be locked up for a period of 16 months after closing.
This will increase its MSO presence and sales in the U.S., while it works at increasing CBD sales across the country.
Conclusion
In my view, the cannabis companies that generate a profit and survive are those that take risks on the scaling side of the business. As long as they have access to capital, I'm not concerned about earnings in the near term.
Green Growth has chosen to go that route, and I think it's the right one to take. It's going to start showing some extraordinary revenue results over the next year, and as it does, the market will start to reward the company.
Again, I am looking for from its earnings report in regard to its retail outlets is how much it sells per square foot. The rapid pace of growth makes normal earnings, in the short term, difficult to use as a metric because of the staggered opening of numerous retail stores, which will be operational for different periods of time in the quarters being reported.
That's why I'm looking more toward the second quarter of 2020 for a much clearer look at how the company is doing once the dust settles down from all its shop openings.
While that's going on, it's continuing to grow its cannabis business, which will be the largest revenue stream for some time.
With a visible path to growth, and a willingness to take the risk to become a market leader, Green Growth has the potential to become a big player in the U.S. market.
There is risk to investors, but those willing to take a position in the company have an increasing chance of reward than risk, in my opinion.
AI
