Strangely, we’ve never presented a Structure on 48North.
Sure we’ve done a tour, and GoBlue’s presents the lay of the land in their latest ‘Quarter in Pictures’, but we’ve not had a public look at their undercarriage for optionality, nor at their investment assets.
This is going to be an abbreviated look at them – mainly through those two lenses.
To the financials!
- Reports $1.6MM in revenues, holding a 32% margin.
- $14MM in inventory came off the field and rooms between June and December last year. Given their estimated sell price of $1, it looks like it’s priced to sell.
- They’ve been picking up some companies and bits of them late into 2019. Not an uncommon story.
- Acquired Sackville & Co. Merchandising last October for $2.6MM USD. They are a: “U.S.-based cannabis brand focused on design-forward cannabis accessories.” Here I thought 48North may be focusing on flower sales. Which, are flatlined QoQ, and off YTD.
- A 4.7MM earn out by Sackville is possible (4x the purchase price) if revenue targets are met. If 48North had owned them from July 1st until these financials at December 31st, it had $46k in revenue, and a $400k loss. As it were, it only lost $345k from October on.
- Sackville sounds like a one (wo)man band. Perhaps distribution, or simply putting stickers on goods. Hard to tell. Watch for the goodwill on this to be near purchase price.
- ‘Friendly Stranger’ is a retail cannabis chain ready to open 6 stores (according to their website). At the moment, they’re an online head-shop. This is the outfit that bought out the HOTBOX from Abi Roach. Since the OCS dyke has opened, looks like they’re now moving.
- And 48North joins VIVO and Green Acre Capital in buying into it. It’s not a major amount from 48North, but definitely a holding place. We’ve seen this across almost every LP working the vertical. And for that $1.5MM, presumeably that’ll give them some shelf space.
- ‘Rare’ is a pickup from awhile ago – a ‘U.S. multi-state vape technology brand’ for some $2MM. Ok.
- And….nada from it so far. Those multi-states consist of Oregon and Washington, and perhaps Canada for launch 2.0.
- Inventory growth is attributed to 2.0 as well – they’re gonna need them molecules.
- Good disclosure in Note 6, ‘Bio Assets & Inventories’
- A recent ramp in RSU’s seem to be retention driven. Options and warrants, while plentiful, are above the ozone layer in terms of price now.
- Looks like they’ve taken some lessons from last year’s outdoor grow – and they’ve put another $4MM down on what they think they need. Lots riding on Good Farm and the core 100 acre site.
- Absolutely nothing on DelShen. I guess we’ll see that in their topical sales shortly.
What kinda comes together here is somewhat of a female-centric cannabis brand that is planning to offer concentrates, topicals, and sublingual products, in addition to low cost flower. There you go. Oh, and the rights to 1 billion milligrams(!) of CBD from a hemp farm in Oregon. Yeah, CBD exposure doesn’t sound quite as crisp on the ear right now.
The reality is that they have had a hard time moving any product, store limitations or not. It wouldn’t be fair for me to say they’re gunning for 2.0 to actuate this outfit given the preceding. But it does look an awful lot like that.
With $5.5MM per quarter in SG&A alone, swelling inventory, and an $8MM reserve against SBC – it doesn’t feel like there’s much rush to it either. Given their $32MM in cash they do have time. Yet one wonders how this will hold against continued sluggishness in sales. The market is growing nationwide, and a company should at least show some correlation with aggregate demand at this point.
They have claimed that their 2.0 launch will coincide with calendar 2020, so their products *should* be out now. It won’t be long to find out how that’s going for them.
If it isn’t going as planned, don’t be surprised if someone takes a paper run at them to nab that piggy bank. At this point, I couldn’t imagine who, but I suspect one that would be in the same overall shape, except with more sales and no cash.
That might make a ‘synergy’ strategy work from a sell standpoint, but what would exist *still* wouldn’t have a path forward (but it would have more time). Yuck.
At this point, somebody – anybody – needs to start buying their product.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $NRTH