It’s been awhile since we last looked at CEO Norton Singhavon’s Avant Brands ($AVNT). Our last Structure was when they were known as GTEC Holdings ($GTEC) back in their first quarter of this fiscal year.
We’ve a pretty wide swath of research on them too. I’d been (and remain) on the hunt for someone (anyone!) who might be able to begin consolidating market share, build durable profitability, and actually lay out a desirable, investable business model. I’d finally met Norton back in early 2020 at a Lift event. His booth was filled with spandex and heavy bass – and filled with folks that would usually be seen on the ‘retail’ (or public) days of the Lift Expo (except it was on Industry Day, and the people in his booth wore far nicer watches and were more fashionably dressed than the typical retail types). His newly released ad campaign caused a stir – and Twitter had a raft of the perpetually outraged sorts outraged about the use of that spandex and accusations of racism.
Other than some brief internet outrage, None of it amounted to anything, and the mass market didn’t seem to care. Why would it? Sex has always sold, as does nudge-wink marketing. I mean, even if beer commercials aren’t quite the way they were, they aren’t altogether that different. Besides, both of these examples present diversity, right?
At any rate, Norton struck me as a plucky fella with a clear vision, and I appreciate someone in charge of a company that holds one and offers it up straight.
We first looked at his company a little more than a year ago. $AVNT was a little atypical of the many outfits (all?) that rushed to build out capacity before demand came in. The idea – building into demand (rather than building over top of it) along with a focus on staying ‘premium’ from day one – was a bit of an outlier. And somewhat contrarian to the thinking of 2018/2019.
As we see in that Q3F2020 structure though, throughput and revenue hadn’t yet hit critical mass. Nor in the 4th quarter. Nor, in the first quarter of this year. Norton absolutely smoked a raise at $0.80, timing it perfectly at the height of last February’s pot market frenzy. The funds were desperately needed, and presumably he’s gone forward with expansion and created the production levels that’ll see him stacking some bricks for investors.
He’s still got a decent enough cash position (as we’ll see), and filed a $50MM shelf back in July on the day they rebranded (curiously, that shelf isn’t mentioned on their website, nor can I find reference to it on the wires).
Share price has been as listless as many others have been. $AVNT is helpful enough include a ‘share structure’ page on their website. Nice and handy – I don’t believe I know of another company that makes this so easy to see:
Despite walking around Twitter with some swagger – and his $0.90 share price – he’s been more humble over the past few months, as $AVNT has come off 50% since the rebrand:
Let’s have a look at Norton’s latest financials, and see how $AVNT is doing.
To the financials!
- Cash is holding – down $1.5MM QoQ to $16.5MM. Revenue up to $2.7MM during Q3, up from $2.5MM prior.
- Past 4 quarters – sales (from oldest to newest) have been $2.1MM, $2.0MM, $2.5MM, and $2.7MM. Well, it’s heading in the right direction. The absolute levels are problematic though.
- Margin is good at 40% (up 1% QoQ). Modest levels of almost every cost. Licensing is the second largest expense, which is second only to wages ($443k & $466k respectively).
- Excluding depreciation, $AVNT lost about $600k on operations, about $200k more than last quarter. Looks like the entirety is from higher SG&A, and higher management fees.
- A JV established many moons ago with 3PL Ventures Inc. looks dead in the water. It’s still not revenue generating, and $AVNT booked a loss of $240k on it this quarter. $AVNT has committed to buying out the partner when it gets licensed. 2 years in a holding pattern is a long time.
- $AVNT’s received $1.5MM in Emergency Wage subsidies this year, otherwise his operating losses would look more serious.
Ok. These financials are about as vanilla as they come. Which, is nice.
Invictus MD ($GENE) had held $2MM in convertible debentures in $GTEC. The bankruptcy trustees struck these during headier times back in February/March, revealing that $GENE’s buy of those debentures was about the only profitable thing they did during its’ brief (pre- bankruptcy) existence:
Norton used that second financing to pay off some $6.3MM in debt he’d had laying around, and now presents a liability section on his balance sheet one can eat off of:
To get there, his float is now (per above) ~=240MM shares.
His revenue is improving, but what to say? He’s dropped $500k/q in interest/accretion costs, but has reported a YTD loss of $3.5MM aggregate, which translates to about $600k/Q.
Sales will need to approximately double to get this outfit to a break-even net income. This is the same story as a year ago. If I was still a shareholder (I’m not), I’d be feeling pretty good about his raises and continued ability to operate. I’d feel less enthusiastic about market penetration though. The positives around the revenue growth he’s showing – consistent and improving – is offset by being glacial. Worse, he’s running out of runway – in that Canadian market is beginning to ossify. As TheCannalysts have said in the past – we believe it will be a challenge for companies to drastically alter market share go-forward.
A equally significant challenge in my eyes is that his ‘premium’ category is becoming increasingly crowded by the micros and crafts who are entering the space. Increasing the margin QoQ is a positive, and probably reflective of cost discipline. I’d keep an eye on this number over the next couple of quarters.
I took a position in $AVNT late last year – staring at a $0.20 share price that I believed was undervalued – relative to market. That Jan/Feb run hit well, and I shuttered the position having been happy with the returns I got. I missed a bit of it, but, when one gets returns they are satisfied with – there is absolutely nothing else to say (or can be said about it) except for a ‘high-five’.
Unless and until there is some sort of hard catalyst (sales ramp and/or takeout bid), I don’t see anything but continued lethargy in asset value here. As far as I genuinely ‘know’ Norton – I see him as a self-made, fiercely independent actor who would sell out only if the bid is ridiculously high, if he saw some opportunity elsewhere, or, if he saw that he really wasn’t going to be able to get anywhere ‘as-is’.
That leaves organic growth.
He has demonstrated (to myself) that he has learnt from being too ambitious too early (who wasn’t?), which is a real positive.
He needs to get more market share and sales before retail demand ultimately plateaus. Just like so many others in the Canadian space. I wish I had more to offer…..or could identify something I was attracted to.
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 $GTEC