Following fast on the heels of our initial Structure on Body and Mind ($BAMM), comes reporting of their first quarter of fiscal 2021. As I’ve been catching up with the MSO’s, these will be spaced oddly for a couple of quarters – as they fall into the schedule.

As mentioned – I’m not a fan of this outfit at first glance. I see their capital structure as complex, and Australis ($AUSA) being so embedded via (incremental) financings as to ostensibly being a partner. That’s a drawback, because in my eyes, a disproportionate amount of equity and value accretes to them, underneath a non-arm’s length relationship.

Their press release on this latest set of earnings was pretty effusive this morning, touting full transference of ownership into $BAMM of one of the CA dispensaries, receipt of a distribution license in Nevada, continuation of OH cultivation build (with their 30% ownership and a new agreement to eventually acquire the remaining 70% of that). I’m guessing, there’s another NMG OHIO (an LLC) that isn’t fully held by $BAMM, but I can’t be bothered to check.

Looking at this thing is like having to pick up a pile of LEGO with a pair of tweezers.

At any rate….let’s see what $BAMM’s Q1 has done, and examine that 144% increase in sales(!) QoQ.

To the financials!

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• Cash flat QoQ. A/R up by $400k, inventory up largely flat at $1.8MM.
• G&A up 30% on a quarterly basis at $2.5MM. Which, is greater than the 34% margin generated ($1.8MM) during the Q. Hey, margin is up 5%. And only 8 more months of giving up 3% gross to the guy who sold the CA dispensaries to them. This Q, that was $55k in margin ($400k to go).
• Salaries and wages, along with licenses/office admin, are in this Q half of what they were for the entire past year. To wit: For 2020, salaries/wages & licenses/office admin was $1.6MM and $1.1MM respectively. This Q alone they were $782k and $575k.
• They’ve accrued interest income of $106k, comprised of loans they’d put forth related to the acquisitions. None of it is in cash, but reported as used in ‘operating activities’. Sigh.
• PP&E expanded with the full interests in the 2 dispensaries coming in. That increase was $863k – of which $581k was leasehold improvements. The remaining $287k? Office equipment. Seriously. In one dispensary.
• Did the outfit that sold them the Long Beach dispensary have marble fountains in every one of the 8 14 32 offices?

Ok, I can’t do this anymore. We had a pretty good look at the undercarriage the other day.

Sales ‘growth’ in the quarter is partially accounted for when the ownership interests in dispensaries (CA & OH) were brought in. The non-owned amounts in OH (70% of Ohio’s sales for Sept/Oct) and in CA (the Long Beach location…an incremental 40% of sales for Sept/Oct) were patriated. Thus, it gives us a look at what 100% of what owning 2 the dispensaries looks like, and provides a better gage of run rate.

Arkansas isn’t mentioned in the press release…but it’s under a management contract for now. The cultivation build and existing dispensary they tout in ARK saw $BAMM provide some $1.2MM as a ‘convertible loan’ to the owners, who are building the grow-op (it’s registered for 50 plants, and supposedly to begin production in March 2021). Subject to state licensing (or a calendar year), whichever comes later (snicker)….that loan may be converted by $BAMM into 40% ownership of the ARK dispensary/grow op. $BAMM’s supposed to receive 66 2/3% of monthly net profits in exchange for their management fee. This quarter, it was zero. No information on the fee was provided in either the year end, nor Q3F2020 (the ARK dispensary has been up since April 2020).

The entirety of the interest on the $1.2MM note receivable lent to ARK outfit (Note 6) appears in current assets at $96k. It seems they’ve been accruing interest ($6k/mo) against the note since the deal was originally signed in March of 2019. That either the state licensing hasn’t occurred(?), or, that a year has passed (it has), means this *should* have been set off against the note if the 40% purchase option was struck. It obviously hasn’t. It also means that they aren’t collecting the interest in cash.

Good thing, because it looks like ARK’s operating at a loss – or breakeven – since opening last April. And it feels similar to the ‘dollar as you go’ deal-making they had done in CA and Ohio. In listing 4 dispensaries, they now fully own two, 60% of the third one, and an option to buy 40% of the fourth. I’ve seen acquisitions operate at breakeven prior to absorption….with previous owners taking every single dollar out of it they can. Perhaps that’s the case here (with $BAMM’s tacit approval). The management fee swaps to a fixed $6k/mo if the option is struck. There’s obviously something I can’t see within all of this.

Looking at the totality of $BAMM, it begs the question of what $AUSA is actually doing for them that a decent capital raise wouldn’t? Which assumes $BAMM could get a capital raise on their own. It also assumes that $AUSA would even let them.

I doubt I’m going to join the conference call tomorrow (and the 5 people from $AUSA listening to it). Maybe if I’m bored and want to hear how this is presented.

I don’t see growth in anything but OPEX, and until we get another Q – we won’t see full run rates of the 2 (now) fully owned dispensaries. The OH cultivation underway leads only to a 30% interest, with another agreement to acquire the rest under negotiation.

In a word, I find this company ‘boring’. Despite finding a couple of quirks and novelties, the underlying business model is monotonic in colour, and underwhelming in performance. I imagine the current CEO is there solely because $AUSA permits him to be there. There’s absolutely nothing else to see right now.

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 $BAMM or $AUSA