As TheCannalysts are wont to do, we like to try to look at the cannabis sector’s breadth as well as depth. From the highlights to the lowlights, we try to provide a genuine 360° on all aspects of industry, and not simply those that pay for coverage.
Too often lately, ‘investor relations’ spends are now targeting bulletin boards in Germany and France and Spain or Australia about North American companies – trying to pull new investor dollars far from the investing realities in their own regions.
Hey, caveat emptor right?
Neptune is an extractor we included in our roundup of extraction capacity last fall, due to the claimed potential of the outfits. This is our first look at this particular outfit, just prior to their annual statements.
Neptune Wellness had the 3rd highest declared future extraction capacity in industry when we wrote that piece of fact, so let’s see the ‘what’s’ and the ‘where’s’ their statements land in anticipation of the 2.0 ramp.
To the financials!
- Cash is good. As is receivables and pre-paids.
- Inventory at a brisk $11MM. Segmentation of revenues is good. Seems these guys fill a space that isn’t broken out by other suppliers. See Note 18(b) below…..
- All for negative gross margin at the three and nine months point in their history. Well. Selling things for less than they cost is described as a ‘challenge’ in most accredited business schools I’m aware of.
- The acquisition of SugarLeaf Labs is breathtaking, up to a $115MM in capital spend (half in cash!) detailed all in high resolution. And $NEPT got for $3MM in tangible assets and $116MM in goodwill in exchange I’m getting PTSD from this one. Hope they can micro-dose that out of me with something. Anything.
- And, a $44MM impairment charge same quarter on that $116MM of goodwill. We now have a new land speed record folks. $TILT are their peers.
- 50% of assets are still air, even after that. Winning?
- With respect to strategic partnerships and acquisitions, there is more names in listed here than a phonebook for Shanghai. ‘Synergy’ seems to be the most popular last name.
- That this mutt was able to load options and warrants so far out of the money didn’t matter. Performance options, DSU’s, RSU’s….more below. Much too much.
Ok. A whack of everything with big promises, and time to bear them out.
I went hunting in Note 4 (sometimes Note 3, depends on the company), it’s the typical spot for acquisitions and investments, and it’s usually the place to find the mind of management. It’s also the place where the bodies are usually buried. This one takes 3 pages to detail the Sugarleaf buy. Boy….it’s fugly.
Note 18(b) disaggregates their revenue lines. It appears they’ve been up and running for a spell, and on track to show a 20% YoY increase in sales…..
Sadly, despite this, the results are less than stellar…..
They appear to have spent more time on share based compensation than just about any other facet of their business. To wit, these are only 2 of 6 schedules from the financials. Notes 13(b)(i) and 13(b):
I would look at this this longer, but I’m on a low having seen too many people with a pitch deck and a smooth delivery pretending to be something that I’ve had enough for today. I don’t see anything here either right off or in potential. So we’ll leave it for now, and circle back when their year end comes out.
Perhaps the nutraceutical market will explode. Perhaps the space these guys occupy (and they do have revenue after all) will somehow become profitable. Perhaps I don’t understand ‘start-ups’ as some of my detractors have claimed.
Their previous CEO has lit the shit out of this outfit, litigating their way into a royalty of 1% of all revenues….forever more. And about $10MM in direct and indirect costs from the litigation. Appeals are pending, it’s going to cost more to find out if the lower courts were wrong.
We’ll see all this borne out one way or the other. The truth will come out, no matter what it is. It always does.
For now, anyone wanting to stomp on this flaming paper bag on the porch should be warned that there are risks inherent to investing, and that ‘forward looking statements’ might be subject to risks un-forseen in the financial statements. For now, looking at this company is like coming home to Sean Dollinger making out with your wife on the couch, and they both ignore you on walking in.
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 $NEPT.