We first looked at NextLeaf ($OILS) in their third quarter of 2019(!). Being pre-revenue, there wasn’t much to see a the time.

Since then, they’ve been presumeably doing what others in the extraction segment have been doing: trying to generate sales. It’s been a slow go for most.

Regarding $OILS, TheCannalysts released a special extraction podcast with the inimitable Tom Ulanowski last fall; and Cyto recently had a look at $OILS’ intellectual property (IP) undercarriage. While on the road last week, I was given an opportunity to tour their facility in Vancouver.

It’s shiny. At a modest 6k ft², the bulk of the space is used to house operations. They’re a small shop, with a headcount of some 2 dozen. There’s input, processing, and output areas – and a lab for testing and packaging and science. I’ve seen several extractors/LP facilities for it – and they really only vary in modality and scale. Even in the relatively modest size $OILS presents, they can still process 1 tonne of biomass per day into raw extract.

And right there, lays the issue for every single extractor out there right now. See our related “Extractor/2.0 Round-Up” for a look at more in the segment.

As to $OILS – let’s have a look at their latest statements, and see what’s been happening. To the financials!

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• Cash at $3MM, inventory a relatively modest $700k.
• Revenue somewhat lumpy – $1MM previous quarter, $130k in this one. Yikes.
• $75k in investor relations and marketing. Most of operational costs modest, professional fees and consulting of $100k/month, wages and salaries slightly less. It’s lean.
• Also paying consultants in shares.
• Something went sideways on an equipment purchase, where $OILS advanced a supplier cash in exchange for hardware. Seems the supplier flaked (according to $OILS), the supplier did nothing wrong (according to supplier), and it’s now in litigation. $OILS has written $380k of it off.
• 13MM options (strike mid-30’s), 28MM warrants (strike in $0.60’s). Going to be many more printed I suspect.
• Management compensation loosely tied to revenues. Looks like they’re beginning to gird based on this latest quarter.
• All of this is nominal. There just isn’t much to say.

Ok.

Well, a generalization I’ve heard is that this size of public company can be in a tough spot in attracting attention and capital. Perhaps. I think the easiest way to get everyone’s attention is to drive sales numbers, and run at a high capacity utilization. I can pretty much guarantee that’ll get eyeballs.

I see a really interesting product innovation in TCH-O-acetate (as does Cyto). Unfortunately, the product is unlikely to come to market, and as Cyto discusses in his piece on psilocybin – it’ll likely demand clinical trials as well. Legalization was a forehand/backhand to the sector, and commerce will be formalizing around it for years to come. Now that $OILS is getting into psilocybin, they’re likely aware.

The important issue is a $1.8MM convertible coming up. They might be able to satiate, but without a capital injection or roll of the iability….things will be getting mighty lean.

I’m going to end this here, and simply repeat a refrain that’s both the most critical risk issue…… and critical success factor I see facing $OILS. Addressing it will be a cure all, and it’ll bring all the attention and cash they could ever want.

It’s sales.

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 $OILS