Pure Global Cannabis – Structure & Current State Q2F2019
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Well it’s Friday, and I’m getting a little reminiscent of ghosts of ‘Dive Bar’s Past’. For those who aren’t familiar, one of the things we set up at our Reddit channel was an annual look at some of the <ahem> more speculative stocks in the cannabis space.
It’s called the ‘Dive Bar Pub Crawl’, which saw yours truly present brief annual rundowns 24 companies out there as a ’24 days of Xmas’ gift kind of thing for subscribers. You can find the ‘Crawls’ using the search function at the top right hand side of the screen if interested.
This outfit would be right at home in one of them.
These guys have eluded most of the cannabis industry spotlight for a couple of reasons (at least to myself).
Indistinct branding, lack of a unique story, undifferentiated product….these might be argued for or against to varying degrees by different people. That they were late to the game, had little experience with cannabis at the top, and appeared to be fixated on form over function in operationalizing – these are a little less subjective.
I’d had brief runs around their first couple sets of financials, but like many new issues, it’s hard to draw a line with only a single point. And I hadn’t seen anything that made me find a reason to do anything other than skim them.
Now that they’ve got 3 sets of fins out, had some recent changes in senior management, and that their share price looks like an animal after three weeks stuck in a leg-hold trap – it’s time to grab a shot of Jack Daniels, a PBR, and see what’s on the jukebox (providing I can move the guy that’s passed out on it).
To the financials!
- Cash is miserably low. As is inventory.
- I assume they’re simple sleeving product since Day 1. With $1MM in sales for the last quarter, and COGS of $1.2MM, one can assume they haven’t quite figured out the whole ‘buy lower than you sell it for’ thingy. It’s a prevalent concept in commerce.
- Cash burn around $420/mo. Likely explains recent ‘changes’ in management.
- On the upshot, they actually own a building. One worth $5MM at that.
- Kinda rough to find out that they owe $5MM on said building.
- Goodwill delightfully negligible.
- Marketing and Promotion second largest line item in expenses, after salaries and wages. Might prompt a check in value for spend there Mr. COO
- 155MM shares out there. Hey, why not? Nothing else seems to be important about the company at the moment (namely sales). Share count sure as heck isn’t exactly the most important thing right now.
- 14MM options at $0.23, 34.5MM warrants at $0.34.
- Don’t look like anything else has been issued recently regarding either of these. Yep, it’s that bad. Only forfeits and expired tags now litter Notes 11 & 12 in the financials. I’ve never seen more on any cannabis company I’ve looked at.
- Acquisition of ‘Spark’ (a ‘cannabis clinic’ business model) mostly for paper back in January. While META and a half dozen others began running away from clinics, these guys were running into the building everyone else was leaving.
While these statements are mercifully thin, they aren’t without their cruelty. Cruelty to shareholders, investors, and to myself for having looked at them.
I checked briefly at ‘news’ around Pure Global, and found a recent blurb about how their stock jumped 11% (11%!) on a Health Canada licence upgrade (they got approval to sell oil). That 11% gain? The stock went from 9 to 10 cents.
Given they’ve only got 14% of their rather meagre inventory actually in oil <$230k>, I hope they can afford to buy more to sell. They’re going to need any margin they can get, including checking the couches in the employee lounge.
The mortgage on the building (that now has $3MM of leasehold improvements on it) will likely see the holder getting their building back soon unless Pure can keep this thing out of insolvency. If I was a betting man, there might just be a grow op on the market for lease or buy soon.
Even the optionality in this one is dog poo. Like, a flaming bag. I mean, actively structuring your capital early on can conserve cash while still paying management. My personal caveats/views around it is that is ‘Goldilocks’ like. That means: not too rich, not too fast, and align it with the business plan.
I am assuming they had a business plan here at some point, but I haven’t reached out to management to be honest. I think the question might induce a trigger response.
The thing that the ‘Crawls’ taught me is that once one sends something out into the world – you’d better be prepared to stand behind what you’ve said. It’ll live on, and you’ll get to eat any plate you’re serving up.
We don’t delete or modify our content (beyond grammar) once it’s been posted. Never will either. We’ll always eat what we serve. And if Pure Global was a restaurant, there’s not a hope in hell I’d ever eat (nor drink) there.
I’ve spent some time on this one, because in my opinion, it’s a poster child of the next dozen or so that are coming. Many of our subscribers are engaged and aspirant to sharpening their analytical skills. Pure is a wonderful case study, particularly looking back over the previous statements.
And regarding Pure Global – let me leave you with another analogy: A cowboy wouldn’t take the trouble to saddle up a dead horse. Even with a defibrillator, adrenaline, and a good vet…this one is already gone.
I’m not even gonna caveat this thing beyond saying the preceding is my opinion. Just the thought of having to say I don’t own this thing gives me a facial tic