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I’ve been waiting on Jushi ($JUSH) to produce their year end, I see a massive liability coming in for a landing on their financials. While $JUSH is not a company anyone without a radiation suit should approach, its’ piqued my curiosity to see how close my estimate of the liability will be (for the record, I expect it’ll be ~=$205MM in combined derivative liability and underlying notes). It’ll land hard, and management will peddle some ‘non-cash charge’ bullshit, and most retail won’t have the foggiest of how hard their share value is getting lit up. As it is, they’ve delayed the year end until May 24th now, after having already set the year end release to the last day possible for reporting (April 30th) more than a month earlier:
I say this, fresh off of seeing the absolute worst equity deal made by any
cannabis company I’ve ever looked at in Christina Lake Cannabis ($CLC). It’s definitely worse than RC Morris’ lighting up Zenabis ($ZENA), which, ultimately proved out to be their end.
Today, we’ll take another look once again at Slang Worldwide ($SLNG), and see how their fiscal year ended up.
Last time around, we noted a relative lack of cash, a surplus of some marketer’s cooked up metric of ‘servings’ (snicker), and a absolute boatload of Related Party transactions that make the equity look like a lootbox for management.
Let’s see if $SLNG’s remaining $36MM in Intangibles survived, if their re-packaged vape business is doing anything to speak of, and the change in aggregate liabilities on those exotic ‘Purple’ notes (among others). Again, $SLNG is eye bleach, but I spend the time so that our valued subscribers will be able to recognize when your particular investments/trades begin doing leveraged/exotic financings, and know that it can be a great signal for when to head for the exits. Also, I’ve a low-heat interest in seeing exactly how much Canopy’s ($WEED) asset portfolio sucks. $WEED seems to be wanting to right the boat in their pickup of $FIRE, but still have several metaphorical dogs humping their leg at the company picnic (in $SLNG and $ACRG).
Share price hasn’t been terribly kind since the highs seen across sector in early February:
To the financials!
- Cash at $6.5MM, up from $3.4MM prior. Raises post December 31st 2020 have brought in some $11MM – more below.
- 83 pages in these financials. FFS.
- And check, derivative liability back to $2MM. Cumulative deficit in equity: $246MM (!). Woot. Few companies (like $TILT) are in this league.
- Product licensing and revenues up to ~=$9.7MM this quarter (Notes 28 & 35).
- Note 28 details $640k in ‘deferred revenue’ (ie: non-cash paper gain) that’s flowing, and will continue quarterly for the next 6.6 years. In other words, 8% of their reported ‘revenue’ isn’t there.
- Here I thought Note 35 would be a breakout or segmentation of revenue. Nope. Its’ ‘Related Party Transactions’. Why not? We find out that ~=37% of annual revenue is being done with manufacturing/processing companies in ORE and CO…..companies owned or controlled by $SLNG management. More below.
- They report a 47% margin on annual sales.
- Note 31 – ‘Share Capital’ stretches for an ungodly 12 pages itself.
Blech. I’ll lean on the last Structure for detail around that Note on shareholder equity. One thing that does stand out for me about $SLNG is that everything I look at, I either don’t like or have questions about.
Related Party Transactions are a rabbit warren. Disclosure itself is a good thing, although I’d put some nuance around that being it spans 7 unique Notes to detail how much they’re playing with themselves:
Or that 20% of total annual revenue went out in compensation to management. Hey look – we cut it in half! What more do you want?:
Their inventory levels are largely negligible, and considering they can buy/sell with themselves, I’d guess that it’s all to support related party transactions of product. That implies licensing makes up the rest:
After a false start in press releasing their financials on April 6th, $SLNG offered up a ‘clarification’ some 6 days later, noting that “The (Company) wishes to clarify that the Preliminary Results were preliminary”. Amateur hour.
$SLNG’s share price hasn’t held well, despite investments by Merida Capital. $SLNG did a deal with Merida (for up to $10MM!) which has some sort of ‘brand services’ agreement attached to it. It was expensive for $SLNG – who shot out 4MM 2 1/2 yr $0.50 immediately vesting warrants for Merida’s ‘services’. There’s another $2MM in earn-outs there, it appears that Merida’s going to be some sort of sales force for their products. Merida also ‘led’ on a private placement that ended up bringing in $11MM.
About Merida: its’ also an amateur looking outfit to myself, and has the feel of being some trust fund kids’ investing fetish. Their holdings are a random walk of (mostly) crap pubcos, I can’t comment on the private ones. Merida certainly doesn’t look serious, with ‘holdings’ in $FFNT, $CANN, $SLNG, $JUSH, and $VREO. Whether they’re a bottom feeder (if they are, they’re picking the right outfits), or whether they actually see something in these companies, we’ll just have to guess. But I’ll guess that they don’t have much horsepower in finance, and are primarily marketers that can sell an idea to folks who have money.
Merida’s ‘deal’ with $SLNG looks like 2 salespeople getting together, quietly hoping the other one will be able to actually sell something.
Ok. I’m just bored now, and I’ve got something far more interesting to write up than $SLNG. I thought we might see something of interest, but all I’ve seen is a company with $25MM in annual ‘sales’ (down $3MM in aggregate YoY) generating $12MM in margin, to cover $20MM in OPEX. $9MM in SBC (seriously), and aggregate loss for the year of $14MM reported.
Intangibles took a $4MM hit (‘Distributor Relationships’), ‘Goodwill’ remained intact at $105MM.
That’s all the effort this one is worth writing on. And I’ll emphasize – there are some seriously shitty assets operating in the US – legalization or not. And many of those don’t come bundled in Related Party revelry. This thing is ridiculously overly-structured, and to me seems to exist solely for management – who took $15MM out of it this year in cash and SBC (SBC stems from several sources in these financials, the example above is only one of them). And that’s aside from margins accruing to the related party entities, which aren’t reported.
Cutest of all, CalVape (a related party, natch), with which $SLNG had receivables of $5,310,557 – was written off last year as a credit loss. 2020 saw $SLNG still selling to them during 2020. I can’t impute the exact number, but somehow $1.7MM in credit losses have materialized during 2020, all seeming to stem from Related Parties. This would present a serious matter to me if I was a Controller. Although the table below sees a $1.3MM increase, a separate Note states it’s $1.7MM:
I’ll look at these guys again if sales actually do something. I have a strong suspicion that sales will back up next quarter by $2MM, as I believe (like last y/e) that they stuffed their own channels to show an increase this quarter. I’d bet a beer on that.
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 $SLNG.
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