Our previous Structure on Supreme ($FIRE) can be found here, and GoBlue’s latest on these latest $FIRE financials can be found here.

We’ve spilled much digital ink on this outfit over the years…let’s see how their metamorphosis into ‘CPG All Everything’ is coming along.

To the financials!

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• Cash at $20MM, down 6 from previous quarter.
• We find that CEO Beena Goldenberg’s negotiations to refinance the convertibles came in response to a less than effusive response to their At The Market program. The refinance-reply added 125MM shares to the float since June of this year: total float is now at 488MM shares outstanding.
• A re-negotiation of breached debt-covenants saw a margin call executed by lenders. It released $6.3MM of restricted cash. A wash for $FIRE, but contingent money is gone for now.
• $1.5MM in SBC, which looks to be mainly in straight compensation. Immediate full vesting of RSU’s is atypical. More below.
• Another $8.4MM in inventory impaired. I’ll defer to Blue’s take, where he expands on costing related to accounting changes I mentioned last time.

That’s about it from this side.

I will venture a guess that Supreme Langley (their tincture manufacturing facility) will be put up for sale or shuttered in the next while. There’s no need for 7,000,000 tincture bottles per year when there’s Kincardine (their primary 2.0 hub).

An interesting nod to margin discrepancies across different State Monopoly jurisdictions in their MD&A, where they allude to selling a suboptimal recreational product mix into lower margin provinces:

Unlike during the quarter, Note 20 (Subsequent Events) reveals some pretty heavy loading of RSU’s. Whomever those specific employees are got a payday. There was some moves in DSU’s and PSU’s, with some minor cancellations, to me it appears that CEO Goldenberg is consolidating compensation into the RSU vehicle. Notable is the 3.4MM RSU’s granted at the money, exercisable immediately. Yep, they were struck:

As well, $FIRE was able to get some volume out the door of their ATM program, which had been running lean up until now:

In one of the more complex transactions I’ve come across, unlisted ‘accretion’ debentures were issued to lubricate the convertible refinancing. It saw a reduction in net liability of some $65MM – the lenders obviously saw they needed to move a bit as things are. In exchange for the reprice, the issuance of accretion debentures moved a lot of furniture around the place.

There’s two parts to it:

1. Initial convertible re-price
2. Issuance of accretion debentures

The re-price took the liability down, and of the remaining $36MM – $13.5MM was issued in accretions, ostensibly to reflect and accumulate interest. These start at $0, and the entire $13.5MM becomes payable 24 months from now. Initial carrying value is somehow listed at $3.6MM, and that also comes with a heavy landing of $3MM in transaction fees. That incremental $13.5MM became $20MM quick:

Well, $FIRE likely didn’t have many other options available.

Some positive moves, and I’d almost call this a progress quarter. Almost. The cost of the re-financing and sustainability of paying in RSU’s may be tested. I’d like to see another quarter of sales improvements, and some traction in international/testing/genetics – any diversification of revenue.

For myself, $FIRE remains a waiting game. Revenue growth needs to exceed share count metastasis. Beena’s gonna need many quarters of similar gains, and I am wondering if that $20MM in cash will be able to get them there. Future raises will likely be predatory from here.

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 $FIRE