While we <continue> to wait on Jushi Holdings ($JUSH) to post their financials (they’re not going to be up on SEDAR for yet another week), I thought we’d revisit TILT Holdings ($TILT). I’m confident readers will have a pretty good handle on $TILT within the totality of our research.

I skipped $TILT’s year end – our last Structure was on their 3rd quarter of 2020 – and the place was metaphorically doing nothing much. We’d began looking at them by detailing their odyssey of impairing a half a billion dollars of goodwill on acquisitions back in 2019….and….. an additional $90MM related to that mess was also impaired/de-recognized on their last year end.

I’m not going to divine those end-of-fiscal-year entrails, but I will point out Blackbird was ultimately written off for $54MM – $19MM more than $TILT estimated in Q3 F2020. It stands to me as a brutal indictment of management.

I am curious if $TILT’s Jupiter relationship – Jupiter’s a cash flow generating machine – is beginning to show any kind of material profitability. Sales rates like that catch eyeballs inside and out of industry. $TILT still touts the Sante Veritas ‘asset’ (a cultivation something something in Powell River) on their website, despite it being fallow to my understanding. I’ve not heard a single decent word said about it in sector either….only the opposite. $TILT’s announced a new CEO (who starts tomorrow), while the guy who hired him (Mark Scatterday, he who penned a ‘Dear Shareholder’ letter in January of 2020 after he inherited the mess of 2019) takes over as Chairman.

4 CEOs in less than 24 months.

$TILT benefitted from February’s run, let’s see how they’re doing in the statements:

To the financials!

_______________________________________________________________________________________

• Cash and receivables flat QoQ at $21MM. Inventory flat at $52MM.
• A/P a relatively good size at $27MM.
• Goodwill and Intangibles – still 56% of total assets – increased slightly due to the Standard Farms Ohio deal closing, and goodwill attributed to ‘synergies’ (among a couple of other non-tangible items noted). They paid $9MM for $2MM of CO2 machines and a state license they valued at $3.9MM.
• $TILT claims there’s 52 operating dispensaries in Ohio. I didn’t know that.
• After all is said and done – they report a 27% margin…….but I can’t back into it’s constituents. The quarter reports essentially a break even net income. Trends on the major dials are positive. More below.
• They’ve had these before (Q1 2020 and Q3 2020), prior to some big whacks in asset values along the way..
• COGS for vapes went up 8% QoQ, driven almost exclusively by Jupiter sales growth of 11%.
• 3%: there you have the Jupiter margin number..
• They’re doing some assembly deals with a couple of outfits. I doubt there’s much in it from the assemble side, I’m guessing it’s the hardware going out that’ll help support it.
• Which, makes me think about their level of automation. In looking at PP&E – of $85MM on the books, $66.9MM of it is in leasehold improvements and greenhouses. $9MM in equipment. Leads me to think it’s a pretty manual shop at this point, which, will keep margins lean.
• 74MM warrants at $0.44CAD. Bulk of them expiring in Fall 2022. Another 18MM in out of the money options denoted in USD. 44MM of those CAD warrant’s are Jimmy Jang’s – the guy/company who is licensing Jupiter to $TILT. He did a refinance of a $35MM note, and received security against everything $TILT owns. $TILT even includes the term ‘personal property’ in the description of security held in the financials (Note 15), but this only relates to company property (unlike Speakeasy)
• 463MM shares outstanding fully diluted. Oof.
• They’re going to need to come up with $72MM to pay out several Notes Payable – half due in 2022 and another half in 2023 (Jang’s), so they have some time.
• Management compensation at $700k/quarter. More in line with other cannabis outfits, and a long drop from where they were a while back.

Ok, I think that’s the gist of it.

Inventory is flat as a pancake QoQ. And for a good illustration of how tight it’s run…..look at the last 3 quarters. Total sales in each quarter from March 21/Dec 20/Sept 20 were $46MM/$40MM/$37MM respectively:

Which, begs a look at segmentation. The 2020 Year End has no QoQ comparisons (natch), but cannabis revenue was $11.7MM/$12MM/$9.4MM for Mar21/Dec20/Sept20. Right direction, perhaps some seasonality showing in this latest quarter.

In 2020, cannabis sales made up 24% of total revenues of $160MM.

Comparatively, ‘Accessories’ – which includes Jupiter and presumeably anything not weed – did $35.2MM/$31.4MM/$26.9MM over past 3 Q’s. Direction is right as well. But, Net income from that division is consistently ~=$1MM/quarter….and has been demonstrated for 5+ quarters now.

I’d tell you more about cannabis, but the segmented numbers are unintelligible. Geographically, Canada isn’t doing much at all:

An interesting comment about sales growth in the MD&A – they claim PENN wholesale has helped, but that vapes are dropping since the State switched to adult use. $TILT’s moving to adjust product mix to respond.

Jupiter’s sales are trending well, and $TILT has a cannabis business that seems to be moving along. I still don’t see much upside (at least in this company) due to share count and an inability to show consistent profitability.

I have little doubt any legal cannabis market expansion is going to benefit Jupiter sales. But I also hold strong doubt whether $TILT will realize similar benefit.

We’ll look at them again, I’m curious about $TILT as a business story. And that’s about where it begins and ends. A licensing catalyst here would change their world, but at the expense of Jimmy Jang. I can’t see that happening anytime soon.

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 $TILT.