TILT Holdings ($TILT) first came on our radar last June, when a half-billion in goodwill was written off, and accusations of excessive executive compensation flew far and wide. We detailed their state at that point because it’s such a shining example of how leverage in the capital structure can blow back on shareholders.
That (and at the time), and they didn’t seem to really have any kind of business within the company. Notably, their grow op (yes, they bought one): Sante Veritas in Powell River, BC, is fallow. I’ve heard it has a poor reputation in the region as well, but can’t confirm.
We have been keeping an eye on the outfit since then, and with 3 sets of financials released between June and now, we have 3 recent data points to see if our analysis is tracking.
Take a minute and catch up with our last structure and their year end of just a few weeks earlier. Let’s see what Q2’s results have brought. Have layoffs continued at Blackbird? Will Sante Veritas remain collecting dust? Will Briteside manifest? Will Jupiter’s margins ever get to covering OPEX? Let’s find out……
To the financials!
- And just like that, sales down $4MM to $38MM. Their high water mark was in Q3 F2019…and since then, they appear range-bound
- Sales down 10% on vapes, cannabis is down 7%. A modest increase in Tech/Distribution sales (up to $2.1MM from $1.8MM) didn’t offset the decline in cannabis sales.
- Cash is at $10MM. Almost miraculous, as inventory increased by some $11MM. More below.
- Slight margin improvement, from 27 to 28% QoQ.
- And operating expenses flat as a pancake. $17MM versus $17MM. Doesn’t look like their operational reviews begun prior to last quarter has has much impact on these financials.
- Professional fees over $3MM this quarter (up $1MM). Aside from litigation with their former CEO, a class action was launched in mid-July, related to the disclosures of October 2018 through May 2019 – which brought them all the problems they had late last spring. $12MM a year in lawyer fees represents an entire quarter’s margin.
- And….$42MM in payables.
Well, that was underwhelming. There isn’t much new here either to report on.
Baker, Blackbird, and Briteside comprise their ‘Technology/Distribution’ segment….and what to say? $600MM+ in cash and shares went out for these acquisitions, and 5 fiscal quarters later, they’re producing $600k/month in revenue……reporting a monthly loss of $175k.
Inventory looks somewhat orderly, with a bulge this quarter driven by a restock of vapes. I’ll give $TILT credit – the logistics around moving as much product as they do with such a lean inventory is good on the face of it. It’s the most positive thing I can say.
They’re up to 321MM shares in the float, with 75MM 2 year warrants under $0.40…and another 45MM in convertible equity issued under the Jupiter buy. Jimmy Jang (the guy who sold $TILT Jupiter), looks to be converting those as fast as possible, and has swapped more than 10MM of them so far this year.
Sea Hunter – of which $TILT is the successor corporation – looks to be neither a hunter, nor able to even find a beach to lay on, let alone a coastal region. $60MM paid for a grow op that’s recombinating $1MM a month in extract will take a loooong time to payback. I’ll roll up the sleeves, and go into the nature of the Sante/Sea Hunter origin, and find out what assets might be up for sale soon (yes that’s cheeky, and no, I’m serious).
Last thing I have is a mention of their Note 2 – qualifiers of risk and ‘Summary of Significant Accounting Policies’. It runs a third of the total length of these financials (20 of 59 pages). It’s size and breadth tells me as much as these financials do, and is a true time saver for the hobbyist: qualifiers that long demand to be read. Realistically, I think they need to start moving weed with their vapes, which, isn’t happening much. If they’ve been boxed/defined as being a hardware supplier….they’ll have a worthless appendage in Sea Hunter.
Ultimately, with revenues like these guys are showing, there will be interest around them and the assets. They have a real live business property there. And nobody sells that much dollar volume without getting attention, nor, without having others covet the gig. What these guys need to do is change. Somehow, someway. Activate something, deactivate something. Whatever.
‘Status quo’ for them means another ~=$300MM in G&I write-downs. It means a guy named Jimmy hitting every bid that’s put up for months (and months). All with a cost structure on the core business that is looking more and more to be an immoveable object. That won’t cut it.
Something needs to change here. I’m openly wondering if it can.
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 a position in $TILT.