Income Statement Drivers and Breakeven: Trend

Sales up 14%… but the worrisome concern is that 73% by KG of Wholesale ($3.3 million) or 20% by Wholesale revenue (as per conference call) went to Extract Grade.  That means Adult rec was only $660k.  Soof the $3.6 million in sale $2.6 million (72%) went to an extractor.

I know WMD has a reputation for good product. I have tried some of it and was suitably impressed.  But the amount of product that likely lacked bag appeal at this stage of their development should be monitored going forward.

They are launching a new rec brand next Thursday (June 6). Maybe that will move the needle on adult rec.

Income Statement Drivers and Breakeven: Peers

Gross Margin: Trend & Peers

Gross margin increased very slightly.  Until new Capacity gets to the Sell Through this will languish.  But with cost per cultivated gram improving, IF sell through happens, this should improve.

Also negatively impacting GM was the amount of product, mentioned above, going to extract grade. Less $ per gram sold with a product was substantial part of overall sales mix.

I did ask on CC when we can expect steady state GM% and answer was Q2 F2020.

Gross Margin: Larger Peer Base

GM continues to lag Peer Group. 

SGA and SBC: Trend

They began reporting Selling expense in a schedule, so I have broken it out.  Until we get a trend line it is best to look at SGA aggregate.

Reduction is likely due to the restrictions on advertising that came into place on October 17, 2018.  This Q would not have had the 16 days of marketing previously allowed.

SGA and SBC: Peer

Breakeven Sales for +Net Operating Profit divided by Current Sales

Net Operating Profit, without IFRS voodoo, is -$5.3 million  

While the breakeven point above came down significantly from last Q (+ 2000%) … it remains highest of peer group.

Breakeven Sales for +EBITDA divided by Current Sales

Same comment as above.  Until GM % improves… this will continue to lag.

“Gas in the Tank”

They continue to ramp up Bio Assets and Finished Goods.  The sell through continues to be my the focus (or lack thereof). Last Q they had ample FG, as they did 2Q’s ago.  Still waiting on the sell through.

What I would like to know is what portion of FG inventory is saleable OUTSIDE the extract grade market.

That’s all I got.

GoBlue

The writer has no position in the above.