As TheCannalysts were engaged by WeedMD to consult on preparation, format and content of Management Discussion and Analysis (although not for the previous six Q’s) we will not be providing much in the way of narrative to the Quarter in Pictures, and we will stand down from preparing “Structure & Current State” until such time as they are no longer a client OR until we believe we have put enough distance between engagement and analysis so as not to impact analysis. The peer comparisons and tables kind of speak for themselves.
The following is data pulled from Weed MD financials and those of their peers. (Math not analysis.)
Income Statement Drivers & Breakeven: Trend
Two Q’s ago: Ohhh, that 1% GM really makes breakeven skyrocket.
Last Q: Hold my beer… -444% GM… and I cannot do breakeven calculations with that.
This Q: 2% is better than -444%, but it is not good.
Table 1: Revenue by Segment
Sales increased $3.3 million or +48% QoQ to $10.3 million
What we said last Q: I do note they provided Q1F21 guidance of revenue of $12 million, +$5 million +72% QoQ, split between Medical $5.5 million (new record) +$2.9 million +114%, and $6.5 million adult use +$2.3 million +56%.
This Q: They hit that guidance, given it was provided ten weeks after quarter end… no surprise.
Nice to see medical sales doubling QoQ +$2.6 million to $5.2 million. This is slightly behind the record from March 31, 2020, of $5.3 million. Where was this last year?? While price per gram decreased to $5.49/gram KGs sold increased 410% to 945 KGs.
Adult use increased 15% +$0.6 million to $4.8 million. The second highest in the past five quarters. Price per gram decreased 11% but was offset by a 31% increase in KGs sold to 1,607 KGs.
Wholesale had a modest increase to $0.3 million…. But it took 1,607 kgs at $0.18/gram to get there.
Income Statement Drivers & Breakeven: Peer
Peer group keeps getting smaller.
Gross Margin: Peer & Trend
Last Q: Gross Margin was negative $22.5 million and includes an inventory impairment of $26 million. If that was backed out GM would have been $3.5 million or 68%.
This Q: GM climbed out of the basement and was 2% or $0.3 million. They had $2.2 million inventory impairment. Without same GM would have been $2.5 million or 25% of sales.
Gross Margin: Larger Peer Base
SGA & SBC as % of Sales: Trend
Note: I move interest expense to Other income to maintain peer comparability.
Selling expense $0.5 million versus $0.9 million last Q.
G&A expenses $5.6 million versus $8.7 million last Q. Consulting and Professional Fees -$3.0 million QoQ as the raises and audit is behind them. They indicate that $1.0 million was severance, so this should fall next Q.
SBC $0.4 million versus $0.7 million last Q.
Depreciation $1.3 million versus $0.7 million last Q.
Total Opex $7.8 million versus $11 million last Q. The entirety of improvement is professional and consulting fees.
SGA & SBC as % of Sales: Peer
+Net Operating Profit Sales Breakeven divided by Current Quarterly Sales: Peer
Breakeven sales is amplified by the 2% GM. WMD would need 2,965% increase in incremental sales at current GM% and OPEX$’s to reach breakeven. At 25% GM, backing out impairment, sales would need to be $21 million greater per quarter.
NOP without IFRS voodoo was -$7.8 million versus -$33 million last Q. Largely impairment driven last Q.
Other Income (Expense): This Q +$0.8 million versus last Q -$1.3 million
- Other Income last Q $1.0 million from recovery of previously written off A/R, versus this Q +$3.2 million. This is inventory that was previously written off from an old prepaid supply contract being delivered. Sounds like Zena.
- Finance expense last Q -$2.6 million versus this Q -$2.5 million.
Net income this Q -$7 million versus -$44 million last Q.
+EBITDA Sales Breakeven divided by Current Quarterly Sales: Peer
With existing GM and cash OPEX$’s, WMD would need 580% increase in incremental sales to get to +EBITDA. With the non-impaired GM of 25% a $6 million in incremental sales would be required.
EBITDA Trend and Peer
They show an Adj EBITDA of -$0.4 million. My adj EBITDA is -$1.5 million. I did not allow the $1.0 million in severance that they deducted.
“Gas in the Tank”- Trend
Inventory is $30 million -$0.2 million QoQ. Finished Goods inventory exceeds sales at $21 million versus $10 million in sales. Plenty of inventory on hand.
Bio Assets are $4.4 million +$2.4 million QoQ.
With outdoor no longer in play going forward inventory reduced QoQ by 681 KGs. They outsold their harvest. But they did get $3.2 million in inventory from a previously impaired prepaid supply contract.
Cash vs Debt
Cash decreased by $2 million to the $20.5 million. That $17 million raise was gone before it hit the bank account.
Accounts receivable increased $5.5 million to $7.8 million. That is a lot of A/R for a 90-day period unless sales growth to adult was back loaded in the Q.
Accounts Payable are $12 million a decrease of $3.4 million.
Current Portion of Loans increased $3 million while long term Portion decreased $4.5 million. The difference is a loan payment. They have $8.3 million in current portion of leases and loans they will need to service in the next twelve months.
Equity and warrants increased $16 million reflecting the $17 million raise.
Balance sheet items, other than above, were not notably different QoQ.
Nice to see the medical sales increase, as that was the premise of acquiring Starseed.
They have halted outdoor growing except for a test crop. They are buying CannTX a craft grower.
But they need to stop impairing inventory to get any traction in operations. And even then, they need to continue to increase sales. Cash balance will dwindle quickly without staunching the bleeding.
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 does not have a position in WMD and will not start one in the next five days.