THC BioMed Intl Ltd. Turns a Profit as Revenue Breaks $1 Million
January 14th, 2020
Canada’s cannabis sector has experienced a sharp sell-off over the past year, with the Marijuana Index’s Canadian Index moving from a high of $727 in March to a low of $196 in November. Rather than looking solely at growth in production capacity, many investors are shifting their focus to tangible revenue growth and profitability. Profitable licensed producers can be more selective in raising capital — limiting dilution — and generate tangible shareholder value — in the form of retained earnings.
THC BioMed Intl Ltd. (CSE: THC) (OTXQX: THCBF) (“THC BioMed”) is one of the few licensed producers that has managed to turn a profit as it broke $1 million in revenue last quarter. In addition to ramping up output, the British Columbia-based grower cited its premium cannabis and reasonable prices for helping it become a bestseller among consumers. Management’s long experience in the space — moving from Exemption 56 to ACMPR license to the Cannabis Act — has taught them how to grow great medical & recreational cannabis with unparalleled compliance.
In this article, we will take a closer look at THC BioMed’s strong quarterly performance and what catalysts investors can look forward to ahead.
Robust Growth & Profitability
THC BioMed reported revenue that rose about 275% year-over-year to $1,044,510, during the quarter ended October 31, 2019, with an average selling price of $4.20 per gram to medical patients and recreational buyers, such as the Ontario Cannabis Store and BC Cannabis Stores. These prices are much less than the $5.00 or more reported by other licensed producers, according to data from Cannabis Benchmarks. Lower production costs could enable the company to capture market share right now, as well as provide a buffer if cannabis prices continue to fall.
Average Cost of Production for LPs – Source: Cannabis Benchmarks
On the bottom line, the company’s adjusted EBITDA swung from a loss of $345,754 to a gain of $890 after accounting for changes in the fair value of cannabis inventory, share-based compensation and other non-operational factors. Many cannabis investors are seeking out companies with profitable operations since they can be more selective when raising capital, which potentially translates to less dilution for existing shareholders and easier access to capital required to grow the business over the long-term.
On the balance sheet, the company reported $6,301,916 in total assets versus $4,188,603 in total liabilities, yielding $2,113,313 in shareholders’ equity. Many licensed producers have struggled under debt hangovers after ramping up production capacity over the past couple of years. As the market matures, companies with less debt have less of a drain on cash flow and more flexibility when it comes to capitalizing on any new opportunities that may arise. Positive net asset levels could also provide shareholders with a buffer in their valuations.
Many Irons in the Fire
THC BioMed has prudently grown its business over the past several years, but that doesn’t mean that it’s not pursuing high-growth opportunities. Last quarter, the company amended its license to include the production and sale of cannabis edibles, topicals and extracts and submitted a new product application to Health Canada for Pure Cannabis Sticks — pre-rolls that are filtered, paper cylinders filled with pure cannabis to be manufactured using its automated production machine — dramatically lowering labor costs.
In addition, the company announced an alternative, brand new cannabis beverage product, THC Kiss, and submitted a new product application to Health Canada shortly after the quarter ended. Zion Market Research projects that the global market for cannabis beverages hit $1.6 billion in 2018 and could reach $4.46 billion by 2025, representing a 15.6% compound annual growth rate. The market is growing so quickly that many traditional beverage companies, such as Constellation Brands Inc. (STZ), have made significant investments into cannabis.
Finally, the company acquired an additional strata lot at its production facility to increase grow capacity. Management’s unique approach to growing cannabis also ensures the highest-quality products reach consumers — from selecting only the best feminized seeds to hand-trimming at the perfect time and placing product on drying racks to dry and cure over an extended period of time. The combination of low-cost production methods and experience growing premium cannabis creates an easy bestseller.
THC BioMed Intl Ltd. (CSE: THC) is one of the few licensed producers that have achieved profitability on the bottom line. As the market shifts their portfolios from growth to value, investors may want to keep an eye on the company that has prudent financial discipline and plenty of potential catalysts ahead. It’s long track record shows that management has been able to balance these objectives and deliver shareholder value with an eye for creating low-cost, high-value products for consumers.
To Learn more about THC BioMed (CSE: THC) (OTCQX: THCBF) visit the Company’s Website: https://thcbiomed.com
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