In our last coverage of General Cannabis Corp (OTCMKTS:CANN), which you can read here, we noted a downward trend in the stock but also pointed out that a new financial report that was due in a day or two could mark a turning point for the stock. The report came just a day after our article and the stock made a strong upward move.
But the move didn’t last long as the stock retracted and it is now down about 21% since when we published that article. Profit-taking after that strong move post the release of second-quarter financial results may have partly contributed to the pullback. Regardless of what happened, we see multiple potential catalysts for a comeback in the stock.
In today’s piece, we examine the favorable developments that we see as potential catalysts so you could see what the future could be holding for CANN. More details on this shortly. First, take a look at the price action below.
Business and industry
For the sake of readers who may not be familiar with CANN, here’s a brief review of the company’s business model.
CANN is a player in the regulated cannabis industry, where it is largely focused on serving licensed cannabis business through its various operating units. The company’s solutions to cannabis businesses include marketing, security, operational consulting, real estate and financing. This makes it a diversified player that is well-positioned to capitalize on the expanding regulated cannabis market in the US.
According to research and financial services firm Cowen, cannabis industry would be worth $50 billion by 2026, implying robust growth over the next decade considering that the industry was estimated at $6 billion last year. As much as cannabis market is expanding rapidly, trusted brands and well-capitalized companies in this sector will have the best growth and profitability opportunities – and we see CANN as fitting the bill.
CANN moves to strengthen its balance sheet
On October 10, CANN moved to strengthen its balance sheet by raising an additional capital and eliminating debt. The company said that it raised $725,000 in cash and eliminated $25,000 of debt through a financing arrangement that involved issuance of securities that will convert to common stock.
While equity financing may raise dilution concerns, we view CANN as having strong fundamentals and that the additional financing would enable the company to achieve its growth and profit objectives quickly, and that the outcome of this would more than offset the effects of dilution.
This is exactly what the management is aiming to. Robert Frichtel, the CEO of CANN, stated:
“We continue to focus on the profitability of our operating segments as we expand on a national scale. The capital raise gives us the necessary working capital as we continue to focus on national expansion of each of our operating businesses. We enter the fourth quarter poised to continue our expansion.”
Michael Feinsod, the Executive Chairman of CANN, added that:
“As we look to 2018, we expect that our business will continue to expand out of Colorado and into new markets where we can leverage our knowledge and experience. With the capital raise complete, we will look to maximize revenues and gross profit.”
Impressive financial scorecard
Equity financing can be a serious concern if the company undertaking it is not generating substantial revenue or any revenues at all. But CANN is different.
On August 7, CANN released its second-quarter (2Q17) financial report and it was a pleasant surprise. CANN shares moved up in response to the compelling quarterly results. Revenue for the quarter grew 19% year-over-year to $834,000, with the company’s operations segment, Next Big Crop, registering an incredible 403% year-over-year revenue growth.
As more states legalize marijuana or expand their existing regulated marijuana markets with legalization of recreational marijuana, there is a steady increase in demand for Next Big Crop services – and this is fueling the robust topline growth. With sale of recreational marijuana set to begin in California next year, a potentially huge market is about to open up for Next Big Crop.
CANN’s Next Big Crop division assists cannabis companies through their license application process and also provides operational consulting.
On October 10, CANN released preliminary financial results for its 3Q17, and the report highlighted continued strong growth of the business. The company said that it expects to report 3Q revenue of about $980,000, implying a growth of 17% year-over-year. On a sequential basis, 3Q revenue is expected to be 15% higher than 2Q revenue.
In other news, CANN announced on September 18 that it promoted Brian Andrews to the position of CFO (chief financial officer). Andrews joined CANN in January 2017 in the capacity of President of Finance. We appreciate the appointment because we believe that Andrews’ financial insight and professional relationships would be crucial to CANN, especially as the company steps up efforts to grow revenues and improve profitability.
For a number of years, Andrews served as corporate controller for medical devices maker Mesa Labs. At Mesa Labs, Andrews was responsible for an array of functions, which included SEC filings and acquisition due diligence. While announcing its 2Q financial results, CANN stated that it intended to make more acquisitions this year.
We believe that with Andrews as CFO, the company could make more prudent acquisitions.
On August 21, CANN announced that it acquired Mile High Protection Services LLC (Mile High), to strengthen its security business, Iron Protection Group.
As more investors become aware of CANN’s strong growth and bright profitability prospects, we see more buyers entering the stock and this would provide an important upward support for the stock price.
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Image courtesy of robhardwick via Flickr
Disclosure: We have no position in CANN and have not been compensated for this article.