Over the recent past, the share price of General Cannabis Corp (OTCMKTS:CANN) has been facing the most bearish run in the history of its share price.
The company whose share price has been on a downward trend since June 2017 and hasn’t stopped falling has seen its share price fall from $2.2 to its current price of $1.22, a near 50% dip in prices, a price action which can be seen in the chart below:
Market participants may be of the opinion that the company is not creating value and the market is therefore is being punished for this.
We are of a different opinion.
We believe that the company is at a critical point in its operational life and that they are currently making some decisions that will impact their future performance significantly. As such, we stand by a hypothesis that the company’s management is currently making decisions that will impact them in both the short and long run. Their bid to ensure that the market’s valuation for their company goes up seems to be the main agenda and this is the main idea we seek to critique.
As such, over the course of this piece, we will ensure that we give the reader a glimpse into the current position that CANN is in and how they are working at bettering this position moving forward.
Before then, however, let’s first understand the company from its operating environment for the sake of first time readers.
CANN: General information
Incorporated in 1987, General Cannabis Corp is a leader in the cannabis industry based in Denver, Colorado which prides itself in being a comprehensive resource for the highest quality service providers available to the regulated Cannabis Industry.
Given the sector it operates in, CANN is required to constantly innovate or acquire other entities in a bid to grow and consolidate its resources vertically. Well, the company has done a lot of the latter.
It is comprised of several subsidiaries which include Chiefton Supply, Next Big Corp, Iron Protection Group, Chiefton Design and Mile High Protection Services; all which seek to tap into the $1.2 billion MMJ sector within Colorado, the first state to legalize cannabis in the United States.
With the company operating in such a sector and with such growth in acquired companies till now, they are only poised to get bigger with time.
It is upon this backdrop that we found that the company is engaging in a number of projects meant to get them to the top with the key project being as described below:
Mile High Protection Services
With the expansion of their security division to California during the second quarter of this year, a lot needed to be done to ensure that this division was bringing in enough revenues into the company. Moreover, investment in a company that could support their operations was going to be pivotal to the previously alluded financial benefits.
Management seems to have obtained a solution.
Their most recent acquisition happened early this quarter with CANN seeking to integrate their security arm of the business. They therefore acquired Miles High.
Miles High is a corporation based in Colorado which specializes in offering security services to the hospitality industry which covers hotels as well as the cannabis industry. The aim of this complementary acquisition is for General Cannabis Corp to leverage on the expertise of Mile High in terms of management and service delivery.
This acquisition will be of major benefit to Iron Protection Group which is also a subsidiary of General Cannabis.
With the major focus of General Cannabis being service delivery ranging from general consulting to security, this acquisition promises to significantly influence the profit-making capabilities of General Cannabis.
Such an outlook was alluded to by Robert Frichtel, CEO of General Cannabis when he said:
“Mile High will complement our current security business, Iron Protection Group. It expands our footprint within the Colorado cannabis security market, as well as providing the opportunity to expand our entire security business into the hospitality and other industries. The combination brings natural synergies across hiring, management and operating expenses.”
Finally, the company also made a play at GC Finance Arizona, LLC which they acquired in a bid to ensure operational efficiency.
The company, which has 14,000 square feet of idle space, is a major producer and distributor medical marijuana infused products in the state of Arizona. With a gross revenue of $194,000 in 2017, CANN found this to be a great chance in their bid to ensure GC Finance is growing as are they.
All the above allude to a diverse set of entities working to ensure a holistic growth of the main entity. We believe that CANN has made the right moves and that going forward, these moves will ensure they do not fail to meet their operational and strategic targets.
In a bid to ensure they prove their sheer strength to the market, the $29 million company just released some positive third quarter financials.
Revenues grew by 21% from $810,380 in 3Q2016 to $979,991 in the same quarter for 2017. The growth in revenue for the first three quarters over the same period was just shy of 15%.
This growth translated to net profit gain from a loss of $14,447,094 in 3Q2016 to a profit of $586,873 in 3Q2017. Services make up about 90% of the total revenue with the remaining portion being attributed to partly to rent and interest and partly to product sales.
Shareholder equity increased by 21% from $17 million to $20 million, which aids in the efforts to deleverage the company. Better leveraging for the company would significantly improve their returns to equity drawing from efficient allocation of debt payments thus less financial stress on the company.
The composition of the company’s statements points to it being highly leveraged which may have both positive and negative implications. However, given the moves they have made in ensuring that this position is reduced, we believe that in the long term, this would be a smart investment for investors to make.
CANN is growing at a significant rate: their financial performance in the past quarter speaks to this. Going forward, the decisions management has made will go a long way in ensuring that they not only grow in the short run but also long into the future. Look for shareholders to reap the rewards.
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Disclosure: We have no position in CANN and have not been compensated for this article.