Golden Leaf Holdings Ltd (OTCMKTS:GLDFF) was a disappointing investment last year. Shares were on a steady downtrend for the entire year. An ill-fated merger attempt with controversial Terra Tech Corp (OTCMKTS:TRTC) did not help make matters better.
However, things look for be turning a corner for GLDFF as the stock is a making a comeback. News last month that the company hired a new President & CEO has given the market renewed confidence and faith in the company. Taking a deeper look, GLDFF just might be one of the top cannabis plays as we head into the New Year. Let’s have a look at what we found.
What does Golden Leaf do?
Golden Leaf Holdings Ltd is a Canadian company with operations in multiple jurisdictions including Oregon, Nevada, and Canada, with cultivation, production and retail operations built around recognized brands. Golden Leaf distributes its products through its branded Chalice Farms retail dispensaries, as well as through third-party dispensaries. Golden Leaf’s cannabis retail operations and products are designed with the customer in mind, focused on superlative in-store experience and quality products.
The new President & CEO is Mr. William Kulczycki, who brings an impressive resume to Golden Leaf. He has over 40 years of experience as an executive with public and private companies involved in the outdoor industry, where he has successfully built strong management teams, improved profitability, and provided support and advice on acquisitions as well as distribution strategies. Mr. Kulczycki’s experience includes 28 years as Vice President of Patagonia Inc./Lost Arrow Corp.; four years as CEO/President of C.C. Filson of Seattle; four years as Brand President of Gregory Mountain Products, and V.P. of Black Diamond Inc., a publicly traded outdoor company; and two years as Executive Director of Mountain Khakis of Jackson, WY. While at Patagonia, Mr. Kulczycki was responsible for Global Sales and Marketing, as well as Product Development. He stated:
“I am looking forward to both the challenges and opportunities that Golden Leaf presents. I intend to build on the Company’s positive attributes and address its deficiencies. I believe that my background and experience is well suited for leading a strong management team, improving the Company’s business operations, and implementing a profitable, sustainable business model.”
Ill-fated merger with Terra Tech
A merger with Terra Tech would have been a disaster for shareholders of GLDFF. Terra Tech has a history of shareholder dilution and not making money for its stockholders. The deal had called for Golden Leaf shareholders to receive 0.1203 common shares of Terra Tech for each common share of Golden Leaf held. Just looking at the 5-year chart of TRTC and you can see how Terra Tech shareholders have fared under CEO Derek Peterson.
For the quarter ended September 30, 2018, net revenue was US$5.1 million as compared to US$3.1 million for the same three-month period in 2017. The 63% year-over-year increase largely reflects the sale of flower from its Canadian operations, seasonal improvements in Oregon retail, and the addition of two new Chalice Farms stores in Oregon, when compared to the same period in 2017.
As of September 30, 2018, the Company had approximately US$20.1 million in current assets, compared with US$11.6 million in current assets at December 31, 2017. The increase is largely because of the bought deal financing which was completed on January 31, 2018, in addition to proceeds from warrant exercises. Total assets increased to US$84.2 million at September 30, 2018, compared to US$75.8 million at December 31, 2017, also due primarily to the bought deal financing completed in January.
Currently trading with a market cap of US$61 million, GLDFF is trading at just 4x sales and 1.1x book. Considering all the M&A space happening in the cannabis space, we see GLDFF as not only an undervalued player, but also a prime acquisition target. The board made the right decision to abandon the Terra Tech merger as it was not in shareholder’s best interest. Better days are head for Golden Leaf and its shareholders, that’s for sure.
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Disclosure: We have no position in GLDFF; however, we may initiate a long position within 72 hours of publication. We have not been compensated for this article.
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