The share price of ROCKY MOUNTAIN HIG (OTCMKTS:RMHB) has suffered one of the longest bear runs in its time. The stock which has consistently dipped since June 2017 has gone from $0.1 to trade eventually at below $0.01, a tenth of its previous price.
However, things now seem to be changing for it.
The company is currently enjoying a turnaround as their stock price begun seeing an uptick, one that sends hope to the company as well as the market in general. This uptick saw their share price rise from below $.01 to close yesterday at $.015, a near double from their initial price. Furthermore, during this same period, the number of shares traded has risen to over 100 million, a first for the company since its incorporation.
The above price action and volume trades can be seen in the chart below:
With such information hitting the financial markets, the markets’ as well as our interest was aroused and we decided to take a closer look at RMHB. Our goal is find out what has driven the market to assign such a high valuation to the company and whether the value-driver will be sustainable in the long run.
A Brief Into RMHB
Incorporated in 2014, Rocky Mountain High Brands, Inc. is a Dallas-based consumer goods brand development company.
They specialize in development, manufacture, marketing and distribution of high quality food and beverage. However, they have added a touch to it. The above stated food and beverage is hemp-infused. Furthermore, they also have naturally high alkaline water in their product line.
Dubbed on of the fastest growing industries in the world today, the cannabis industry has produced some of the most promising numbers in the world today. The sector currently boasts some of the largest and fastest growing companies globally and is now attracting Fortune 500 stocks as was seen by the investment of Constellations Brands (NYSE:STZ) in Canopy Growth Corp (OTCMKTS:TWMJF) earlier this year.
Forbes estimates that the industry will be generating revenues of over $1 billion within the next three years. This number won’t stop climbing. Furthermore, the sale of cannabis based products such as Hemp will also play a contributing factor to the growth of the industry.
With the global acceptance of cannabis rising as well as the continued adoption of the product by countries, such as Canada, and bodies such as the World Anti-Doping Agency, the horizon seems quite promising for cannabis players as their financial performance is based on a solid and growing market.
The most recent development entails a branding contract with a Mexican company: CBD Alimentos SA de CV (“CBD”). The company which specializes in food and beverage distribution in Mexico announced the Master Manufacturer agreement with RMHB three days ago.
The contract will see CBD have exclusive rights to distribute the soft energy drinks with hemp seed oil and hemp seed extract produced by RMHB. Furthermore, CBD will utilize the Company as its exclusive supplier of its hemp-infused drinks.
The deal is expected to have significant implications on the revenues of RMHB as the company will benefit from the entry into a new market with minimal costs as well as a constant supply of their products in Mexico.
Figures from the deal show that CBD will initially purchase 8 million cans worth at $3.6 million in revenues during the late first and early second quarter of 2018. This will be followed by subsequent purchase orders that should total 16 million cans by 2019, a figure which implies a revenue of $7.2 million for RMHB.
Speaking during the deal-signing exercise, Michael Welch, the company’s Chairman of the Board, President and Chief Executive Officer, said:
“We are very pleased to have this significant private label opportunity to provide our original hemp-infused drinks in Mexico and are looking forward to working with CBD. This agreement, made possible by CBD, is an important milestone for our Company. We look forward to meeting Mexico’s demand for hemp-infused drinks with our great products…”
This deal is a major leap for RMHB. The forecast revenues and growth that has been shown above will be quite significant. Their financial statements are due to benefit from the above addition in revenues and so is their valuation. This explains why the company has been enjoying such a price surge in the recent past.
Rocky Mountains has been enjoying a surge in their profits in the recent past. Over the third quarter of 2017, the company’s net profits surged to $685,272, up from a net loss of over $1.66 million. This, however, was mainly due to gains from derivative contracts experienced during the third quarter.
Despite this, the company needs to ensure they have control over their working capital deficit which currently stands at over $6.6 million. This coupled with their negative operating cash flows of $396,930 will need to be managed as the high risk associated especially with the former may cost them in the short run.
This being said, we remain optimistic that RMHB will overcome the few hiccups discussed above. This is especially due to the high revenues and cash they are expected to reap from the deal discussed above.
RMHB is a growing company. In the past, it has done a lot to ensure that it stays afloat. However, their breakthrough has finally come and they are now in a new market. A lot is expected from this move but the bottom-line holds, they are about to make a lot of money.
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Disclosure: We have no position in RMHB and have not been compensated for this article.