Supreme Cannabis Company Inc (CVE:FIRE) Looks Undervalued

Supreme Cannabis Company Inc (CVE:FIRE) has underperformed, a great deal, ever since it rose to highs of CA$3.2 at the start of the year. The stock is down by more than 40% for the year, after coming under immense selling pressure as the overall sector turned bearish. However, recent price action activity has pointed to a potential turn around in the direction of trade, heading into the New Year.

Supreme Cannabis Price Action

The cannabis sector has turned bullish in the wake of Canada legalizing recreational use of marijuana. In addition, Supreme Cannabis Company fundamentals have turned positive, depicted by robust revenue growth. The company is also fresh from signing cannabis supply agreements which affirms its improving operational efficiencies.The stock has already bottomed out from this year’s low at the CA$1.3 handle. A rally above the CA$2 a share, appears to have attracted short selling pressure as the stock has since pulled back to the CA$1.8 mark.Supreme Cannabis Company needs to rally and stabilize above the CA$2 a share handle, if it is to have a chance of finishing the year on a high. Above the CA$2, a share handle, bulls could push the stock to the $2.5 mark, seen as the next substantial resistance level.Recent developments in our view support further movements on the upside, at the back of strengthening underlying fundamentals.

About Supreme Cannabis

Supreme Cannabis is a publicly traded company based in Canada that engages in the production and supply of medical cannabis. The company’s mission is to come up with premium brands and products that perfectly reflect consumers and innovative culture. Its portfolio includes products from its wholly owned subsidiary 7ACRES.

Medical and Recreational Marijuana Market Opportunity

Supreme Cannabis is a licensed producer taking full advantage of Canada’s expanded cannabis market. Recreational use legalization essentially translates to a broader target audience that the company is targeting with an aggressive sales strategy.The company is also working behind the scenes to strengthen its line of premium brands and products scale. The signing of distribution agreements in the Canadian recreational cannabis market from coast to coast further attests to the company’s growing empire in the lucrative business.Supreme Cannabis has also secured wholesale agreements with licensed producers as it also continues to pursue opportunities in the medical cannabis sector. The signing of a $2 million supply agreement with Tilray Inc. is a positive sign that shows the company is executing on its business plan.

“We are excited to be entering into this agreement with Tilray, an organization – like Supreme Cannabis – that focuses on the end user and demands leading quality assurance standards. Tilray has built an industry-leading global medical distribution platform, which has resulted in robust demand for high-quality cannabis products,” said John Fowler, President of the Supreme Cannabis Company.

Supreme Cannabis has already transitioned into a revenue-generating entity depicted by sales of $8.85 million for the first four quarters ended June 30, 2018. Revenue in the fourth quarter, alone, came in at $3.55 million translating to a 71% increase from last year same quarter levels. The annualized revenue rate stands at $14.2 million which is much greater than that of household names such as Cronos Group.

The downside

Supreme Cannabis sentiments have taken hit in recent weeks on concerns over the amount of debt the company has accumulated in the recent past. The company is fresh from announcing a $90 million bought deal financing of convertible debentures. The convertible debenture issued, bear interest at a rate of 6% per annum and payable semi-annually commencing December 31, 2018.The company has also granted underwriters an over aliment option for the purchase of an additional $10 million aggregate principal amount.

Bottom Line

While Supreme Cannabis underperformance in the market is a point of concern, one cannot dispute the fact that it boasts of a robust and broad cannabis distribution network across Canada. The company also boasts of a more attractive market capitalization than its peers.The company is currently trading at a fraction of its market capitalization. Strong distribution footprint as well as to robust revenue growth and strong management teams underscores a company that is poised to be a key player in pursuit of market share in the Canadian Cannabis business.That said the stock looks like an exciting pick at current levels given its solid long-term prospects supported by a robust growing cannabis business empire and prospects.We will be updating our subscribers as soon as we know more. For the latest updates on CVE:FIRE, sign up below!Disclosure: We have no position in CVE:FIRE and have not been compensated for this article.