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Surna Inc (OTCMKTS:SRNA) Looking To Rebound

Surna Inc (OTCMKTS:SRNA) Looking To Rebound
Written by
Alex Carlson
Published on
February 11, 2016
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Surna Inc (OTCMKTS:SRNA) started 2016 off with a bang, but has slowly withered away. The only news to really come out of the company has been a CFO change and a $750k contract with indoor cannabis grower Cloud 9 Wholesale. However, we think we'll be hearing more from Surna over the coming weeks. Furthermore, we think 2016 is going to be one of the best years for pot stocks and SRNA is right at the top of the list.

The marijuana industry has a lot of tailwinds heading into 2016. Roughly 14 states could legalize marijuana this year, adult-use cannabis or possibly both, either at the ballot box or through state legislatures. While it’s doubtful all those states will be successful, there’s a good chance at least a handful will legalize in 2016. No other single year has offered such incredible promise in terms of the sheer volume of states that could legalize, thanks to other pioneering marijuana markets and growing support for cannabis in general.

The ArcView Group just reported that legal sales of cannabis grew to $5.4 billion in 2015, up from $4.6 billion in 2014. Demand is expected to remain strong this year and the research firm forecasts sales of $6.7 billion. Nonmedicinal adult use accounted for $998 million of the total sales in 2015, up from $351 million in 2014, according to the ArcView/New Frontier report summary.

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The most surprising aspect for us at Insider Financial is the fact that marijuana stocks continue to underperform the major market indices. This sector is probably the fastest-growing industry in America right now and most of the public companies in the space are trading for pennies. With the potential interest coming from all walks of life, we think you'll see bottom fishers looking for a place to invest.

We think Surna will be one that investors look towards. SRNA is one of the few pot stocks with a real business and real revenues. For the nine months ended Sept. 30, 2015, the Company reported gross revenues of $6,182,936 compared to $1,206,047 for the same period in 2014, an increase of 413%. Revenues for the three months ended Sept. 30, 2015 were $3,634,091, up from $1,677,950 in the previous quarter, and $859,488 in revenue during the same period in 2014. SRNA is also well-capitalized with $3.3 million in cash on its balance sheet. SRNA has been using its money wisely and investing in research and development. In the first nine months of 2015, the Company spent $533,808 in product development costs, primarily on the Surna Reflector. The Surna Reflector is Surna’s first product to combine lighting and environmental control into one unit while increasing light delivery to the plant canopy.

Surna also benefits in that it does not produce or sell cannabis. This allows the company to avoid the hassles of banking, security and possible adverse Federal regulations. We like that SRNA is a pick and shovel type of company rather than an actual grower or producer of cannabis. In the late 1800s gold rush, it was the pick and shovel companies that served the gold miners that made all the money while many gold miners went bust. SRNA’s business model centers around developing innovative technologies and products that monitor, control and or address the energy and resource intensive nature of indoor cannabis cultivation. Currently, the company’s revenue stream is based on its main product offerings – supplying industrial technology and products to commercial indoor cannabis grow facilities.

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Last month, Surna signed an agreement with Las Vegas cultivator Cloud 9 Wholesale. Under the terms of the agreement, Surna will provide their proprietary climate control technology to the cultivation facility for the single-phase project. The Cloud 9 Wholesale facility covers 30,000 square feet, which will require approximately 550 tons of cooling equipment for cultivation climate control. Nevada is one of 23 states that currently permit medical marijuana cultivation and consumption. In November 2016, Nevada will vote on expanding the law to include recreational cannabis cultivation and consumption.

Currently trading at a market cap of $8.8 million, SRNA is well off its 52 week highs of $.29 and looking to rebound. We think that's possible considering the tailwinds driving the marijuana industry in 2016. If pot stocks get hot like they did in 2014, SRNA could turn into a microcap runner again. Sign up to Insider Financial today and get the latest developments from SRNA and our continuing coverage of micro caps trading on the NYSE, NASDAQ and OTC markets.

Disclosure: We have no position in SRNA and have not been compensated for this article.

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