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General Cannabis Corp. (OTCQX: CANN), established in November 1987, is the comprehensive national resource for the highest-quality service providers available to the regulated cannabis industry. The company is a trusted partner to the cultivation, production and retail sides of the cannabis business. It focuses on providing lease growing space and similar facilities to accredited marijuana operating companies. It carries out its operations through its different divisions: Finance, Security, Marketing, and Operations.
The company recently released its 2018 year-end results. 2018 was a year of transformation for General Cannabis. Within the last year, the company has significantly grown its balance sheet, while improving its liquidity, financial flexibility and overall turnover.
So far as business performance is concerned, along with growth through acquisitions, CANN also focused on organic growth and driving each segment to profitability. The fourth quarter and year-to-date 2018 estimated revenues mark record-setting results for General Cannabis while recording its third consecutive quarter of revenues over $1 million. CANN’ Security segment continued to show consistent quarter-over-quarter growth, while its Operations segment’s 2018 estimated revenues grew 36% year-over-year, and 93% in the fourth quarter compared to the third quarter.
Moreover, the company continues to invest in its infrastructure in order to better serve its current customers and position General Cannabis for expansion through organic growth and acquisition.
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Division wise performance:
- CANN’ security business completed several initiatives in 2018, including further expansion into the California market, adjusting bill rates to sustainable, profitable levels, and implementing new hiring and retention programs to manage personnel costs better.
- In addition to continuing to provide cultivation management services, the company’ operations consulting business also accomplished several goals in 2018, including completing several successful license applications, expanding equipment sales, and developing an online platform for additional product and equipment sales.
Management commentary: Michael Feinsod stated, ” We plan to leverage our breadth of services and resources to continue to deliver comprehensive, integrated solutions to the cannabis industry – from capital needs to operations and compliance consulting, to security, to apparel and marketing.”
Current Business Trends and 2019 Outlook: In 2019, General Cannabis is assertively pursuing a variety of opportunities, including loans to and investments in high-growth potential companies in the cannabis industry, acquisitions, and continued organic growth.
- Security – Includes (a) continued expansion in California, (b) video surveillance, (c) guard training, and (d) implementing compliant security services for companies who recently obtained licenses. The company is also considering growth through acquisition, as well as expansion into new markets.
- Operations – Includes (a) expanding wholesale equipment and supply business to companies beyond consulting clients via an online sales portal; (b) selling standard operating procedures through an online sales portal, and (c) pursuing opportunities to own and operate own cannabis grow facility and dispensaries. The Company also continue to assess acquisition targets that are complementary or expansive to its consulting business.
- Marketing – Includes pursuing relationships with non-cannabis national and regional apparel retailers and distributors, as well as expanding its product line nationwide within the cannabis industry. The company is also actively identifying and evaluating acquisition targets within the apparel and consumer goods space.
- Finance – Includes (a) expanding portfolio of loans, (b) potentially launching a loan origination and servicing business, and (c) investing in high-growth potential companies within the cannabis industry.
- Retail – The company is opening a CBD retail store in Long Island, NY, offering a curated collection of high-quality CBD products for athletes and general wellness. The Company’ future plans include, where allowed, expanding the retail concept nationwide, mail order sales, and partnering with other retailers.
- CANN has a great management team with a long and successful history in the cannabis industry.
- The company is well poised to capitalize on new lines of business, cross-sale opportunities between segments, and operating efficiencies. The improving business and financial performance have strengthened overall confidence in the stock, triggering significant investor interest.
- Analysts tracking to stock believes that General Cannabis has never been in a better position to take advantage of its robust infrastructure and continue to focus on growth through acquisitions. The company’s robust platform and the corporate team can quickly help entrepreneurial cannabis companies achieve success.
About the Company: General Cannabis Corp is the comprehensive national resource for the highest quality service providers available to the regulated cannabis industry. The company is also a trusted partner to the cultivation, production and retail sides of the cannabis business.
CANN does this through a combination of strong operating divisions such as security, marketing, operational consulting and products, real estate and financing. As a synergistic holding company, CANN’ divisions are able to leverage the strengths of each other, as well as a larger balance sheet, to succeed. The company’s head office is located in Denver, Colorado.
Business divisions of CANN:
- Security division offers advanced security such as video surveillance, cash transport and on-site professionals to the accredited cannabis cultivators and retail shops
- Finance division includes the purchase and leasing out of cultivation space and associated amenities to accredited dispensary owners and marijuana cultivators.
- Operating division provides consulting services to the cannabis industry which includes compliance, retail operations, and logistical support to facility design, obtaining licenses, cultivation amongst others
- Marketing division involves the distribution and sale as well as the designing of apparel featuring graphic designs.
On March 5th, the company announced an investment in Consolidated C.R., LLC, a Puerto Rico limited liability company. The Company is investing $375,000 in the form of a convertible promissory note, bearing interest at 12%, collateralized by virtually all of the assets of CCR, with a term of 18 months. The Company has a 90-day option to convert $250,000 of principal under the note into a 10% equity ownership in CCR.
On Feb. 13, 2019, the company announced that it had hired apparel and manufacturing veteran David Hirst, to lead Chiefton Supply’s (Chiefton) growth efforts in the booming cannabis-inspired lifestyle apparel space.
Key milestones in 2018
- Security – CANN’ security business, IPG, completed several initiatives in 2018: (a) expansion into the California market, (b) continued customer growth in Colorado, (c) adjusted bill rates to sustainable, profitable levels, and (d) implemented new hiring and retention programs to better manage personnel costs.
- Operations – The Company’ operations consulting business, NBC, accomplished several goals in 2018: (a) completed several successful license applications, which led to additional implementation consulting projects, (b) in December 2018 the company proposed additional services to its largest customer, (c) expanded equipment sales, and (d) developed an online platform for additional product and equipment sales.
- Consumer Goods – The Company’ apparel and marketing consulting business, Chiefton, continued to evaluate market strategies in 2018, including (a) evaluating the proper allocation of resources between Chiefton-branded clothing and customer-branded apparel, (b) assessing the benefit of launching a hemp clothing line versus using traditional materials, and (c) driving online sales.
- Investments – The Company’ Investments Segment expanded significantly in 2018: (a) a $250,000 investment in a point-of-sale system company, Flowhub, (b) multiple loans to companies in the cannabis industry, and (c) developing a strategy for even more debt and equity investments going into 2019.
- Corporate – The company continued to invest in its infrastructure in order to better serve its current customers and position ourselves for expansion through organic growth and acquisition. In 2018, CANN added (a) a chief operating officer with extensive experience in the cannabis industry, (b) general counsel, and (c) a vice president of marketing. The company also successfully implemented new enterprise resource planning (“ERP”) software, which will integrate information flow throughout the organization.
- Revenues: For 2018, CANN reported revenues of $4.6 million, an increase of 31% on a YoY basis. Encouragingly, this increase has continued a positive trend of rising revenues over the last four years for the company. However, it is anticipated that as CANN expands its business activity, its consumer base will continue to grow which will help to boost sales revenues in the coming years.
- Profitability: General Cannabis Corp. posted a net loss of $16.9m in 2018. The management expects improvements to profitability at the segment level, as the company focuses on revenue growth, expense management, and the bottom line.
- The company remain focused on managing discretionary spending throughout the quarter and enter the end of the year poised for growth. CANN continue to spend on infrastructure and people that will drive future profitability.
Key risk factors and potential stock drivers:
- Notwithstanding CANN’s diversified nature of the business, the company’s performance is exposed to risk related to competition and peer pressure. There are other highly diversified cannabis companies in the industry. Additionally, there’s a cannabis ETF that recently launched for even more diversification.
- Moreover, there are over 200 different cannabis-related stocks that are publicly traded. Therefore, the company’s ability to keep itself ahead of the pack would continue to remain a critical stock sensitivity factor.
- General Cannabis has cumulatively, since its inception, not yet made a profit. Therefore, its ability to grow revenue while significantly improving its profitability will continue to remain a critical price sensitivity for the company
- Company’s ability to maintain its liquidity and financial flexibility to fund its incremental capital requirements. Since cannabis is still illegal at the federal level, it is not easy for CANN to access capital on agreeable terms.
- Company’s ability to continue the growth momentum would be an important factor. Moreover, given the sector it operates in, it is necessary for the company to keep innovating or acquire other entities in a bid to grow and consolidate its overall resources.
- The company operates in a rapidly evolving and highly regulated industry. Therefore, its ability to remain aggressive in executing acquisitions and other opportunities would be a long-term catalyst for CANN
- The cannabis industry is, in many respects, still in the early stages of its development and only time would differentiate between real winners and laggards. As far as choosing an option with a relative advantage is concerned, CANN is a preferred choice with upside potential.
- On Friday, March 15th, 2019, CANN closed at $1.92, on an above average volume of 0.7M shares exchanging hands. Market capitalization is $69.548 million. The current RSI is 30.97
- In the past 52 weeks, shares of CANN have traded as low as $1.46 and as high as $5.75
- At $1.92, shares of CANN are trading below its 50-day moving average (MA) at $2.29 and below its 200-day moving average (MA) at $2.89
- The present support and resistance levels for the stock are at $1.36 & $2.22 respectively.
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