Sugarmade, Inc. (OTCQB: SGMD), is a product and brand marketing company investing in products and brands with disruptive potential. SGMD brands include CarryOutSupplies.com, Sugarmade Tree Free Paper, FreeHand, ThumbTray and CannaShroud, the world’s first Cannabis specific shipping systems. During early 2017, SGMD will launch Sriracha Stix, a revolutionary culinary seasoning product under official license from Irwindale, California- based Huy Fong Foods, Inc., the maker of Sriracha Hot Chili Sauce.
The company recently announced completion of an agreement allowing it to introduce a new and revolutionary set of intelligent and active packaging systems for cannabis transport and storage. This allow cultivators and retailers to preserve THC levels, protect trichomes and save terpenes, while helping to mitigate pathogen levels, all of which are critical to the marketing and enjoyment of high-quality cannabis flowers.
SGMD is the first company to offer active and intelligent packaging to the fast-growing cannabis industry & company’s management is positive about this active packaging and the already issued patents, which protect the intellectual property.
In a separate announcement, SGMD disclosed that it is in final stages of preparation for its product launch of Sriracha Seasoning Stix. As per initial response, SGMD’s website already received more than 60,000 sign ups for free shipping and its offer for free samples exceeded the capacity on the first day itself.
SGMD is one of the promising & relatively more diversified entities for cannabis related investors. Presently it is in development of several innovative product lines, planned for mid-2017 introduction. As it moves towards commercialization process, intrinsic value of the company is expected to increase significantly. With a seasoned management team, SGMD is at a critical inflection point.
In fact, supported by abovementioned reasons, company’s stock has unsurprisingly found enormous activeness in the recent past. It has been powering due to the favorable impact of the company’s recent announcements and growing popularity of the industry.
Description & manufacturing set-up:
Sugarmade, Inc. is a product and brand marketing company investing in products and brands. Sugarmade’s brands include CarryOutSupplies.com, Sugarmade Tree Free Paper, FreeHand ThumbTray and CannaShroud™, the world’s first Cannabis specific shipping systems. During early 2017, the Company will be launching Sriracha Stix, a revolutionary culinary seasoning product under official license from Irwindale, California- based Huy Fong Foods, Inc., the maker of Sriracha Hot Chili Sauce.
SGMD and its licensor partner, Cannabis Active Packaging, Inc., are currently in the development process and are actively developing prototypes for lab testing. While the food industry has used modified atmosphere packaging for many years, recent advancements have given way to active and intelligent packaging. Active packaging is a smart system that involves interaction between packaging components and the internal gas atmosphere within the package. The intellectual property on which SGMD will base its new products takes active packaging one step further by adding intelligence to the packaging, which will allow for active feedback to the consumer and tracking throughout the entire supply chain.
SGMD is one of the interesting proxy plays in the cannabis space. Its goal, and the niche in which it is trying to establish itself, is designing and commercializing safe, secure and odorless high-tech packaging solutions for both recreational and medical side of cannabis sector. Cannabis is going to have to be transported safely and securely. A key part of this is ensuring handlers are unable to smell the contents, and these are the critical elements of the packaging that SGMD is focusing on.
Major Divisions of the Company:
Cannabis Packaging division & recent announcements:
It recently announced completion of an agreement, allowing it to introduce a new and revolutionary set of intelligent and active packaging systems for cannabis transportation and storage. Management plans to lead the market in advanced transport and storage for the fast growing cannabis industry.
SGMD is currently working toward two initial products within the developing market for active packaging of cannabis. These include:
1) Dispensary/Home Storage Container. The Company’s top priority is an active packaging enabled cannabis storage container that will better preserve THC and terp levels, while treating cannabis for pathogens.
2) Grower Cure Box. Proper curing of cannabis is not an easy process. The Company plans to develop a curing box that will enable home and professional cultivators to better manage the curing process via control of C02, O2, and moisture levels, while ensuring that desirable aromas are preserved and that pathogens, especially molds and mildews, do not spoil the cannabis during the process.
Potential of Active Packaging:
These products will allow cultivators and retailers to preserve THC levels, protect trichomes and save terpenes, while helping to mitigate pathogen levels, all of which are critical to the marketing and enjoyment of high-quality cannabis flowers.
Presently, cannabis flowers have a very short shelf life. The trichomes that protect the cannabinoids, terpenoids and flavonoids are extremely sensitive to handling, atmosphere gases, humidity and light. Current methods of transport and storage are very unfriendly to trichome preservation, resulting in millions of dollars in lost profits for cultivators and retailers and reduced enjoyment by consumers.
Outlook & developments:
SGMD aim to lead the market for fast growing cannabis marketplace. Through the use of patent protected technologies, it will offer transport and storage containers that will actively create the ultimate protective environment within transport and storage containers, while also applying food safe oxidizers to mitigate pathogens to make cannabis safer.
With the recreational marijuana industry set to expand dramatically over the near to medium term, there is no denying that products such as those that SGMD is introducing to market right will be in demand. After all, retailers would need some form of discrete packaging with which they can limit the potential for theft along the supply chain.
That said, legal framework surrounding mail based delivery of cannabis and cannabis products is still uncertain, even in legal states, but with the industry set to undergo exponential growth over the medium term, frameworks on a state level are certain to be revised to accommodate the requirements of cannabis retail.
Culinary division:
Another side of SGMD pertains to a cutting-edge innovative product in an all-together different market. Through a license from Huy Fong Foods, maker of the world-renowned chili sauce, Sriracha, SGMD is set to launch a line of culinary seasoning for which early interest appears extremely high.
While there could be some crossover synergies/value unlocking between the cannabis and culinary divisions, for now the move simply represents a unique diversification from SGMD’s business risk perspective.
During Feb’17, SGMD committed to a lease on a fully licensed commercial manufacturing facility in conjunction with its partner, Seasoning Stix International, LLC, with move in occurring over the next few days. State of the art manufacturing equipment has been acquired and the process of shipment and installation has begun.
SGMD CEO, Mr. Chan commented, “For the past few months, we struggled with finalizing the unique, state of the art manufacturing process and locating a licensed production facility. We have now solved these issues, enabling us to accelerate our timetable. As a result, we expect to begin production of Sriracha Stix and other Seasoning Stix blends as soon as the installation process is complete.”
Key Stock Influences
Some key influences that might govern future stock price performance include:
- Company’s ability to get the hi-tech advanced packaging product moving and ultimately in the hands of the cannabis retailers that would make up the end users of the packaging system.
- Meaningful and commercially viable outcomes of its present product lines.
- The legal framework surrounding mail-based delivery of cannabis and cannabis products is uncertain at the moment. Future regulatory developments in these areas and its impact on SGMD’s business will remain a critical contingency for company’s business risk profile.
- The Company sustained continued losses from operations during three months ended September 30, 2016. It has not yet achieved scale of operations and will likely operate at a loss as it grows its market position and seeks ways to monetize it. Therefore, any time or cost overrun in its ongoing activities and its impact on business & financial profile will remain a key business sensitivity factor.
- Also, given the fact that SGMD is burning through cash, it will need to access additional funding to continue it’s operating. This is likely to lead to dilution in its present equity capital. Moreover, any sort of inability to raise fund in a timely and prudent manner, could materially & adversely affect its operations and liquidity.
Earnings Review
For quarter ended September 30, 2016 and September 30, 2015, revenues were $1,127,554 and $1,402,911, respectively. The decrease was primarily due to a refocus on the types of products sold by Company, specifically elimination of low gross margin and unprofitable product lines and a renewed focus on higher growth and higher gross margin products.
Operating Metrics
For the three months period ending September 30, 2016 and September 30, 2015, gross profit were $427,903 and $474,252, respectively. The decrease was primarily due to a refocus on the types of products sold by the Company, specifically elimination of low gross margin and unprofitable product lines and a renewed focus on higher growth and higher gross margin products. While this resulted in a decrease in the overall gross profit, the change in business focus result in a significantly higher gross margin percentage of revenues.
Net income totaled $141,197 for September 30, 2016, compared to a net loss totaling $750,225 for September 30, 2015.
Cash Flow & Balance Sheet:
SGMD primarily financed its operations through sale of unregistered equity and convertible notes payable. As of September 30, 2016, it had cash balance of $14,422, current assets totaling $545,477 and total assets of $636,263. It had total liabilities totaling $3,678,559. Stockholders’ equity reflected a deficit of $3,042,296
Given estimates of Company’s future operating results and its credit arrangements with suppliers, it would need to secure additional financing. As per internal estimate, cash necessary to implement SGMD’s current business plan for the next twelve months is approximately $2,000,000.
Stock Performance
On Friday, February 24, 17, SGMD shares declined by -16.62% to $0.140 on an average volume of 2.82M shares exchanging hands. Market capitalization is $35.31 million. The current RSI is 51.94
In the past 52 weeks, shares of SGMD have traded as low as $0.02 and as high as $0.42
At $0.140, shares of SGMD are trading near its 50-day moving average (MA) at $0.14 and 200-day MA at $0.15.
The present support and resistance levels for the stock are at $0.1165 & $0.167 respectively.
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