The Supreme Cannabis Company, Inc. (OTCPK: SPRWF) is a Canadian publicly traded company, engaged into cultivation and distribution of sun-grown cannabis through its wholly-owned subsidiary 7ACRES. 7ACRES is a federally licensed producer of medical cannabis pursuant to the ACMPR operating inside a 342,000-sq. Ft. Hybrid Greenhouse facility. The Hybrid Greenhouse combines the best technology of indoor production with the efficiencies and sustainability of a greenhouse, in a single large-format production footprint.
In the recent past, the company’ operating and market profile has substantially benefited due to lucrative and growing Canadian cannabis market. Supreme focuses on executing on its B2B strategy in the cannabis space and intends to position 7ACRES as Canada’s leading brand for premium cannabis flower and leverage its perceived quality advantage by working with multiple re-sellers to capture the premium market segment.
Consequently, management is focused on developing and maintaining 7ACRES’ position as a leading brand of premium cannabis flowers at scale. The B2B model is designed to allow 7ACRES to grow its revenue through high-value bulk sales while maintaining its focus on cultivation, without the expense of patient acquisition and retention or retail order fulfillment and logistics. Supreme anticipates construction of all the 7ACRES flowering rooms to be complete by the end of calendar 2018.
Supreme is regularly considering opportunities in emerging cannabis markets and over the past few months have significantly expanded its market profile.
Key recent highlights:
- The firm reported investment in Medigrow Lesotho (PTY) Limited (“Medigrow”), a licensed producer of cannabis in the Kingdom of Lesotho. Supreme anticipates Medigrow to become a leading supplier of GMP-Certified medical cannabis oil produced in Lesotho.
- During the three and nine months ended March 31, 2018, Supreme added multiple retail partners including International Herbs Medical Marijuana Ltd. d/b/a/ Zenabis, Terrascend Corp. d/b/a Solace Health, Puresinse Inc., and Potanicals Green Growers, Inc. Strong bulk sales transactions continued during the three months ended March 31, 2018 resulting in revenues of $2,023,184, a 24% increase from the previous quarter.
- On February 26, 2018, Supreme, through its wholly-owned subsidiary 7ACRES, entered into a definitive supply agreement (the “Supply Agreement”) with BlissCo Cannabis Corp. (“BlissCo”). 7ACRES will supply BlissCo with a minimum of 1,000 kilograms of premium quality dried cannabis on a take-or-pay basis over a twelve-month period starting July 1, 2018. The maximum aggregate value of the Supply Agreement is estimated to be $6,000,000 representing a further validation of Supreme’s premium-focused, branded wholesale B2B model.
- On January 25, 2018, Supreme, through its wholly-owned subsidiary 7ACRES, entered into a definitive supply agreement (the “Agreement”) with Cannmart, Inc. (“Cannmart”) a wholly-owned subsidiary of Namaste Technologies Inc. (CSE: N) (FRA: M5BQ) (OTCMKTS: NXTTF), whereby Cannmart has committed to purchase 1,000 kilograms of premium quality medical cannabis from 7ACRES in 2018, on a take or pay basis.
From a liquidity perspective, As at March 31, 2018, the Company has a working capital surplus of $75,911,920 (June 30, 2017: $54,195,849). The Company believes that after the substantial completion of the Facility positive operating cash flows will be generated. Should additional capital requirements or the replacement of debt be necessary, the Company expects it could satisfy these requirements through debt restructurings, capital raises or asset sales.
Taking all this into consideration, analysts tracking the stock believes that SPRWF has all the reasons to succeed over the near to medium term. Also, SPRWF is now an attractive play due to the legalization of recreational cannabis. Taking a valuation call on the stock and the sector, share now ruling at $1.25, it can move to a level of $2.70 in next few months.
About 7 Acres: 7ACRES is a Licensed Canadian Producer, focused on cultivating premium dried cannabis flowers on a commercial scale. 7ACRES is a leading Canadian B2B Licensed Producer, a cannabis business model it pioneered in 2016. Currently, 7ACRES operates 40,000 sq. Ft. of operational capacity which is expected to have an average output of approximately 5,000 kilograms of dried cannabis per annum in the current fiscal year. The Company does not have any Canadian operations independent of 7ACRES.
The 7ACRES Facility is located in Kincardine, Ontario. It is expected that the Facility, once complete, will span more than 342,000 sq. Ft. Management expects the Facility will be able to produce 50,000 kilograms of premium dried cannabis flowers per year once it is able to operate at full capacity. The Facility has been developed to produce premium dried cannabis, at scale. The Company expects that the facility will be fully completed in early 2019.
Financials for three months ended March 31st, 2018:
SPRWF has a FYE of June 30th.
Revenue: During the three and nine months ended March 31, 2018, the Company generated revenues of $2,069,032 (March 31, 2017: nil) and $5,309,671 (March 31, 2017: nil), respectively. On June 28, 2017, the Company, through its wholly-owned subsidiary 7ACRES, was granted permission to sell under the ACMPR regime. As a result, commercial sales and execution of the Company’s B2B business model have commenced.
Construction of the 7ACRES Facility: For the three and nine months ended March 31, 2018, the Company’s total capitalized expenditure related to the Facility increased to $18,259,680 (March 31, 2017: $2,114,380) and $46,595,273 (March 31, 2017: $5,003,022). For the nine months ended March 31, 2018, the capitalized expenditures include $3,743,779 (March 31, 2017: $467,593) of borrowing costs directly attributable to the construction of the Facility. The increase in capitalized expenditure is a result of accelerated construction efforts aimed at the rapid expansion of the Facility including the three newly licensed growing rooms.
Profitability: Gross profit, including the impact of fair value changes of biological assets for the three and nine months ended March 31, 2018, was $1,846,634 (March 31, 2017: nil) and $4,580,306 (March 31, 2017: nil), respectively
Liquidity and Financial Flexibility: As of March 31, 2018, the Company had a cash balance of $78,496,912 and current liabilities of $12,778,276. The Company’s existing resources are sufficient to settle its current liabilities. Management believes the current resources available will provide for a substantial expansion of the Facility, barring any unforeseen delays or complications. All of the Company’s liabilities are due within 12 months, except for a 13 portion of its convertible debt, which is due November 14, 2019. Subsequent to March 31, 2018, $100,000 of the convertible debt was converted into 62,500 common shares.
Key risk factors and potential stock drivers:
Continuing expansion of the legalized cannabis sector could be a catalyst for the company’s shares;
Supreme is focussing on high volume B2B market; therefore, this strategy could lead to lower realization and risk related to commoditization in an overly supplied market;
Company’ 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. Any significant time and cost overrun in its ongoing 7ACRE project could adversely impact the company’ business and financial profile.
- On Wednesday, June 13th, 2018, Supreme was at $1.28, on volume of 373K shares exchanging hands. Market capitalization is $313.247 million. The current RSI is 45.68
- At $1.28, shares of Supreme are trading equal to its 50-day moving average (MA) at $1.28 and below its 200-day moving average (MA) at $1.41
- The present support and resistance levels for the stock are at $1.1833 & $1.3833 respectively.
Traders News Source is a wholly owned subsidiary of Traders News Source LLC, herein referred to as TNS LLC.
Traders News Source has not been compensated for this report by anyone and the opinions if any are that of the author Vikas Agrawal, CFA. Author’s Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I, wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in the article.
This web site, published by TNS LLC, and is an investment newsletter that is built on the premise of assisting individual investors in learning about investing. Our goal as publishers of financial information is to provide research and analysis of investments to our subscribers. TNS LLC does not give buy or sell recommendations. We do purchase distribution rights from analyst, financial writers and bloggers for a fee that may be licensed to issue price targets and recommendations. Furthermore, we encourage you to speak to a licensed professional prior to making an investment in any type of publicly traded security.
We do sell advertising to other companies including brokerage firms, web sites, publicly traded issuers, investor relations firms, and investment publications, among others. TNS LLC makes no warranty as to the policies of these organizations, and in no way endorses their offers, services, or the content of their advertisements.
When an advertiser is a publicly traded company or a third party acting on behalf of a public company, we fully disclose all compensation in the email advertisement. Such disclosure is included in a disclosure statement in each of the advertisements sent via email.
Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our services, joining our site or our email/blog list as well as any social networking platforms we may use.
PLEASE NOTE WELL: TNS LLC and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever.
Release of Liability: Through use of this website viewing or using you agree to hold TNS LLC, its operator’s owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. TNS LLC encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled or is available from public sources and TNS LLC makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provide herein. Instead TNS LLC strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D.
TNS LLC is compliant with the Can Spam Act of 2003. TNS LLC does not offer such advice or analysis, and TNS LLC further urges you to consult your own independent tax, business, financial and investment advisors. Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investor’s investment may be lost or impaired due to the speculative nature of the companies profiled.
The Private Securities Litigation Reform Act of 1995 provides investors a ‘safe harbor’ in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be “forward looking statements”. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as “projects”, “foresee”, “expects”, “will”, “anticipates”, “estimates”, “believes”, “understands”, or that by statements indicating certain actions & quote; “may”, “could”, or “might” occur.
Understand there is no guarantee past performance will be indicative of future results. In preparing this publication, TNS LLC has relied upon information supplied by its customers, publicly available information and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. The advertisements in this website are believed to be reliable, however, TNS LLC and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. TNS LLC is not responsible for any claims made by the companies advertised herein, nor is TNS LLC responsible for any other promotional firm, its program or its structure.