Lol im not sweating the VFF hold but im not adding. Picking a little at silver and platinum today.
I am! Also, this came out from Beacon after ACB screwed the pooch:
Beacon MD on ACB results + implications for VFF
A couple of things to consider on ACB’s (ACB-T; NR) results. Note that the company has still not posted its results to SEDAR after which we can do a deeper dive.
Medical Cannabis:
Q4 revenue was $32.2 million. Its rev/gram for its medical segment was $8.12 in Q3. Similar pricing therefore would imply sales of ~4,000 KGs.
Reported gross margin of the segment is 67%, which would imply that its cost/gram is $2.57
At this point, its medical business is supporting its consumer side through the higher pricing, which is hiding its high cost production
Recall that ACB did not build this segment from scratch but rather bought MedReleaf in June 2018 for $2.5 billion and Cannimed in Jan 2018 for $1.1 billion.
Based on the Q4 medical segment revenue, those valuations still represent ~30x annualized sales.
Longer term, we continue to believe that such inflated rev/gram prices are unsustainable
Canadian Consumer Cannabis:
Q4 revenue was $35.3 million. Total cannabis KGS sold was 16,748. Given ~4,000 KGs sold in medical market, this implies consumer sales of 12,746 KGs
Rev/gram would therefore be $2.77. We note that Q3 rev/gram was $4.33 and that the company noted that Q4 rev/gram was 30% lower, which would imply ~$3.00/gram
Reported gross margin was 35%, which would imply cost/gram was ~$2.00.
Note that we do not believe the company when it says that its cost/gram is $0.85 as the reported numbers cannot get you there.
Furthermore, it is clear that the company includes trim in its cost calculation, which lowers reported costs/gram (note that it wrote off $135 million of trim inventory). PSF/VFF (Buy, $35 TP) does not include trim in its cost calculations
With 62% of its segment revenue from Daily Special, it is clear the “value” segment is the one that is and will continue to drive volumes.
We believe those retail prices will continue to drop. Given ACB’s cost/gram at $2+, as retail prices drop, its gross margin will evaporate and its losses will accelerate
The company is trying to pivot to “higher end” products – a segment that does not exist.
Conclusion:
As prices continue to fall in retail and will likely fall in medical/international, ACB’s losses will likely rise, not fall, putting further pressure on its balance sheet
As ACB’s stock hits multi-year lows, it is dragging down the entire Cdn segment.
However, these results are POSITIVE for PSF/VFF as its business plan is playing out exactly as forecast
ACB’s loss of share will be PSF’s gain.
The Cdn cannabis market is real with annualized revenue of ~$3 billion in July , +15% versus June
Someone will win and that someone has to be low cost producer.
ACB will not be that someone. VFF/PSF will be. “
Doug Cooper
Managing Director, Research
Beacon Securities Ltd
You do you. I’m only responsible for my money.
that’s a 60% return from here approximately
