A Rising Tide Won’t Lift All Boats for Cannabis Operators

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A capital raise of $5 million didn’t qualify for publication this week due to its small size, but we think this was actually a big story that investors and operators should know about. Today, we are using this newsletter to remind our readers of something we have been discussing for a while. The outlook for the American cannabis industry has improved greatly over the past few months, but, as we have been saying, not all companies are positioned to capitalize. One of those is a company that we follow closely and actually think has a great strategy and has executed operationally, but we have been warning subscribers at 420 Investor consistently to be cautious on the name due to financial constraints.

Flower One operates a large-scale greenhouse as well as a processing facility and an additional indoor cultivation facility in North Las Vegas, offering turn-key production and distribution for many leading brands. The company reported a challenging Q2 on Wednesday morning, with revenue impacted by the store closures in Nevada, but it also guided for Q3 revenue that was higher than previous analyst consensus expectations. It closed the day at an all-time closing low, but not too far from the March lows. Thursday morning, it priced a C$5 million unit offering at a 24% discount to that close, and the stock ended up dropping below the offering price:

To put things in perspective, the one day decline following the C$5 million capital raise knocked almost C$27 million off the market cap of the company prior to the capital raise. We think many investors were caught off guard because they hadn’t paid attention to the balance sheet and cash flow, something we have been suggesting is of utmost importance in several newsletters over the past year, especially since the pandemic began.

We think highly of Flower One and hope that this capital raise serves as a bridge to a more secure financial position, whether that is through debt restructuring or additional capital on better terms, perhaps through a strategic investor. It’s worth remembering that Indus Holdings, which has a similar business model in California, found a strategic investor earlier this year. Since we detailed that transaction, the stock has improved substantially.

Sharing stories like this is important because it illustrates a clear and present risk that we think persists for several cannabis operators, and we urge our readers to pay close attention to the financial condition and ability to raise capital of companies in which they invest. Capital access is improving for many companies, but this is certainly not universal, even as the industry conditions improve.

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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

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Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer a family of indices to track Canadian licensed producers as well as the American Cannabis Operator Index.

View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks that generate industry sales of more than US$10M per quarter.

Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.

Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.


Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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