The cannabis industry continues to attract new entrants every day, with many starting their own businesses and others joining established ones. Just yesterday, for example, KIND Financial announced that it had hired a Paypal veteran to be its Chief Marketing Officer. This morning, Rocky Mountain High Brands (OTC: RMHB) announced that Kevin Harrington, an original cast member of Shark Tank, has joined its Board of Directors and will be serving as a marketing and communications consultant to the company.
I’ve been a shark for twenty-five years. This is what I do every day – pick the winners like Rocky Mountain High Brands. This Company has great products that are delicious, unique and practically jump off the shelves on their own! They are well-positioned to become a market leader in hemp-infused food and beverage products. Additionally, the Company recently added Gerry David to the Board, a proven leader with whom I have previously worked. I believe we will be able to help this Company achieve great success.
Rocky Mountain High Brands will soon introduce a complete line of flavored beverages infused with Cannabidiol (CBD). This will be a perfect product for one of the world’s most powerful selling tools, the infomercial. Infomercials are recognized for their impact and selling power. Americans alone spend millions of dollars each month buying from direct response advertising on television, and the United States is now only a small part of the global market.
Huh? I have been following RMHB for a couple of years now and question the diligence Harrington has conducted on the company, which filed its 10-Q for its Q3 ending March 31 just this morning. In the most recent quarter, sales fell 25% to just $117,814. Year-to-date sales of $438,152 are down over 41%. Not only are the products not apparently jumping off the shelf, as Harrington suggests, but they don’t even appear to be making it to the shelf!
The company lost $1.87mm in Q3 and has lost $4.28mm year-to-date from operations, with a net loss of $4.47mm in the quarter and $7.6mm year-to-date. The balance sheet is atrocious, with cash of just $458. Assets of $2.564mm are substantially smaller than the liabilities of $7.4mm, all due within a year.
In addition to having terrible financials, the stock is extremely expensive. The shares outstanding of 785mm are just the tip of the iceberg, as there are not only lots of toxic convertible notes but also two series of convertible preferred stock, including the A, which adds 1.2 billion shares and the C, which adds another 55mm roughly. Adding it all up, there are over 2 billion fully-diluted shares, giving RMHB a market cap of $140mm at the current price of of approximately $0.07 per share.
It’s not clear why Harrington would lend his name to this company, but perhaps it is because he and another director were awarded 14mm options (details not yet disclosed). What is clear is why Rocky Mountain High Brands has brought him on, as it is in a desperate financial position and needs to boost investor confidence:
The anticipated operational shortfall for the next twelve months is $1,200,000. For the next two years, we anticipate cash needs to be between $2,000,000 and $5,000,000. We anticipate raising the required capital through a blank check preferred stock, as authorized by the Company’s Articles of Incorporation. We plan to establish a new class of preferred stock and raise up to $5,000,000 under a Rule 506 subscription agreement.
Mr, Harrington, you are swimming in shark-infested waters. Good luck!
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Based in Houston, Alan leverages his experience as founder of online communities 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.
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