Exclusive Interview with Terra Tech CEO Derek Peterson
Terra Tech (OTC: TRTC), which has been trading with the symbol TRTCD since conducting a reverse-split in March, posted cannabis sales of $30 million in 2017 from its operations in California and Nevada, including $9.42 million in Q4, which represented growth of 108% compared to the year-ago quarter. The stock, though, has been under intense pressure, bottoming out recently at $2.10, representing a decline of almost 59% from where it began 2018. We asked CEO Derek Peterson to address the recent weakness in the stock following the reverse-split and the Q4 earnings release and conference call as well as to discuss his outlook for 2018.
The first issue we discussed was the reverse-split, which is typically a negative indicator for stocks that trade on the OTC. One of the concerns is that there was no clear justification at the time of its execution, previously approved by shareholders. Peterson suggested that it was partially related to potential uplisting to the NASDAQ down the road but also to being in position to raise capital to develop its Southern California operations as well as other geographies. He also cited a missed acquisition in 2017 due to the low share price as a reason to make the move now.
Another potential reason for the recent decline was that the company didn’t give guidance for 2018 after having done so in 2017. Peterson suggested that the company’s inability to control the regulatory timing in states and municipalities was the driving factor. On the recent conference call, he had also alluded to some challenges in the California market as it moved towards a regulated market at the beginning of the year impacting near-term sales. Peterson said that this situation was very short-term and not material since the company was able to access inventory and then later to use its buying power to negotiate lower purchase prices, but he did say that this also contributed to his reluctance to give guidance. He also suggested that recent moves by California to crack down on the grey market will help reduce some of the near-term challenges.
Looking ahead, Peterson sees growth ahead in California with the adult-access market, and he expects consumers to look beyond just price and seek tested products. He expects full year sales in the flagship Blum Oakland store to grow for the year despite some market dislocations in Q1. The new San Leandro retail facility, which Peterson believes can generate at least $6 million annually when fully operational, is expected to open in May. The company expects to open an additional dispensary in Santa Ana after acquiring its Southern California in 2017, which could generate sales in excess of $7 million when fully operational. While the company remains in pursuit of acquisitions in California, it continues to encounter challenges finding companies with good accounting. He also cited expensive prices due to Canadian buyers entering the market, and he sees a bit of a pause in the acquisition strategy to focus more on organic licensing opportunities. Finally, the company’s additional production capacity will help boost its wholesale branded product business. He also sees the opportunity to potentially acquire some brands in California and expects that its M&A strategy will favor brands over retail for now.
In Nevada, the company has two additional quarters compared to last year with adult-access sales, which began last July. He discussed the potential for more licenses to be awarded to existing license holders, and he pointed to production capacity as well as its extraction facility to help boost the supply of its IVXX wholesale brand. New Jersey is the only additional state that Terra Tech is focusing upon at present, though Peterson is optimistic that changes in rules ahead in Colorado regarding public ownership could make that an attractive market. The expansion of the medical program in New Jersey will be enough to get the company to move forward, though full adult access is likely.
A final topic of our conversation was the pending MedMen go-public transaction, which is rumored to value the California cannabis retailer at C$2.5 billon (about US$1.9 billion), about 10X the Terra Tech valuation. Peterson respects his competitor, thanks them for adding value and moving the industry forward and understands why it chose to go to Canada to list, but Terra Tech is planning to stay on the OTC and focus on execution. He expects that federal legalization will close the valuation gap, hopefully in the next few years, and he believes that his company’s stock will be viewed favorably by potential large merger partners with its lower valuation.
Peterson concluded by suggesting that the company will continue to focus on the three states in which it operates, building infrastructure and brands and also making sure that it has retail opportunities in stores and delivery. He also reminded shareholders that executives and directors are now solely common stock holders, just like all shareholders. He accepts that the price will be volatile at times and he suggests that the company will continue to focus on execution and using capital wisely.
Listen to the entire interview: