From a headline perspective, the first week in November was monumental for the cannabis industry. Nevada awarded 371 preliminary business licenses, and three out of four pro-cannabis legislation efforts were passed—legalizing recreational markets in Oregon and Alaska and medical markets in Guam. The stock prices of public cannabis companies are fueled by these fluctuations in macro policy and the surrounding media hype, but let us take a closer look at two publicly traded companies and examine how the policy changes will affect their fundamentals.
GrowBlox Sciences, Inc.
GB Sciences (OTCQB: GBLX) has been introduced to the public as a Research & Development company, but it is not looking to sell its technology (which for the record, is still awaiting patents.) Instead, it is applying for licenses to operate its own cultivation facilities and dispensaries in newly legalized marijuana markets. The company received good and bad news when the state released its decisions: it was awarded a cultivation license by the state of Nevada and denied dispensary licenses in Clark County and the City of Las Vegas.
Their stock has dropped as the news has continued to settle, slumping from $1.45 to $1.21 the day after the news was released and dropping to a low of $0.65 yesterday. The company is still trading at a $19.1MM market cap, not too shabby, considering it has not reported any earnings since its launch. Here are the numbers released in their latest 10Q:
- Cash: $3,213,358
- Last 3 Month Revenue: $0
- Total Current Assets: $3,234,022
- Total Current Liabilities: $553,318
- Quarterly Net Loss: ($1,445,218)
GB Sciences is clearly benefiting from the pot stock hype. But it does have an angle. It is attempting to create consistent cannabis products by using uniform growing chambers and tissue culture technology to reduce genetic mutations in strains.
The company now has a license and a 20,000 square feet of cultivation space to start proving its growing chambers work. And its efforts could generate some interest in medical markets where new patients are concerned about how minor fluctuations in CBD content could affect their treatment. But GB Sciences is going to face greater difficulties executing its marketing strategy when it is limited to the wholesale market. Cultivation facilities are also expensive to operate, especially ones relying on high tech equipment, and the company could be looking at a burn rate for the first couple of years, while it waits for patients to catch on to the novelty of the strains produced in its growing chambers.
GB Sciences is not settling with this license—it has also submitted an application in Illinois and has recently released a smartphone app for patients to track their experiences with strains. But the numbers speak for themselves and until GB Sciences has earned itself a patent or has captured a significant portion of the Nevada wholesale market, the company is going to struggle to live up to its market cap.
Surna Inc. (OTC: SRNA) asserted itself as a player in the cannabis technology industry with two acquisitions in 2014. According to its 10Q, the majority of Surna’s Q2 revenue came from climate control systems, produced by Hydro, an equipment manufacturing company they acquired in April. The profit margins on these products are still slim but there is a market for them, and Hydro has a whole line of cannabis growing equipment and chillers for indoor gardeners. Here are the numbers reported in its latest 10Q:
- Cash: $214,067
- Last 3 Month Revenue: $346,559
- Total Current Assets: $369,653
- Total Current Liabilities: $62,469
- Quarterly Net Loss: ($2,12,1567)
Surna’s other new subsidiary, Safari Resource Group, has been working on an “airstream” reflector to be used to reduce energy usage in cannabis cultivation. This product, to be released in early 2015, is still in the testing phase and is not generating much preemptive market hype among established growers in Colorado. But this type of technology has potential in newly established marijuana markets, like Nevada and Illinois, where rookie ganjapreneurs are seeking the latest “cutting-edge” cultivation methods and technology.
Surna has yet to launch a product to make the marijuana markets salivate, but November’s election results were only further proof of the importance of investing in cultivation and manufacturing technology. And as an equipment manufacturer, Surna could always tweak its products and target non-cannabis growers and gardeners, a solid hedge for investors given the political risk involved with cannabis.