Wednesday What are Companies Worth?

worth

Stocks were mildly soft today. Market pundits were quick to blame the weaker than anticipated housing starts or building permits for the early weakness. We’ll take it as a market that has moved quite strongly from recent lows, and was looking for a reason to take some off the table. The S&P 500 closed flat on the day.

Many Q4 updates have been released from the cannabis sector. Not surprising, most of these companies are worth very little. We saw a lot of dilution via share issuance and little revenues. The bear market continues its hold on the space as price weakness continued today.

Daily Positive: Tweed announced Q4 revenue of $641,309, led by $357,142 in the month of December. We found the following comment to be particularly interesting, not just for Tweed but for the potential of the Canadian market in general: “average order size and average price per gram have increased during December 2014 and year-to-date in 2015.”

Daily Negative: As the tide continues to go out, the weak are getting exposed. Q4 updates are exposing the extent of the destruction of capital.

We’ve said it before, but we believe that if we say it enough, it might take hold: 2015 is the year of revenue. Many of the lesser companies are likely to run out of fuel in their stock printing presses. They will either max out their authorized shares, or even worse, raise their authorized shares, in an attempt to keep going. These quarterly updates are hopefully accurate and can be helpful when asking, “what are these companies worth?” It would be prudent to be on the lookout for these behaviors, when selecting names. We hope the market continues to move away from the low quality players, and starts to put more meaningful focus on better opportunities, such as those that have stronger management and business plans.

 

The discussion above is provided for informational purposes only and does not constitute an offer of, or solicitation for, any investment services or products offered by the author. The author is not making any investment recommendations and the opinions above do not constitute investment advice. Reference to above indices [and companies] is based on information provided by sources the author believes to be credible. Investing in the cannabis industry, as with other industries, presents certain risks including the risk of loss on an investment.

Morgan is a Founding Partner and Managing Director of Poseidon Asset Management. He is the Chief Investor of their Cannabis Focused Fund. Morgan previously worked for a privately owned Registered Investment Adviser and earlier was at UBS Financial Services focusing on wealth management. Morgan believes in the potential of the cannabis industry and likes having an active involvement as it develops. You can follow him on Twitter @PoseidonAsset.

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