Winnipeg, Manitoba-based Delta 9 Cannabis Inc. (TSXV: NINE) (OTCQX: VRNDF), a vertically integrated cannabis producer and dispensary owner, today announced record revenue in 2018, as well as expansion in production capacity and retail stores.
Delta 9’s Q4 revenue was CAD$5.27 mil, roughly 15th in quarterly revenue among Canadian cannabis companies. This was up 321% from Q3. For the full year, revenue from operations was $7.57 mil, up 702% from the year before.
The company made strategic expansions in 2018 to maintain long term competitive advantage. This led to an expected loss for the year, which amounted to CAD $8.61 mil.
However, at US$1.19, the stock value looks reasonable for investors, with significant revenue growth expected in the coming years. Based on its Q4 results, it’s Price to Sales ratio is now roughly 5, a normal value in other industries, but a bargain in the cannabis industry. With just 81 million shares outstanding, also low in the industry, it appears management is watching out for investors.
The company expects to grow 60,000 kgs of cannabis by 2022. At CAD$7 per gram, this could yield CAD$420 mil in revenue if Delta 9 sells it all. That would drive a significant increase in stock price.
Delta 9’s stock lost 3% on the earnings report, but this common these days following earnings reports in the cannabis industry, as investors’ expectations can be very high.
The company has a unique production strategy. It grows cannabis in retrofitted shipping containers called Grow Pods. Each pod produces 6.3 kilos of dried flower per harvest, and five harvests per year, yielding roughly 34 kgs per pod, per year. At a current wholesale price of CAD$8 per gram, each pod yields about $272k of revenue per year.
In 2018, Delta 9 increased its Health Canada-approved pods from fifteen to 154. It can now produce over 4,200 kg of dried cannabis flower per year, plus about 1100 kgs of trim (25% of each harvest), used to make extracts.
It also sells grow pods. Pod sales and associated consulting now comprise about 10% of total revenue.
Following a strategy to be vertically integrated, Delta 9 opened its 2nd retail store in March and its third in April. It now owns two Delta 9 Cannabis retail stores in Winnipeg and one in Brandon, Manitoba. They plan to open a fourth in Thompson, Manitoba in June 2019.
The increase in percent of revenue coming from retail stores during the year decreased gross margin, but helped secure long term distribution and sales. Gross profit margin before adjustments for changes in value of assets for Q4 was 24%. For the full year, it was 36%.
Choosing to expand ahead of the legalization of recreational cannabis in Q4 was wise competitively, but led to a loss on the bottom line of $8.61 mil for the year. The quarterly loss was CAD $2.17 mil, or $0.02 per share.
Delta 9 made other important announcements. It intends to become a preferred supplier of medical cannabis to Pharmasave, a national pharmacy chain with approximately 650 retail outlets.
It also entered into a two supply agreements. One, to supply 2,300 kilograms to the province of Manitoba. The other, to supply 1,000 kgs per year for 10 years to Auxly Cannabis Group Inc.
The company reported being in a good financial position, raising over $30.7M in debt and equity during the year. This resulted in working capital of $20.7M and total assets of $46.0M.
John Arbuthnot, CEO, said “Our strategy of being one of Canada’s only vertically integrated cannabis companies with licenses for production, processing, distribution and retail operations is paying off and is now producing significant financial results.”
A comprehensive discussion of Delta 9’s results and position is available in the Management Discussion & Analysis viewable at www.sedar.com.
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Source Deltas 9 press release