How is Sugarmade Inc (OTCMKTS:SGMD) Still so Cheap?

How is Sugarmade Inc (OTCMKTS:SGMD) Still so Cheap?

The title of this piece is an honest question: How is it possible that Sugarmade Inc (OTCMKTS:SGMD), a cannabis player that operates now mostly through its stake in the BudCars cannabis delivery business, a leading California mobile delivery-based dispensary business that has seen massive growth on strong margins so far this year, still trades at under a penny per share?

Here is the latest from the company: another strong month in July, which featured over $660K in total BudCars gross sales ($537K, net of sales taxes), representing 32% sequential monthly top-line growth, with both total sales and gross profits growing by more than 30% m/m for the fourth consecutive month.

According to the company, that puts the BudCars business well on pace to be booking Net Sales of over $11 million (annualized) by the end of this quarter.

And the stock is still trading at fractions of a penny. That seems relatively extraordinary. But we would chalk it up to the lack of visibility that a microcap on the OTC gets in comparison with companies trading on major exchanges either here in the US or in Canada.

That said, such a discrepancy carries the potential for its own resolution through chatter about the potential for an uplist right on up to the major exchanges. At one time not too long ago, we seem to remember SGMD talking about such a move. If this company is pulling in $50 million in sales over the next year, we wouldn’t be surprised to start hearing that kind of chatter again.

How it Happens

The key in understanding how this process could unfold from here is made of two parts.

First, we can see the organic growth trend that BudCars is displaying since SGMD management took over operations. Take a look at the bullets from its July performance update:

  • Total July BudCars gross sales of $662,836 ($537,591, net of sales taxes), representing 32% month-over-month sales growth (compared to June 2020 sales)
  • Total July BudCars gross profits of $310,489, representing 36% month-over-month gross profit growth (compared to June 2020 gross profits)
  • Average daily gross sales increased 32% m/m to $22,095
  • Total customer tickets increased 33% m/m to 5,579
  • Calendar Q3 now on pace to potentially more than double calendar Q2 total BudCars sales

This is echoed in how management commentary framed the activity: “Last month featured strong growth in basically every major metric once again for our BudCars segment,” stated Jimmy Chan, CEO of Sugarmade. “We saw an increase in gross margins while demonstrating another breakout month-over-month performance on both the top and bottom line.”

According to the release, July data demonstrated similar second-derivative characteristics to trends witnessed in May and June data for BudCars, with sharp sequential monthly gains in topline sales, pricing, margins, average daily sales, and total customer tickets.

In other words, we have seen relatively obscene growth data across every metric for the past three months for BudCars. It’s almost impossible to imagine that’s suddenly going to stop tomorrow. So, for the sake of argument, let’s say that type of dynamic continues to be in operation over the next several months.

If this also characterizes the type of growth we might see (or possibly undershoots it) for the two LA BudCars hubs expected to launch over coming weeks, each, then one can paint a picture here – without a whole lot of effort – that this $50 million over the forward fiscal year as a target is far from absurd, which is the second part of “how this can happen”, meaning an application to uplist to a major listed exchange.

Note: we have no inside information and no idea if this will EVER happen. But, if a company can growth at that pace and make a decent case that it has a formula that can then translate to an endless number of other locations, it’s hardly a stretch to extrapolate that situation down the road a bit.

Movin’ on Up

That brings us back to the transition toward launching LA BudCars. And we know from recent 8K communications from the company, the coming launch of two BudCars hubs in the LA metro area – the mecca of the cannabis marketplace on planet Earth – is on the way on some level in coming weeks.

As stated by Sugarmade Inc (OTCMKTS:SGMD) in its most recent release, this duration of this continued strong growth curve continues to suggest that the Company is executing well in customer acquisition both among new conversions to delivery cannabis dispensation and market share grab – i.e., “stealing” customers from competitors and maintaining those new customers. Overall, July performance was well above the Company’s forecast model across every tracked metric. This process will inform the Company’s modeling and expectations as it launches two LA BudCars hubs in coming weeks.

Chan added, “Note that April was our first full month operating Budcars. In July we more than doubled the sales and gross profits booked in April. That pace of growth suggests another potential doubling by October on a per-location basis. And we will be operating additional locations by then, which will serve to compound that growth.”

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Published at Fri, 07 Aug 2020 06:05:36 +0000