Why SGMD Could be the Best Value in the Cannabis Space
With the cannabis patch starting to seriously perform again, attention is turning to growth plays in the space, and one name has started to stand out as a particularly interesting story after a series of strong press releases and some very promising action on the chart.
Sugarmade Inc (OTCMKTS:SGMD) operates as a product and branding marketing company investing in operations and technologies with disruptive potential. The company’s portfolio includes CarryOutsupplies.com, SugarRush, and Budcars.com.
Its latest announcement features an interesting take that shareholders should note, focusing on management’s concerns that the company’s model may have been misunderstood by the market in the past. BudCars is a retail cannabis business, not a delivery service. Its monetization model is a mark-up from wholesale purchases, apparently on quite strong margins, rather than a delivery fee model.
The company even went on to note that it sees “very consistent 46-52% gross margins on a wholesale inventory with very secure logistical underpinnings”.
In a world where Uber Eats and GrubHub and all the other deliver service providers are trending towards long-term bankruptcy despite strong top-line performance, this is an enormously important differentiation for the company to make.
By the Way…
By the way, SGMD also revealed in that press release that it expects to pull in over $20 million on annualized sales when it opens up its first LA BudCars hub next month. We phrase this as a secondary point here – even though it was the headline in the release – because, as with the GrubHub’s of the world, explosive sales growth is only truly powerful as an investment signal if it comes as part of a business model that works to drive cash to the bottom line just as rapidly.
In this case, that looks to be very much a part of the picture for Sugarmade, as the company noted record growth in gross profits and gross profit margins for BudCars sales during the month of May (up 46% on a sequential month-over-month basis), and continued strong signals so far during the first half of June, with gross profits growing 9.9% on a week-over-week basis.
According to its release, the Company believes this performance data provides a template for its per unit operational performance anticipated as it gears up to launch its first Los Angeles hub next month. The Los Angeles cannabis market is arguably the biggest municipal legal cannabis market in the world, and the Company conservatively estimates that its first LA hub will add at least $20 million in annualized sales, with a similar anticipated gross margin profile.
“As we gear up to open our first new hub in the Los Angeles regional market, we continue to see very good signs from our Sacramento hub, with the very rapid topline growth clearly translating to the bottom line as margins hold up and even improve,” commented Jimmy Chan, CEO of Sugarmade. “As we recently reiterated, BudCars is not a delivery business comparable to GrubHub or Uber Eats. It is a top cannabis retail business with very consistent 46-52% gross margins on a wholesale inventory with very secure logistical underpinnings. This differentiation has been a source of misunderstanding, and it is critical to fully appreciating our value proposition and our strategy as a Company moving forward.”
Growing Like a Weed
Sugarmade Inc (OTCMKTS:SGMD) has been seeing dramatic sales growth through its BudCars division, with consistent 10% week-over-week topline jumps. That’s why we wanted to point out the gross margins and the fact that the company is also seeing just as sharp a curve in gross profits.
More to the point, as noted by management, those gains are expected to continue to be a part of the model when the new LA hub opens up next month. At that point, we may be looking at a company that is doing as much as $50 million in annualized sales with 50% gross margins.
If so, then SGMD will instantly be an egregiously undervalued security, given its current market cap of just $4.3 million – a number that simply makes no sense given the growth in play right now, and how much of it appears to be flowing to the bottom line.
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Published at Mon, 22 Jun 2020 04:35:54 +0000