Why Sugarmade Inc (OTCMKTS:SGMD) Shares Have Doubled
Sugarmade Inc (OTCMKTS:SGMD) shares have actually done quite a bit more than double in the past month, moving up by as much as 250% in recent weeks. The move has come on a steady rise in volume, and investors may be asking why.
The move really shouldn’t be surprising. What should be more surprising is that it took the stock until June to start moving higher given that it secured a controlling stake in BudCars, Sugarmade’s cannabis delivery business, way back in early Q1. And by the end of March, the company was already talking about the remarkable growth underway in its new operating entity.
The big catalyst for the run we are seeing appears to be linked to a combination of factors that deserve some attention.
The first is simple: the data is looking great. The stock’s initial pop followed a few days after the company gave a monthly performance update for May, showing record growth data for BudCars sales during the month, featuring nearly 30% sequential monthly growth over April sales. It also noted in that release that it continues to see week-over-week sales growth at 10%, suggesting that BudCars will surpass $10 million in annualized sales by the month of August at its Sacramento location.
Sugarmade Inc (OTCMKTS:SGMD) shares started to advance a few days later
Then, after pushing up about 50% in three days on growing volume, the company announced that this wasn’t just a topline revenue pop. It was also seeing 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.
“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.”
Just to make sure people have gotten the point here (ie, this is for real), the company just put out its June performance update featuring some really remarkable growth trends: BudCars is ramping in average daily sales (+41% m/m), total orders (+34%), average order size (+2%), sales (+36%), and gross profits (+31%). Those are all month/month data points. Annualized, we would be talking about thousands of percentage points in growth across every major category.
As Chan put it: “June was another breakout month for BudCars growth across basically every single metric important to gauging our progress. Our pricing improved. Our average order improved. We did more business with more people and booked a significant jump in gross profits while holding our 47% gross margin level as volume increased.”
Drop the mic.
The next point is the idea gradually being baked into the cake that Sugarmade – given all of its success with BudCars, which is basically just operating in the Sacramento regional market – is about to “level up” and launch BudCars LA.
In a recent release, Sugarmade Inc (OTCMKTS:SGMD) put out a couple guidance points on this launch. First, management believes that the establishment of an LA regional BudCars presence will mean at least $20 million in new annualized sales in the mix. Second, the company also said it feels the evolution of data analytics for BudCars Sacramento represents a valid model for operational forecast analysis anticipating BudCars LA.
In other words, expect the strong margins and rapid growth in orders, customers, sales, ticket sizes, and profits. But, potentially on a bigger scale because the LA is probably the biggest municipal cannabis market on planet Earth.
Anyone who spends any time researching the global legal cannabis market knows that LA is ground zero. This is the promised land for pot producers.
“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 Chan. “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.”
Finally, the other big theme driving the action right now is the margins. We believe – and based on communications, so does the company – that there was a misunderstanding about BudCars before a few weeks ago: that it was a delivery business (ie, GrubHub, Uber Eats, etc… but for cannabis).
That isn’t at all the case. And the company has recently taken great strides to clear up any confusion. BudCars is a retail dispensary business that has delivery as a core value proposition.
In other words, the company doesn’t monetize through delivery fees. It builds a wholesales cannabis inventory and sells it at retail prices. But the transaction happens at your door rather than in a dispensary somewhere else.
So, it’s more like Domino’s Pizza than GrubHub… but for weed.
The difference is night and day. And its margins show that, with 47% gross recorded for May and June, according to company materials.
However, the other big theme in play for SGMD now is “verticalization”, which, in this case, means that the company is starting to set up the ability to cultivate and manufacture its own cannabis products rather than buy its wholesale inventory entirely from other suppliers.
Some quick back-of-the-napkin analysis will reveal that this could significantly widen margins accelerating gross profit growth.
To that end, the company has already secured a property containing a 5,000 square-foot indoor premium cannabis cultivation facility located in very close proximity to its Sacramento BudCars hub. Management for SGMD went on to note that this facility would be outfitted with as many as 250 high-quality LED lights, suggesting production potential for as much as 250 lbs of premium dried cannabis flower per month.
If you do the math, that could produce a stream of cannabis supply worth as much as $1.6 million in additional sales per month for Sugarmade shareholders to celebrate. And, as noted above, even more of that cash coming in the door would flow to the bottom line given that it would represent an in-house supply coming into the BudCars system at a much better cost basis than by paying someone else for their weed and their mark-up for doing business.
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Published at Thu, 02 Jul 2020 06:05:15 +0000