Auxly Cannabis CBWTF stock is in that middle area where they are performing very well yet are still falling short in other areas. This may present a solid opportunity. They are the #6 stated cannabis producer in Canada. Auxly Cannabis states their goal is to be somewhere in the neighborhood of 7% – 9% Canadian producer by year’s end. That would push revenues above $20M and, that is an interesting trajectory. If Auxly can increase revenues at that pace then metrics will improve significantly, making Auxly an interesting acquisition.
Simultaneously, Auxly has a strategic partnership with Sundial Growers, SNDL Stock, which that could become another interesting development. Sundial, of course, recently finished the Inner Spirit Holdings acquisition giving them about 100 dispensaries to work with. More recently, Sundial just announced another acquisition where they are picking up an alcohol distribution company that also has 62% ownership of a company that holds 62 dispensaries. One of the key focuses for management is to get to the 7% – 9% threshold of total market size. Given the size of Sundial’s new reach, it would seem an obvious extension that Auxly explores more deeply the relationship with Sundial and expand offerings in these dispensaries. I am interested in how this may play out.
Cash Raise
But, the downside to what has occurred with Auxly Cannabis this past quarter, of course, is the capital raise they did where they issued some 55M more shares, diluting current shareholders. Over the past few weeks, CBWTF stock has slid downward and the additional shares may have contributed to that. However, Auxly Cannabis probably does not have the monopoly on cannabis share prices moving lower. That being said, if Auxly can hit EBITDA profitability by year’s end, they very likely have enough cash on hand to sustain themselves for a long time going forward.
The Auxly Cannabis CBWTF Stock Comparison
Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:
- #29 Market Cap: $160M
- Revenue Growth Rate: Sanitized
- #42 Gross Margins: 38%
- #38 Operating Efficiencies: 68%
- #54 EBITDA/Revenue: -17%
- #54 Cash/Debt Ratio: 20.1%
- #15 Total Assets $198M
Auxly is slightly above the middle ground in their numbers. But, the increase in revenue will improve the metrics above should Auxly hit higher numbers in the next quarter. The current CAD$21.5M is 6% of some nearly CAD$350M.
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Auxly Cannabis CBWTF Stock Financial Data
I wanted to break down where CBWTF could be should they push for 8% market share if they hit these numbers by year’s end.
Revenue
Revenue is stated in USD. But, for reference, the company printed some CAD$21.5M which is about 6% of CAD$350M. Here is the latest chart:
For reference, and continuity, I convert everything to USD and keep it that way. I state everything in USD and always come in with “CAD” when I use CAD. That being said, should Auxly hit 8%, their target mid-range goal, that is approximately CAD$35M, which would be approximately USD$21M. That would be a decent increase for the quarter of nearly 30%, and that would also trickle downward through the financial statement and likely improve the gross margins and other associated costs metrics.
Gross margins
If Auxly were to add in the extra 30% increase of revenue, pushing more product through would create smaller and smaller marginal costs, increasing marginal profits. Gross margins would inevitably improve:
So, marginal costs and marginal profits are interesting terms and, I feel I should offer an explanation really briefly.
If a company is pushing through, say, 1,000 units through its grow and process systems, and that company is EBITDA break-even, then what happens is one additional unit pushed through has an interesting effect on how it improves profits.
If any company is EBTIDA break even with its current production then core business costs are paid for. Add in one more unit of production, then the only real gross costs are packaging and unit costs. But, other costs are already paying the bigger costs, such as rent, electricity and wages. That new unit of production and sale adds disproportionately increased profits with lower costs compared to the rest of production.
But, when the company puts out its numbers, they do not separate out that last unit. It is more conceptual to give an understanding of what occurs and how this shifts company’s fortunes.
Operating Efficiencies
I wanted to put together a different chart instead of showing operating efficiencies. The reason is simple: The mathematics made the usual chart unusable:
Operating efficiencies are a mathematical measure of total operating costs divided over total revenue. This gives us an idea of how efficiently, on a percentage basis, Sales, General, & Administrative (As well as Depreciation & Amortization) are relative to revenue. The best companies print between 30% – 35%. However, Auxly’s numbers were all over the board simply because of the fact that revenues were all over the board.
Given that, if Auxly were to hit its target this next quarter, and print $21M, while simultaneously keeping total operating costs in the same range then, operating efficiencies would naturally get more competitive.
EBITDA Profits
Auxly is close to break even with EBITDA profitability:
Here’s the rub: If Auxly hits its $21M quarterly goal, and gross margins remain exactly the same, there will be an additional $2M in gross profits, which would drive this number downward to about -$1M. But, because of marginal profits outlined above, it is very possible that the $21M would see gross margins of about 50% at a minimum, which that translates into gross profits of $10.5M. Current gross profits are at $6.4M. This would get EBITDA to above positive, all else equal.
Net Earnings
Owed to discontinued operations, Auxly made money:
Don’t count on the fact that there will be continued profits going forward from the same source. Instead, focus entirely on current operations for profits; it’s not going to happen just yet.
Cash On Hand
Since the latest cash raise, cash on hand, after dipping considerably, is trending back upwards:
At the very least, if EBTIDA profitability can be met this coming quarter, then cash on hand will see significantly less cash burn rate, resulting in continued movement higher in this chart, strengthening Auxly’s balance sheet.
Cash Debt Ratio
Despite the recent cash raise, the cash/debt ratio is still soft, if you ask me:
Auxly needs to hit EBTIDA profitability and then continue higher with its revenue gains and ultimately, through marginal costs and profits, see themselves become net earnings positive.
Total Equity
There is also an upwards trend in total equity, moving back to the upside:
The assets a company has are what give them the ability to generate revenue, and ultimately, that trickles to profits. The most recent moves are seeing increased total equity. And, if the recent moves in new SKUs drive revenue higher, and add to the cash position, Auxly could be in an interesting equity increasing position.
Auxly Cannabis Group CBWTF Stock Chart
Two quarters back, when Auxly dropped some 50% in revenue, the market let management know its feelings:
Since that move lower, Auxly has seen a small amount of buying. It may be the company is turning a corner and could be heading higher on a longterm trajectory.
Is Auxly Cannabis CBWTF Stock A Good Buy?
I believe that Auxly is just about to turn a corner.with its revenues and earnings. I also believe there is an opportunity to get their products into all of Sundial Growers SNDL stock dispensaries. This may not be all at once, but, this is something that could develop into something bigger and bigger as time goes by. Auxly Cannabis has a significant size of the total Canadian Cannabis consumption. If they continue in this manner they will be able to continually develop their business.
I think this is a given that Auxly Cannabis will develop into a bigger company. This is an opportunity to get in early and build a significant position that will grow into something much bigger over time. While I will not be acquiring this stock myself, I could easily see why someone would want to.