Cannara Biotech, LOVFF stock, has been on my radar for a moment. They have been hitting my Top 10 videos here and there, and I have taken notice. The two questions I have are: Is the revenue growth sustainable and potentially continuous? And, would this translate into a solidly performing cannabis stock? I wonder if Cannara Biotech is an undervalued marijuana stock to buy now?Cannara Biotech is an undervalued marijuana stock to buy now?
There was a substantial gain in revenues that really pushed Cannara Biotech LOVFF stock into the limelight. This was driven by the full-quarter revenue gains for their newly opened dispensary. Also, Cannara Biotech is expanding into a new 1M sq. ft. facility that will help them expand offerings and, this will be beneficial long term. As Cannara Biotech grows its offerings, this will allow for them to control costs. Eventually, the current costs will be outsized by future revenues. This makes for a long term investment with a big-picture outlook.
Another plus over the past quarter was a refinancing of credit facility that dropped interest costs from 13% down to a much more manageable 4%. If a lender is going to drop interest rates for lending a company money this shows that there are a lot of positive aspects of the company’s future potential.
Cannara Biotech LOVFF Stock Comparison
Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:
- #33 Market Cap: $95M
- #2 Revenue Growth Rate: 273%
- #18 Gross Margins: 58.9%
- #11 Operating Efficiencies: 32.1%
- #2 EBITDA/Revenue: 42.1%
- #42 Cash/Debt Ratio: 25.8%
- #44 Total Assets: $30.1M
This is a smallish company that hits a few metrics nicely. I expect continued growth in revenue, but realistically, probably not at these levels. Margins and costs are very solid and if this continues, Cannara Biotech may be a top performer for some time.
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Cannara Biotech LOVFF Stock Financial Data
I loved the revenue growth and how Cannara fit into their financial metrics. But, what I loved even more was the fact that so many of you are now starting to contact me and tell me about certain companies and their financial metrics.
Revenue
For this quarter, with the new dispensary, revenue growth was exceptional because of the dispensary opening:
I expect continued revenue growth over the next year. The locals near the dispensary are going to continually trickle in to the dispensary and this will push more revenue through the system. But, I would like to see a lot more dispensaries, or solidified deals with larger players in the dispensary system to continually increase this as an opportunity.
Also, Cannara sells in other locations and, this should build a foundation for the company.
Gross Margins
Cannara Biotech is focused on the two-pronged goal of increasing revenues with cost controls; this is evident with gross margins:
For a cannabis company that is fairly new at selling at the scale they are, gross margins are impressive. If Cannara Biotech can continue to keep costs contained with continued revenue gains, this could be a cash cow that other players may be interested in merging/acquiring.
Operating Efficiencies
As one of the major focuses is cost consciousness, operating efficiencies are impressive as they are dead in the middle of the average of some of the best performers:
Costs are being contained. And, if more revenue were to push through the system, Cannara Biotech has the ability to increase expenditures with sales that will drive higher revenues. This should be a non-linear move with exponential EBITDA growth & net earnings profits.
EBITDA Profits
As revenues continue to climb, so will EBITDA profits:
As I have stated so many times, EBITDA profits are the first real big milestone of a new company to achieve. This is that one metric that shows the product has momentum as well as management has the capability to produce products that are cost-efficient and profitable. From here, any new business would only need to increase product sales through its network of businesses and scale up further in order to get to net earnings profitability.
Net Earnings
There is not much more to say about this company other than that they have achieved a significant second milestone:
You are always looking for a company that has product sales momentum and that is evident with revenue growth. Then, you are looking for cost controls which will show that management is diligent at creating shareholder value. To achieve net earnings profitability this quickly shows that Cannara Biotech has a lot of potential.
To be sure, there are no profits in the “Non-Operating Income” section of the revenue statement. Sometimes we find companies that are profitable from one-off sales of real estate, or other items. This can be misleading, of course simply because if a potential investor is only looking at headlines they may miss rationale. But, Cannara Biotech created these profits from normal operations.
Cash On Hand
With positive cash flow, Cannara Biotech can build its cash reserves:
Remember, I also pointed out that Cannara Biotech re-negotiated the terms of its lending facility, dropping its lend rate down to 4% from 13%. So, debt financing will be at lower levels optimizing cash flow. This, coupled with being net earnings positive, will substantiate their capabilities without any real hinderances.
Cash Debt Ratio
One area where there could potentially be improvements is the cash/debt ratio; for now, this is a bit on the lower side:
As a metric of comparison, Cannara Biotech sits at #42 out of the 100 stocks I follow in my Complete list of 100 cannabis stocks. That, in itself, is neither really high nor low. But, this metric will improve as Cannara brings in more and more cash from its net earnings positive position as well as having renegotiated the terms of its lending facility. Likely, this metric will see large advances as they build up their cash position. From there, more options for expansion open.
When you look at a company from the perspective that they are net earnings positive, they take a huge leap ahead of other cannabis companies. This is why I like Cannara at this point.
Total Equity
Subtract total liabilities from total assets and you will have total equity; that metric that shows what management is doing to grow the capabilities of a company:
From here, I expect gains to continue and, this will only add to the upward momentum of the company. This is where you can see how the company will continually grow its foundation and that management is working to create value for investors.
Cannara Biotech LOVFF Stock Chart
There is absolutely no real volume in Cannara, and for early adaptors of this company, acquiring at near these levels, this may be a solid opportunity.
There were some stock options issued to select employees. I do not see that as a real downward dragging opportunity at this point. For now, this is a true penny stock that no one is really paying attention to.
Is Cannara Biotech LOVFF Stock a Good Investment?
For right now, Cannara Biotech has a lot of upside potential. Cannara Biotech now has about 800M shares outstanding; a bit much. But, if were took the current net income and factored that out, you can see a lot of upside potential. There is $1.4M in net income. If Cannara were to do that every quarter over the next three quarters that would bring in a total of about $5.6M in ent earnings. Given the 800M in shares outstanding, that is $0.007 EPS. With a forward multiple of 100x, you could expect to see the stock trade above $0.70 per share.
But, merely factoring out the next three quarters for a total of $5.6M is a bit of a rookie move and understates the potential here. Likely, there will be continued revenue gains and these increases will continually increase EBTIDA and net earnings profits. I expect that there should also be improvements in margins and costs. Also, I expect that Cannara Biotech will continue to expand. So, while the $5.6M is a solid baseline to look from, it may move higher or lower.
Still, this shows that there is significant upside potential. Simultaneously, I want to see a couple more quarters of gains in revenue to solidify the trends. If you are in this stock I see nothing but upside potential. And, considering that they are profitable, and the stock is so low, the downside risk is minimal.
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