Lowell Farms LOWLF Stock turns a profit with upside potential

Lowell Farms LOWLF stock is one of the best marijuana stocks to buy.  LOWLF stock is set to move upwards considerably.  If you compare the valuation for LOWLF stock to how companies are being valued on the broader market, LOWLF stock would be considerably higher.  Lowell Farms is increasing revenues as they ramp up production.  And, with the damage from the recent fired behind them, Lowell Farms can move forward and grow the company.

But, one of the things that is always most impressive to me is the social engagement.  Lowell Farms gets some 1M social impressions per week on Instagram with an account size of 178K.  Plus, there is an additional 3M YouTube impressions weekly and, if they get a 5% click-through rate they are looking at 150K views there on a weekly basis.

Lowell Farms Social Media Presence

As a potential investor in a marijuana stock, you have to appreciate where that puts Lowell Farms.  Here is a look at Lowell Farms social media engagement per the company investor presentation:

Of all of the cannabis companies out there, only Cookies sees more activity (Cookies is a very large dispensary system that has its own branding).  What does it take to get to a social exposure so high?  A stand-out brand.

Here is something they teach you in B-School:  What is it that a consumer talks about when a company representative is not in the room?  The brand.  Consumers do not talk about management, logos, ethos, or anything like that.  They talk about a brand.  And, when you have enough people subscribing to a company’s social media pages this says a great deal about what consumers think about this particular brand.

Lowell Farms & AWH Distribution

Something very interesting is the AWH deal that is going to continually expand Lowells presence around the country is the AWH deal where in the regions that AWH works Lowell will license out its products at a 15% rate.  I do not cover AWH just yet, with the ticker symbol of AAWH, but they should be added because they are likely a takeover target at some point or, a merge of sorts.

What I like about this deal is that Lowell gets in to six new distribution areas with little start-up costs.  AWH already has a presence in these states so will be able to scale up the business little by little; they are starting in Massachusetts.  If the Massachusetts operations does well then there could be significant expansion quickly in the other areas.

Lowell Farms LOWLF Stock Comparisons

How do you know if a stock is a good stock to buy?  Comparing any one stock to another is one of the best ways to start.  I put together the Complete List of Top 100 Cannabis Companies where you can sift through data on all of the various companies.  By doing this you can see how any one company compares to another.

Here is how Lowell Farms LOWLF stock financial data compares to all of the other cannabis companies:

• #21 Revenue Growth Rate: 37.1%
• #19 Revenue Per Share: $0.1933
• #46 Gross Margins: 37.7%
• #20 Operating Efficiencies: 41.1%
• #28 EBITDA/Revenue: 4.6%
• #65 Cash/Debt Ratio: 14.9%

As Lowell continues to ramp up production, move beyond the fires, and distribute product, these numbers will continue to improve.  Lowell Farms numbers are already solid.  Improvements will merely bring in increased opportunities for profits.

Lowell Farms Financial Data

Mostly, Lowell Farms financial data was strong considering the losses that the company incurred from last year’s fires.

Revenue

Lowell Farms hit record revenues.  But, these numbers are small compared to where Lowell Farms revenues will be in the future:

 

Production capabilities for the Salinas facility are said to be some 250,000 pounds of cannabis annually.  That is an approximate $500,000,000 in annual revenue potential.  I expect that Lowell will likely get to this kind of level soon.

But, this is also likely to be a small part of what Lowell Farms will be doing in the future.  Lowell is also in the process of licensing their labels in other states.  Already, Massachusetts is beginning the process of having Ascend Wellness distribute Lowells products for them.  Ascend Wellness is located in these states:

• Illinois
• Michigan
• New Jersey
• Massachusetts
• Ohio

With Lowell’s initial position in California, the most densely populated state in the union, this is a significant reach.  Look for the potential increase in revenues.

Something else, if the market starts to embrace Lowell Farms in these other five states, then revenue growth could multiply by a factor of five quickly.

Gross margins

As for gross margins, they were a bright spot but, there still needs to be increases:

As Lowell increases and ramps up its own production in California I expect that there will be continued metric improvements.  But, revenue increases from other states via the AWH deal may not help gross margins much.  Still, California is the largest state in the union and it is very possible that the operations there will ramp up to sizable capacity quickly allowing for improved gross margins.

Operating Efficiencies

Operating efficiencies are another bright spot and if revenues are to continue higher then I believe that Lowell Farms will have some of the most competitive operating efficiencies in the market:

Lowell Farms has already demonstrated that they will contain costs as earlier prints in the low 30s show.

EBTIDA Profits & Net Earnings

One thing that might be a stand out is the fact that Lowell Farms was not EBTIDA profitable, but was net earnings profitable.  Here are the two respective charts:

Here is Lowell Farms net earnings:

So, how does a marijuana stock have positive net earnings after printing negative EBITDA?

First, EBITDA profitability is the goal for a cannabis company – or, any company for that matter – when they are first ramping up.  EBITDA is essentially the core of the business.  If a marijuana stock gets to the point where they are EBTIDA profitable then all they need to do is ramp up further production to get to the point where marginal profits trickle down to net profits.

As for Lowell Farms, the cannabis company was not profitable in its core business. But, they had outlying income that pushed net earnings higher.  This usually goes the opposite direction.  But, in this case, Lowell received insurance money from the company’s claim regarding the fires from last season.

Lowell Farms LOWLF Stock Chart

Who has not been frustrated with the latest marijuana stock price movements?  They make no sense, really.  But, I have been telling individuals the same thing: It is a process and this process is ongoing.  Just consider where these companies will be in about 5 years time: They will be selling multiples higher in revenue of cannabis.  Cannabis companies will get there.

MSOS ETF Chart

What is the broader market doing with marijuana stocks?

There has been a lot of selling in the MSOS ETF lately.  This does not make a lot of sense considering that most of the stocks in the cannabis sector are turning profitable and increasing revenues significantly.  I look at some of the latest financial releases from some of the latest cannabis companies and am left wondering.

LOWLF Stock Chart

Lowell LOWLF stock chart itself is largely as flat as a board:

Largely, most of traders are on the sidelines for Lowell Farms LOWLF stock.  There has not been much movement.  But, I can see where this marijuana stock has significant upside potential.

Lowell Farms LOWLF Stock Projection

What is a good projection for LOWLF stock?

One of the first things you have to continually keep in mind is the connection that Lowell Farms has with its customers.  This is important.

First thing is that Lowell Farms has about 272M shares outstanding.  Since we do not have too much in the way of Then, let’s factor out how much revenue they could earn.

Here is a company that has some potential.  If Lowell Farms were to start hitting its stride and sell  into the new markets then, very possibly they could hit about $50M revenue from each state over the course of the next 2.5 years’ time.  If so, that will bring in $250M right there.  The best part is that all Lowell will really have to do is market the products as they are merely licensing out the name to AWH.  This keeps costs very low and basically, it is pure cashflow.

Also, if Lowell could ramp up production in California and hit about 65% of total capacity, about $350M in revenue, this will be a solid foundation to operate from.  Given the two streams of income this adds up to about $600M in about 2.5 year’s time.

With moderate margins this puts Lowell on a profit run rate of about 15% of the total revenue; about $80M.  272M in shares outstanding and you are looking at $0.30 EPS.  With a 100x future multiple, this puts the stock at $30.00.

Keep in mind that you are not actually receiving $0.30 EPS.  Very likely, there is going to be continued CapEx.  This eats into profits, of course.  But, it also adds to the foundation of revenue; Lowell will be even bigger.

Lowell Farms LOWLF stock projection

I see the $30.00 price target as being quite reasonable.  When you look at Lowell Farms ability to connect with its customers this outpaces so many other players.  When you look at their expansion potential, you see how big these guys can actually get.

This will be an ongoing story and I will continually add to this.

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