Orchid Ventures ORVRF stock is a California-based cannabis company that serves many locations and is also in Oregon.  I wanted to break down the company Orchid Ventures focuses on vapes and get ready to start the process of an ORVRF stock forecast and whether ORVRF stock is a good investment for cannabis stocks.  However, if you look at revenues and can recall issues with vape companies from 2019, there was a fall in revenue as the company revamped its products.  Since then, revenues have stalled making this stock difficult to predict for ORVRF stock forecast.  Despite being in the biggest market in the country, Orchid Ventures has not been able to pick up on its earlier momentum and has not been able to achieve profitability.

Still, gross margins are solid for Orchid Ventures.  But, operating costs, while being consistent, are very high relative to revenue at this point.  The big thing to keep in mind regarding what comes next is an economic term called marginal profits.  Once the core costs are covered by production, then when one additional unit of production moves through the system, the earned margins are higher relative to the first units of production.  This is when profits start to accelerate.  Now that Orchid Ventures has achieved such a respectable gross margin, should revenue scale up then Orchid Ventures may quickly become a profitable company.

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Orchid Ventures Financial Data

Here is a breakdown of Orchid Ventures Q3 financial data from Orchid Ventures website.

Orchid Ventures Gross Profits

As I mentioned in the intro, gross profits are very high for a company at this stage.  This tells me two things.  First, as the company scales up, even more, should revenues start increasing rapidly, gross margins on a percentage basis, relative to revenue, will very likely improve further.  Second, scaling up the business will mean getting to the point where operating costs will be far in line.  And, achieving EBITDA profitability will be easier since this hurdle has been cleared.

The question is, then, can Orchid Ventures scale up revenues?  Vapes are popular and as an alternative, they are gaining ground.  Operating in Oregon means operating in a very mature market.  But, California has just gotten started with adult-use cannabis.  So, this is one of the cannabis stocks that may be able to solidify itself in this market.

The key is revenue growth.

Orchid Ventures Operating Profits

The next step is operating costs.  Operating costs have remained relatively flat.  This area of the financial numbers deals with SG&A; Sales, General, & Administrative.  On some level, such as the CEO salary, this will remain somewhat constant.  And, as revenues continue to increase, on a relative basis, operating costs should shrink in comparison.

But, oftentimes there are increases in Sales in order to increase revenues.  So, the relationship between SG&A and revenue is not necessarily linear.  This means that as revenues increase, on some level, so should operating costs.  But, they will increase at a much lower rate, thereby achieving improved operating efficiencies.

Again, this will be driven by revenue gains, which Orchid Ventures needs to start achieving.

Orchid Ventures EBTIDA & Net Profits

Getting to 60% in gross margins was a big step toward EBTIDA profitability, the big milestone once a company begins producing and selling products.  EBITDA is important because it shows that the core concept of the business can be profitable.

Next step for profitability is scaling up the business and getting operating efficiencies to more competitive levels; as mentioned above.  Also, something to keep in mind is the fact that as a company starts to check off the boxes in its goals, profits become more outsized once certain levels are achieved.  This is an economics term called marginal profits.  If a company achieves a level of production and revenue, then additional units add outsized profits.

I could see Orchid Ventures outperforming other cannabis stocks simply because they have relatively flat operating costs and are gross profit positive.  I reiterate again, scaling up revenue will create significant opportunities for Orchid Ventures.

Orchid Ventures Cash On Hand

Here are numbers that are not very positive for Orchid Ventures; cash on hand and cash to debt ratio.  With companies that are still in the process of ramping up and achieving economies of scale to get to EBITDA profitability, then the cash burn will is an issue.

Orchid Ventures does not have sufficient cash on hand relative to its cash burn rate.  Worse, they are in negative territory with assets so, borrowing capital to stay afloat is an issue.

Orchid Ventures Total Equity

Whereas total assets is declining, total liabilities is increasing.  And, not having sufficient cash on hand means Orchid Ventures will have to take on additional debt in order to fund operations.  But, and as you can see in the chart above, this is going to get a bit sticky.

For me, I am always trying to optimize my investments.  I am trying to find the big picture in things and this encompasses all aspects of a company’s numbers.  While I can see a pathway to EBITDA profitability, the cash, asset, & liability picture is not as rosy to me right now.  As far as cannabis stocks & cannabis investments are concerned, ORVRF stock may be one of them that has a few dark red flags.

Orchid Ventures ORVRF Stock Forecast

I will have to hold off on the ORVRF stock forecast until they hit EBTIDA profitability.  I am working through 125 different cannabis stocks and working on an analysis of each and every one.  If ORVRF stock achieves profitability, then I can move toward targeting a price for ORVRF stock.

Is Orchid Ventures ORVRF Stock A Good Investment?

I don’t think it is too far of a stretch to see if ORVRF stock is a good investment.  While it is possible for me to see EBITDA profitability for ORVRF stock, I have a tough time with the cash on hand, assets, and liabilities.  These are the cruxes that management is going to have to work through.  I feel that Orchid Ventures will get to the point where they can start seeing higher revenue numbers.  That will get them closer to profitability and decrease cash burn.

But, at the same time, the revenue run rate is low and the rate of growth of revenue is not exactly lighting up the world.

For me, I am looking for the full picture with my cannabis investments when I sift through these cannabis stocks.  Orchid has a little bit of work to do before they get to that point where I would want to pull the trigger on them.

Orchid Ventures ORVRF Stock Financial Statements

Here are the financial statements for Orchid Ventures:

Orchid Ventures ORVRF Stock Financial Statements

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