Cannabis One Holdings Inc Down 96% Since IPO
For marijuana stocks like Cannabis One Holdings Inc (OTCMKTS:CAAOF, CNSX:CBIS), it hasn’t been easy lately. Gone is the time when investors could watch a pot stock soar for absolutely no reason at all (other than optimism and a fear of missing out).
Why have cannabis stocks fallen out of favor since April?
It’s been argued that Canadian retail investors are responsible for the state of the marijuana stock market.
Why? Since large institutional investors have not stepped into the cannabis industry yet, it’s been up to retail investors to support cannabis stocks.
And those investors are, according Cannabis One CEO Jeff Mascio, “fickle” and “ignorant” and “[don’t] really understand what they’re investing in.” (Source: “‘Fickle, ignorant’ Canadian retail investors getting blamed for cratering cannabis stocks,” Financial Post, October 28, 2019.)
Perhaps. Investors can be an emotional, irrational bunch, looking for quick gains.
On the other hand, marijuana stocks have not given impatient investors much to cheer for. Revenue growth has been solid for many, but profitability is a rarity.
It also doesn’t help that the black market has continued to eat into the market share of legal marijuana companies.
And scandals, like the one involving CannTrust Holdings Inc (NYSE:CTST), haven’t endeared cannabis stocks to investors either.
No matter who you blame, the so-called cannabis bubble hasn’t burst; it’s more as if we’re in a “Great Deflation,” like a birthday balloon four days after the festivities have ended. Except the party isn’t over.
The legal cannabis sector is still in its infancy and finding its legs. In the U.S., marijuana isn’t even legal at the federal level. Once it is, and once the U.S. institutional investing community jumps in, pot stocks are going to get a lot more interesting.
Until then, there are still many excellent weed stocks with great upside that have been hammered by the stock market. This gives investors the rare opportunity to get involved in cannabis stocks before institutional investors step in. And we all know they eventually will.
Cannabis One Stock Overview
The goal of Cannabis One Holdings Inc is to become a dominant and profitable brand aggregator and distributor for the global marijuana market.
The Denver, Colorado-based company’s strategy is to focus on “new frontier states” like Florida, Illinois, Massachusetts, New Jersey, and New York (areas with high entry costs for licenses, as well as unknown supply and demand variances). (Source: “Corporate Presentation October 2019,” Cannabis One Holdings Inc, last accessed October 31, 2019.)
A seed-to-scale company, Cannabis One is also focusing its efforts on established markets such as California, Colorado, Nevada, Oregon, and Washington. Those regions have lower entry costs, established sales channels, and established markets offering opportunities for growth and profit.
Cannabis One has made serious inroads into these established markets, as the following list shows:
- Colorado: 547 dispensaries, 175 retail partners, and 32% market penetration
- Nevada: 63 dispensaries, 60 retail partners, and 95.2% market penetration
- Oregon: 661 dispensaries, 357 retail partners, and 54% market penetration
- Washington: 446 dispensaries, 412 retail partners, and 92.4% market penetration
The company has a popular, award-winning portfolio of brands, which has grown from two in 2015 to 15 today.
As for the future, Cannabis One Holdings believes the next value play in cannabis will be consumption lounges. As the company says, its plan is to “skate to where the puck is going.”
“Tetra 9,” the first legal marijuana consumption lounge in Colorado, opened in early 2018 and already has over 12,000 members and welcomed over 6,000 event guests last year.
Through partnerships and acquisitions, Cannabis One believes it can replicate this model, which has the added benefit of a low-cost expansion/franchise model and access to the grassroots cannabis culture.
CAAOF Stock Information
|Market Cap||$8.4 Million|
|50-Day Moving Average||$0.26|
|200-Day Moving Average||$1.23|
(Source: “Cannabis One Holdings Inc (CBIS.CN),” Yahoo! Finance, last accessed October 30, 2019.)
Mascio has reason to be a little frustrated with investors. Cannabis One stock is down 96% since hitting an intra-day high of $4.68 on April 22.
That’s despite his company making the kinds of moves that would typically, make a stock go higher. Cannabis One has reported solid revenue growth, launched new products, and is in the process of raising money from U.S. investors.
In an effort to streamline operations and save money, the company recently laid off around 20 employees and found other efficiencies. (Source: Financial Post, October 28, 2019, op. cit.)
Indeed, CAAOF stock has an ugly price chart, but it’s not alone. Virtually the entire cannabis sector has a stock chart that looks eerily similar. Fortunately, Cannabis One is making the right kinds of steps that should help it reverse this downtrend.
Chart courtesy of StockCharts.com
Honu Brand & Launch of New Products
On October 10, Cannabis One announced that its Honu brand has experienced significant growth in the Pacific Northwest, and that the company has launched new brands in Washington. (Source: “Cannabis One Holdings Inc. Reports on Significant Growth of its Honu Brand in Pacific Northwest and Launch of New Brands in Washington,” Cannabis One Holdings Inc, October 10, 2019.
As of August 2019, the number of retail establishments that the Honu brand was available in had grown 38% year-over-year from 298 to 412. Honu-brand edibles are now available in 93% of all Washington dispensaries.
Honu edibles make up around eight percent of the total Washington edibles market. The total Honu product line in Washington is comprised of 40 different stock keeping units (SKUs).
As of August 2019, the number of retail locations that Honu-branded edibles can be found in Oregon has increased year-over-year from 13 to 357. In Oregon, Honu-branded products can be found in 54% of dispensaries.
To capitalize on the growing popularity, Cannabis One has said it will be launching both its “Evergreen Organix EGO” edible brand and its “Cheech’s Private Stash” edibles product line in either late 2019 or in 2020.
In 2020, Cannabis One expects its cannabis-infused brands to add up to $24.0 million in revenue and $5.0 million in earnings before interest, tax, depreciation, and amortization (EBITDA).
Cannabis One Closes Non-Private Placement
In early September, Cannabis One announced that it closed a non-brokered private placement for proceeds totaling almost CA$1.5 million. (Source: “Cannabis One Holdings Closes Non-Brokered Private Placement,” Gowling WLG International Limited, September 3, 2019.)
Planned Acquisition of Green Lady
In July, Cannabis One Holdings Inc announced a definitive agreement to acquire Green Lady IP, which provides infrastructure services to three dispensaries in Washington State. (Source: “Cannabis One Holdings To Acquire Green Lady, Expand To Pacific Northwest,” Benzinga, July 12, 2019.)
The dispensaries generate in excess of $9.0 million in aggregate unaudited annual revenue.
The terms of the $3.1-million acquisition include $300,000 in cash, $1.4 million in Class B super voting shares, and $1.4 million in deferred consideration.
Revenue Up 298% at $2.2 Million
For the three months ended July 31, Cannabis One Holdings announced that its revenue advanced 298% year-over-year to approximately $2.2 million. Gross profit increased 256% to $600,141. (Source: “Condensed Interim Consolidated Financial Statements For the Seven Months Ended July 31, 2019,” Sedar, October 1, 2019.)
The company reported a net loss for the period of $1.2 million, or $0.03 per share, compared to a net loss of $112,604, or breakeven per share in the same period last year.
For the seven months ended July 31, 2019, revenue was up 310% year-over-year at $4.3 million. Gross profit in that period increased 376% to $995,630. Net loss for the seven months was $8.9 million, or $0.11 per share, versus a loss of $455,908, or $0.01 per share in the same prior-year period.
The company finished the period ended July 31 with $3.7 million in cash, compared to $1.4 million for the period ended December 31, 2018.
Cannabis One Holdings Inc is an emerging pot stock that, along with the broader marijuana stock market, is facing serious headwinds. Not because the cannabis industry is faltering or because the company is in trouble, but because of investor fatigue (and the fact that the cannabis industry hasn’t taken off as quickly as investors thought it should).
Despite the plunging price of Cannabis One stock, it has great long-term growth potential. The company is launching new products, expanding its footprint, and zeroing in on lucrative acquisitions.
It’s everything that should be propelling CAAOF stock higher, but because of the Great Deflation, it hasn’t (at least not yet).