Sunniva Inc: California Cannabis Company Reports Record Preliminary Q1 Results

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Sunniva Inc Starts 2019 With Record Preliminary Q1 Results

Sunniva Inc (OTCMKTS:SNNVF, CNSX:SNN), through its various subsidiaries, is a vertically integrated cannabis company operating in the world’s two biggest marijuana markets, Canada and California.

While the Sunniva stock price faced pressure throughout 2018, ending the year down 66%, it rebounded in 2019.

In January, it announced its first cannabis product sales in California. In March, Sunniva announced the launch of its first three cannabis brands in California. In April, the Vancouver, B.C.-based company announced that preliminary first-quarter revenue increased 169% to a record $10.5 million—close to what the company reported in all of 2018.

All of this bodes well for patient Sunniva investors who weathered a stormy 2018.

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Sunniva Inc Overview

Sunniva is a cannabis company that operates in sunny California and Canada, the two largest cannabis markets in the world.

Sunniva’s initial California greenhouse and manufacturing campus (which is nearing Phase One completion) is expected to produce approximately 160,000 pounds of premium cannabis annually with roughly 33,000 pounds of trim once the second phase is completed. (Source: “The Sunniva California Campus,” Sunniva Inc, last accessed April 8, 2019.)

The Cathedral City extraction facility has a monthly output capacity of roughly 400 pounds of distillate and 275 pounds of resin, which will supply the company’s branded products, which include pre-rolls, vape cartridges, and premium concentrates.

The company claims that by using its advanced technologies, it expects to “dramatically” reduce labor costs, which generally make up 50% of total costs of production in the cannabis industry.

Sunniva’s wholly-owned subsidiary, Sunniva Medical Inc., is building the company’s Canadian campus on its 126-acre zoned property in Okanagan Falls, British Columbia.

Development of the 700,000-square-foot greenhouse, which will take place over several phases, will target initial annual production of 11,025 pounds. Future growth will utilize the proven technological advances from the Sunniva Campus. (Source: “The Sunniva Canada Campus,” Sunniva Inc, last accessed April 8, 2019.)

In February 2018, Sunniva announced that it had signed a major two-year supply agreement with Canopy Growth Corp (NYSE:CGC). Sunniva Medical Inc. would sell roughly 198,420 pounds of dried cannabis to Canopy. (Source: “Canopy Growth Corporation and Sunniva Inc. sign cannabis supply agreement,” Sunniva Inc, February 21, 2018.)

Natural Health Services, a sister company of Sunniva Medical, is the sector’s largest non-Licensed Producer medical patient network with over 100,000 active registrations.

Sunniva Stock Information
Market Cap $154.4 million
52-Week Change -35.8%
52-Week High $7.50
52-Week Low $2.04
Shares Outstanding 36.6 million
Float 27.8 million
50-Day Moving Average $3.75
200-Day Moving Average $3.53

(Source: “Sunniva Inc. (SNNVF),” Yahoo! Finance, last accessed April 8, 2019.)

While optimism surrounding the legalization of recreational cannabis in Canada was high in 2018, the share prices of many cannabis companies were not. Sunniva was one of them. SNNVF stock faced headwinds from fears of a supply glut and ongoing competition.

The company was earning revenue from acquisitions but investors were waiting for word that its California and Canada campuses were operational. It was also reporting big losses, but those losses were mostly associated with its acquisitions and growing pains.

In 2019, though, Sunniva stock has benefited from the extended January effect and encouraging news coming from corporate.

This included announcing its first cannabis sales in California, $7.6 million in near-term sales contracts for its branded cannabis products in the Golden State, and the launch of its first three cannabis brands (“Sun Fire,” “KYNDNESS,” and “Herbella”) in California.

It also secured distribution and retail shelf space through the November 2018 acquisition of LTYR Logistics, LLC. Through the acquisition, Sunniva now possesses over 120 licensed retail dispensaries across California. (Source: “Sunniva Inc. Announces Closing of LTYR Logistics Acquisition,” Sunniva Inc, December 31, 2018.)

In addition to recording record preliminary results, all of this has helped Sunniva’s share price climb 71.5% year-to-date as of this writing.

As you can see, SNNVF stock is close to forming a “golden cross,” a bullish indicator where the 50-week moving average crosses above the 200-day moving average.

All of this suggests that Sunniva is setting up for additional near-term gains.

Chart courtesy of StockCharts.com

Sunniva Announces Record Preliminary Q1 Results

On April 5, Sunniva announced preliminary results for the first quarter ended March 31, 2019.

The company reported first-quarter revenue of $10.5 million, a year-over-year increase of 169%. (Source: “Sunniva Announces Record Preliminary Q1 2019 Revenue Of CAD $14.0 Million (USD $10.5 Million), Representing Growth Of 169% Over Q1 2018,” Sunniva Inc, April 5, 2019.)

During the first quarter, Sunniva began selling cannabis products through its wholly-owned subsidiary, CP Logistics, LLC, with preliminary revenue of $7.5 million. Sunniva’s other wholly-owned subsidiaries, Full-Scale Distributors, LLC and Natural Health Services Ltd. kicked in the rest.

Due to operational ramp-up costs in California, the first-quarter gross profit margin is expected to be between 30% and 35%. That said, Sunniva continues to reiterate its 2019 revenue estimates in California, through CP Logistics, of $55.0 million to $60.0 million, with an estimated gross margin of 40%–50%.

This estimate does not include revenue from Full-Scale Distributors, Natural Health Services, and the Sunniva California Campus.

“In California, we now have the strategic pillars in place to ensure scalability and growth for our newly announced brands and we are very proud of our entire team for the execution and delivery of a very strong first quarter,” said Sunniva CEO Dr. Anthony Holler.

Our $14.0 million in revenue during the first quarter is close to the total revenue generated by Sunniva in all of 2018…we continue to demonstrate our ability to achieve significant revenue growth and secure shelf space for our Sunniva brands throughout the state.

(Source: Ibid.)

Sunniva will provide a full corporate update on its Canadian and U.S. operations along with its fourth-quarter 2018 and fiscal 2018 financial results on April 29, 2019. It will announce its first-quarter 2019 financial results before May 30, 2019.

Analyst Take

In 2017 and 2018, Sunniva’s focus was on building, securing, and licensing the necessary infrastructure to secure the launch of its branded cannabis products.

In 2019, the company will finally start to generate serious revenue from its operations. Everything is starting to take shape for Sunniva and it should translate to revenue increases, profitability, and growth. That should also translate to higher SNNVF stock prices.