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Saturday, October 31, 2020

Surna Inc (OTCMKTS:SRNA) is All About Growth

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Surna Inc (OTCMKTS:SRNA) is a micro-cap “pick and shovel” in the cannabis cultivation space that has clearly begun to spur some interest among players in the marketplace as shares break out of their recent range on a surge in volume. It’s difficult to say precisely what the catalyst is, but we can venture some educated guesses.

First off, anything and everything to do with cannabis and marijuana, even indirectly, has been flying lately as we move ever closer to a spate of legislative catalysts in November that polls suggest will at least triple the total economic footprint of the legal cannabis industry in the US. Second, Surna’s founders, Stephen and Brandy Keen, just signed a lease for a commercial marijuana cultivation facility called “Sterling Farms” in Boulder, CO. According to their Facebook page, it will be used “as a Surna showroom and it will be used to set the bar for energy efficiency for marijuana cultivation. I’m excited, I’ve been waiting years for this”. Since that Facebook posting, the stock is up about 25%.

Surna Inc (OTCMKTS:SRNA) promulgates itself as a company that designs, develops, manufactures, and distributes systems for controlled environment agriculture (CEA). It offers chillers, lights, reflectors, and irrigation systems; Hybrid Building that uses the sun as its primary light source; air sanitation technology for mold and mildew risk mitigation to cultivators; and mechanical, electrical, and plumbing services.

The company serves cannabis cultivation facilities; and other indoor agricultural facilities, including organic herb and vegetable producers. In short, SRNA develops innovative technologies and products that monitor, control and address the energy and resource intensive nature of indoor cannabis cultivation. Currently, the company’s revenue stream is based on its main product offerings – supplying industrial technology and products to commercial indoor cannabis grow facilities.

Headquartered in Boulder, CO, Surna’s diverse engineering team is tasked with creating novel energy and resource efficient solutions, including the company’s signature water-cooled climate control platform.

Surna’s engineers continuously seek to create technology that solve the highly specific demands of the cannabis industry for temperature, humidity, light and process control. Surna’s goal is to provide intelligent solutions to improve the quality, the control and the overall yield and efficiency of controlled environment agriculture. Though its clients do, the company neither produces nor sells cannabis.

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In its most recent quarter, the company has started to generate a reasonably impressive list of accomplishments, including receipt of a $1.0 million contract for the build-out of Rolling Farms 100,000 square foot facility, reflecting the recommendation from an existing customer consistently ranked in the top 2% producers in Washington’s field of over 700 producers/cultivators.

SRNA can also boast of repeat business in Washington state, Nevada and other regions as well as the securing of new customers, including the first contract in Hawaii and additional cultivators in Arizona. That expanding footprint has also lead to top line growth in the business.

Revenue grew 13% to $1.9 million, compared to $1.7 million, reflecting sales momentum and greater demand as more states legalized cannabis. That will likely continue, with potentially nine state up for some degree of legalization for cannabis in November.

CEO Trent Doucet said, “Focused on execution and prioritizing customer service, innovation and energy efficient solutions, we are building the foundation for long-term growth and shareholder value. Since becoming CEO, I have expanded our sales model to include regional representatives who are experts in their respective state regulations. While we believe quarterly sales will continue to fluctuate due primarily to the timing of certain legislation, we believe this expanded model will improve our position to foster relationships with qualified cultivators.

This is a process that may pay off even more as the geographic footprint of the legal cannabis market expands. We also see a strong likelihood that the Company can cultivate real growth outside of the strictly cannabis-related market as vertical farming becomes more and more a focus.

Earning a current market cap value of $16.9M, SRNA has a decent store ($302.85k) of cash on the books, with total assets above $3.1M, which stands against an appreciable load ($1.98M) of total accumulated debt. The balance sheet isn’t great, but it’s hardly terrible for a growth industry. You have to use capital to make money, and some levering up is unavoidable even if you’re doing things perfectly. In addition, we see a sharp q/q drop in operating losses, which is very encouraging. The growth path for the company is going to hit a wall at some point because this is a very standard, old industry business. But it has a growing market to sell into, so we would expect it has some legs. For continuing coverage on $SRNA and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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