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Thursday, October 29, 2020

Surna Inc (OTCMKTS:SRNA) Continues to Find Solutions

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Surna Inc (OTCMKTS:SRNA) has been performing very well since our last update on the Company. We’ve seen another 30% tacked onto shares since that update, a move that vindicates our strongly held bullish convictions on the company at the time.

As we put it then, “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.” This reflects our sense that the marijuana space is going to grow powerfully and implicitly on November 8, when folks in nine states hit the ballot boxes to contemplate the future of pot in America.

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 solves 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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Surna Inc is effectively a micro-cap “pick and shovel” in the cannabis cultivation space. It sells tools and supplies for producers and cultivators. As such, the best thing they might have is a showroom.

In our last update, we noted that Surna’s founders, Stephen and Brandy Keen, had 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 now about 40%.

Apparently, according to a more recent release, Mr. Keen is leasing a facility in Boulder with the goal of becoming an independent marijuana cultivator, which plans to demonstrate Surna solutions.

Keen stated, “I am very excited about the opportunity to build an independent cultivation facility that illustrates proper installation and use of the Surna products that I helped develop. By managing a showroom, unaffiliated with Surna, over which I have complete control, I expect to show how Surna’s climate control systems can generate significant energy savings and improve production yield. In my heart, I am a grower and an environmentalist. I want the opportunity to prove the two can flourish together.”

As noted in the press release, Keen is applying for growing licenses from the Colorado Marijuana Enforcement Department. The process is expected to take several months, and there is no assurance licensing will be granted. “The MED administers and enforces medical and retail marijuana laws and regulations and collects empirical data on producers that can be used to evaluate energy efficiency, productivity and more.”

The piece went on to note an interesting partnership dynamic and negotiations to come, which will be important to watch out for: “Surna is in discussions with Keen to determine how best to proceed with a business relationship between the company and Keen’s new venture. Surna and Keen are hopeful those discussions will lead to a mutually beneficial opportunity. Surna would expect to have no ownership or profit participation from Keen’s new venture.”

Earning a current market cap value of $21.9M, SRNA has a decent store ($302.85k) of cash on the books, along with total assets greater than $3.1M, which is balanced by an appreciable load ($1.98M) of total accumulated debt. So, the balance sheet is far from perfect. That said, the company is making real money, with trailing revs already coming in at $9.71M, and starting to see major topline growth, with quarterly y/y revs increasing at 13%. In addition, the recent rally has the strong support of a broad market interest, with a clear surge in volume over the last couple weeks, tracking 250% above its recent average levels. That suggests a strong potential for some continuing follow-through in the move. 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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