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Wednesday, January 19, 2022

Sugarmade Inc (OTCMKTS:SGMD) Lines Up Potential Squeeze Action

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Shares of Sugarmade Inc (OTCMKTS:SGMD) will likely be in focus again this morning. The stock has been on a roller coaster ride over recent days after making a huge acquisition of a leading ecommerce hydroponics play with $37M in forward revenues set to roll in, and then dropping hints of a possible reverse split. That latter issue hit the stock, but this morning’s Shareholder Letter puts all of this is a very interesting light that could spell a major headache for bears camped out in the stock, especially with all the buzz surrounding the MORE Act to legalize pot at the Federal Level.

We thought this was a particularly compelling passage: “We understand that some investors view reverse splits as necessarily negative events. But that’s because, in most cases, they are undertaken for negative reasons. The stigma that accompanies reverse stock splits is an association with dilution or malinvestment. In this case, we are talking about a completely different dynamic. This is a step taken by a strong company with a big vision. It represents part of a bold initiative to drive improved value for shareholders – to significantly increase the value proposition we offer to our most committed stakeholders – and to make Sugarmade a household name.”

Sugarmade Inc (OTCMKTS:SGMD) bills itself as a company that engages in the supply of hydroponic and cultivation products, and products to quick service restaurants. It supplies hydroponic and indoor/outdoor cultivation products to the agricultural market sectors, including the legal cannabis cultivation, processing, and distribution sectors.

As we said above, the company just did some major M&A, scooping up BZRTH Inc, which is a major player on the ecommerce side of the space. The company seems to be orchestrating a roll-up strategy to basically take over the hydroponics market, which could be a very strong way to position for a world where pot and hemp growing is in a steady boom, but margins are tightening for big producers, who in turn need to spend on capex to increase efficiency.

According to company materials, “Sugarmade, Inc. (OTCQB: SGMD) is a product and branding marketing company investing in operations and technologies with disruptive potential. The Company is becoming a leading supplier to the growing hemp industry and is benefitting from the growth of the hydroponic marketplace. The Company is in the process of acquiring several leading hydroponic and agricultural supply companies that are currently producing in excess of $70 million in annual revenues. The Company also operates Carryoutsupplies.com, a leader provider to the quick service restaurant industry.”

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As noted above, SGMD just put out a Shareholder Letter that could have big implications for action in the stock because it channels a strong voice on growth and uplisting to either the Nasdaq or NYSE, and reframes the company’s recent 8k in quite a positive light.

Given that the company is successfully rolling up the hydroponics space, or so it would appear, and given that there could be a lot of vulnerable shorts in the tape, you may want to have a squeeze radar aimed at this one today.

This is especially true given the likelihood that we will continue to hear about the MORE Act to legalize cannabis: “The MORE Act is a very exciting step because it effectively removes marijuana from the list of federally controlled substances and turns over control to state lawmakers. The upshot is that solid businesses in that industry will have access to the normal range of services that other industries thrive on, including a landscape of banking and investment regulations that allow for commercial success. The implications of this shift cannot be understated.”

At this time, carrying a capital value in the market of $9.2M, SGMD is pulling in trailing 12-month revenues of $4.6M, which is slated to rise dramatically as this acquisition closes at the end of the month. Take note. You can bet we will update this one again as new information comes into view. Sign-up for continuing coverage on shares of $SGMD stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $SGMD, either long or short, and we have not been compensated for this article.

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