As we move toward the close of 2019, investors may want to put Cannabis Strategic Ventures (OTCMKTS:NUGS) on their radars for a few different reasons. One big reason is the potential for tax-loss selling to be artificially exaggerating the downward momentum in the stock into year-end. The company’s fundamental performance has been sharply improving and the company is clearly guiding operational scale and overall success much higher in the next year and even hinting at a sharp reduction in cash burn and a taste of net profitability in the second half of next year.
The whole cannabis sector has been hammered this year, and stocks with some leverage on the balance sheet have seen the worst of that action. But this may not be a fair assessment of the value of NUGS given that it has positioned itself to heal that balance sheet and avoid further dilutive financing going forward. But, fair or not, that pressure on shares begets more pressure into year-end as investors see the negative returns as a source of deductions to offset capital gains in other areas of the portfolio. We see this every year. And this year, it would appear to be offering up major value in NUGS shares.
Cannabis Strategic Ventures (OTCMKTS:NUGS) has big sales growth already underway and set to accelerate in 2020. But the company is carrying $10M in debt against little in the way of cash and cash equivalent securities. However, next year, that will be up against a massive increase in total capacity, with the potential to drive cash flows to the bottom line and push the topline 500-1000% higher without adding new debt.
That’s because the company currently owns and operates 275,000 square feet of cannabis grow capacity, which translates into just shy of 180k square feet of canopy. According to the company, we can expect at least four harvests per year on that capacity, with each square foot yielding around 30-50 grams of flower, which is an industry-standard assumption.
If you do the math, that means you’re talking about 21.5M to 35.8M grams per year of cannabis to sell. Right now, we show the market for their cannabis at around $2.85/gram, which adds up to about $102M in sales next year. The company is only asking us to believe $5M, which suddenly seems like a very plausible threshold to reach and exceed.
To get that into place, as highlighted in its most recent release, NUGS had several major accomplishments during 2019, including securing a 6-acre NUGS Farm greenhouse lease, successfully acquiring annual cannabis licenses, securing funding for the NUGS Farm project, cultivating and harvesting its first cannabis crop, and achieving a new record revenue quarter. All of that has led to its best-ever year on the top-line.
“2019 was transformative for Cannabis Strategic Ventures,” commented Simon Yu, CEO, Cannabis Strategic Ventures. “We are extremely excited about the progress we made during 2019, and the tremendous position we are in as we head into 2020.”
Find out when $NUGS reaches critical levels. Subscribe to OracleDispatch.com Right Now by entering your Email in the box below.
As noted above, NUGS just provided an update on its operational momentum heading into year-end. And the whole scenario meshes extremely well with a cherry-picking value strategy driven by the assumption of tax-loss selling as a major contributor to the stock’s recent woes. If that view is correct, then 2020 could be a banner year for not only the company but its shareholders as well.
“2019 has been a year of tremendous success under the surface,” continued Yu. “That success will become much more apparent from the outside in the weeks and months ahead. We hit key milestones according to our larger strategic plan this year and we look forward to a banner year in 2020 as we maintain that operational momentum.”
The key here is that the NUGS story has been one of accumulating a potential pay-off that has yet to become manifest in its results. But the prepotency is very much present right now given the hugely expanded capacity and the continued growth of the demand side of the equation on a macro level for the cannabis space. The market has been reluctant to give cannabis producers the benefit of the doubt, especially those with some balance sheet issues. But the ROI on the investment that has created those issues is expected to be much higher. The only question with any of these companies is whether or not they survive to see that pay-off and deliver it to their shareholders.
NUGS is already clearly around that corner, so the deep valley of tax-loss selling may represent a golden opportunity to pick up shares on the cheap.
Now commanding a market cap of $10.6M, NUGS has a store ($228K) of cash on the books, which stands total current liabilities. NUGS is pulling in trailing 12-month revenues of $1.5M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 1317.6%. We will update the story again as soon as developments transpire. Sign-up for continuing coverage on shares of $NUGS 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 $NUGS, either long or short, and we have not been compensated for this article.