Pre-released unaudited consolidated revenue for Isodiol International Inc. (CSE:ISOL) for the month came in at $3.3 million
SmallCapPower | June 12, 2018: Isodiol International Inc. (CSE:ISOL; $0.60) on June 11, 2018, pre-released unaudited consolidated revenue for the month of May 2018. Revenue came in at $3.3M, a 15% improvement over our expectation for $2.1M/month ($6.3M for the quarter). Of note, revenue for the month of April has not been released yet. Financials for FQ4/2018 (ending Mar. 31/2018) are expected to be released on July 30, 2018.
Ramp-up faster than expected. As shown in the figure below, we previously assumed a ~6% increase in revenues QoQ, however $3.3M in May suggests that operations are going better than we expected. As a result, we have adjusted our estimates for FQ1/2018 (ending June 30, 2018) and now are looking for revenue of $7.3M (was $6.3M), gross margins of 60% (was 54%), and adj. EBITDA of $1.5M (was $571K). In our opinion, higher revenue in the quarter may be due to a higher proportion of nutraceutical products sold in the quarter (increased margin & revenue than bulk isolate) and/or a higher isolate/kilo price than we anticipated. For reference, according to management, 60% of Isodiol’s revenue comes from its bulk CBD (Cannabidiol) isolate, and the other 40% from finished CBD nutraceutical products. The Company sells a kg of CBD isolate wholesale for $7-$10K.
Strong cash balance continues to drive opportunities. Isodiol’s FQ3/2017 (ending Dec. 31, 2017) cash position of $26M, in combination with its recently-closed (May 2018) $18M private placement, places the Company in a strong position to pursue new synergistic acquisitions. The Company already had two recent acquisitions. First, ISOL plans to add 10 retail locations in U.S. and Canada via expansion of its KURE subsidiary for an estimated CAPEX of $2M. Each KURE retail location currently in operation (12) averages more than US$900K per location in annual sales. Second, the Company closed a 51% acquisition of Farmtivia, a hemp-cultivator in California for US$1.5M in stock. Farmtivia plans to grow an initial hemp crop comprising ~60 acres. This partnership should increase Isodiol’s footprint in the U.S.
Trades at a discount to peers. Based on our F2018E sales estimate of $28.9M, ISOL trades at 5.1x 2018 EV/sales, a significant discount compared to intermediate peers (~$1B-$150M market cap), which trade at a median of 18.4x. Although Isodiol is focused on CBD-hemp, in our opinion the Company’s share price is positively correlated to the general cannabis industry. We believe as Isodiol continues to increase revenue over the next few quarters, this gap should close. Of note, 2018 EV/sales multiples for the larger cannabis companies (Canopy, Aurora, MedReleaf, etc.) are in the range of 40-100x (8-25x in 2019).
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