Supreme Cannabis Company’s Growth is Lighting it Up

The Supreme Cannabis Company, Inc. (TSX:FIRE), one of the Canadian marijuana stocks, recently reported YoY revenue growth of nearly 400%

SmallCapPower | May 15, 2019: The Supreme Cannabis Company, Inc. (TSX:FIRE), one of the Canadian cannabis stocks, late Monday announced its third-quarter 2019 financial and operational results. Supreme Cannabis reported a 382% YoY jump in revenue to $9.97 million. Sequentially, revenue grew 29%. The revenue surge can be attributed to increased production at the 7ACRES facility, strong demand for the Company’s premium dry cannabis flower, increased sales volumes and robust wholesale & adult-use pricing. The average price of cannabis flower increased by 26% YoY.

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Production costs related to cannabis production activities during the biological transformation process increased by $4.0 million in Q3 2019, as compared to the prior year, due to a substantial increase in the footprint and output of the Company’s facility and, consequently, an increase in personnel, facility costs and amortization expenses. Total operating expenses increased to $10.3 million in Q3 2019 as compared to $4.6 million in Q3 2018, on the back of total wages & benefits expenses, total professional fees expenses, total sales, marketing & business development expenses, and share-based payments expenses.

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Supreme Cannabis reported a net loss amounting to $7.1 million as compared to $3.4 million in the same quarter last year owing to the above-mentioned factors. The Company’s cash stood at $75.0 million as at March 31, 2019.

On the operational front, Supreme’s wholly-owned subsidiary, 7ACRES, commenced sales of high-end cannabis flower to the province of New Brunswick and retailers in Saskatchewan, increasing distribution to eight provinces. Across Canada, sales revenue from the recreational market increased 63% between Q2 2019 and Q3 2019.

During the quarter, 7ACRES offset industry-wide consumer packaging challenges through its wholesale supply agreements. When selling dried flower to wholesale buyers, 7ACRES benefited from low-cost, bulk-packaging and industry demand for additional supply. The largest of its wholesale agreements is with Tilray Canada Ltd.

On January 28 and March 21, 2019, 7ACRES’ facility in Kincardine, Ontario received Health Canada approval for approximately 30,000 sq. ft. and 60,000 sq. ft. of additional cultivation space, increasing targeted annual production capacity to 26,250kg from 13,300kg.

Subsequent to quarter end, 7ACRES received Health Canada approval for an additional 50,000 sq. ft. of production space, bringing total licensed production space at 7ACRES to 230,000 sq. ft. With further production efficiencies and the completion and licensing of all 25 flowering rooms, the potential capacity of the 7ACRES’ facility is estimated to reach approximately 50,000 kg per year.

Supreme Cannabis also signed a LOI with Malta Enterprises, which opens the door for a Cannabis Production License in Malta, one of Europe’s principal commercial entry points, and to export cannabis for medical use to certain international markets.

Supreme Cannabis stock currently trades at a market capitalization of C$579 million with a price-to-book multiple of 2.8x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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