At the beginning of November, we highlighted mCig Inc (OTCMKTS:MCIG) as being one to watch. The company was expanding into cannabis growth facilities, and ahead of the early November recreational legalization ballot, this shift drew a lot of speculative volume. That, and the fact that it was one of the few cannabis related entities that not only offered an exposure to the space, but also generates revenues, has cash in the bank and a management team with a solid background.
Since our coverage, the company has put out a number of developments, and updated markets as to its financial situation. In light of this progression, let’s take another look at mCig, and see how the past six weeks have affected our bias.
So, by way of a quick introduction, mCig manufactures, markets, and distributes electronic cigarettes, vaporizers, and accessories under the mCig brand name in the United States. It also (and this was the focus of our previous coverage), by way of its Scalable Solutions subsidiary, provides clients with grow facility services, including things like real estate rental, construction, cost saving exercises and tech implementation, that sort of thing.
Last month the company acquired 17 million shares of an entity called Omni Health, by way of a conversion of a Convertible Promissory Note into shares of the latter. There was just shy of $100K in outstanding on the notes, and this was converted into 17.6 million shares. mCig now owns a total of 75.1 million shares of Omni Health. For us, this is a smart move. It’s a bit convoluted in what it means for mCig from the perspective of its VTCQ business (this is essentially now controlled by Omni) but the position that mCig now holds in the latter looks undervalued (based on the fact that its PPS is based on some legacy numbers.
Let’s move on to the numbers.
On December 12, mCig filed its second quarter financials with the SEC. On the same day, the company put out some highlights by way of a press release. The numbers represent substantial growth across a number of key metrics, and for us, underpin a value thesis going forward.
The company’s assets have increased 300% during the fiscal year, and its operations are now completely self funded. Management pointed out as part of the highlights release that it believes convertible debt is detrimental to shareholders (which of course, it is), and that’s good to hear form a company at this end of the market, in a space plagued by toxic finance and disgruntled, diluted shareholders. Gross profit increased by 118% for the quarter and 29% for the six-month period ending October 31, 2016 as compared to the same periods in 2015. The company recorded its first net profitable quarter, and its second consecutive profitable adjusted net income quarter. Sales hit $620K for the quarter ended October 31, and the company freed up more than $200K in cash change from the previous year.
The balance sheet looks pretty strong, with $285K recorded at the end of October as cash on hand, offset by total liabilities of $281K.
In short, this is one of the better exposures to cannabis sector growth. It’s in a serious growth phase now, with a focus on acquiring assets that it can then leverage to increase top line, but it’s doing this without undermining its shareholder base – something we thing is a very important management trait at this end of the market. Financials are reasonable, and growing fast, and balance sheet looks sound.
At its current price, the company is trading for a market cap of a little over $43 million, down more than 31% on its legalization ballot highs. As a discount exposure ahead of a return to some upside momentum, this one looks good.
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Disclosure: We have no position in MCIG and have not been compensated for this article.