We’re closing in on the end of 2016, and if there’s one industry for which the year has been pivotal, it’s the marijuana space. The recreational legalization wave has brought with it a concurrent wave of speculative capital, and a large number of companies have drawn benefit from the influx. Many of these, of course, have since settled down. Profits have been taken off the table, and those companies for which there wasn’t an overly solid value thesis have taken a hit. Some have retained their gains, however, or given only a small amount of value back to the markets. We think these are the companies that present a longer term opportunity.
Cannabis Sativa Inc (OTCMKTS:CBDS) has been a real mover over the last month or two, and while it currently sits 39% off its October highs, we think it falls into the latter category of value stocks, as opposed to the former.
The company just made an announcement that marks something of a pivot operationally, and that should serve to add value to its market capitalization over time. Here’s what’s important.
Before we get going on the latest news, let’s bring readers up to date with Cannabis Sativa and its current operations. The company is a Nevada based entity that, through a number of subsidiaries, develops, manufactures, and sells herbal based skin care products in the United States and internationally. It’s product range is pretty extensive, but the bulk of its offerings (at least historically) derive from a product called Go Deep, which is a healing salve that reduces pain and inflammation when massaged into muscles, and Go Deep Extra, which is similar, but targets migraine pain.
In the wake of recreational legalization, however, the company is shifting from these sorts of skin balm type products, and moving into the cannabis infusion arena. It’s working on bottled water that is infused with cannabidiol, as well of hemp capsules of a similar nature.
So, to the latest announcement. On December 19, Cannabis Sativa announced that it had entered into an agreement to acquire a 49% ownership interest in a 9-acre property in Los Angeles County, California. It’s not going to grow cannabis there itself, but will lease out the land to a grower that (reportedly) already has the relevant licenses to grow under the Industrial Hemp provisions of California’s Adult Use Marijuana Act (Prop 64). It’s worth noting that it’s hemp that will be grown on the property, so chances are the product will be used for infusion type products, as opposed to being used for recreational smoking, consumption, etc. Hemp has practically no THC in it (the psychoactive substance that creates the neurological effects of cannabis), instead being primarily made up of cannabidiol (CBD). Farming activities are expected to kick off in January of 2017 at the property, so the revenues generated from the lease should start to roll in pretty quickly.
As ever, with this sort of entity, an exposure is not without its risks. Cannabis Sativa doesn’t have much cash on hand – circa $76K at the end of September – and recorded a net loss of more than $460K during the third quarter of 2016. For the three years to end 2015, Cannabis Sativa recorded a net loss of $32 million, $14 million and $7 million (2013, 2014 and 2015 respectively). There’s going to be some dilution over the coming quarters if the company wants to expand, and this could weigh on the value of an early exposure. With that said, however, the net loss is tightening, and if the company can position itself in line with the industry expansion that will no doubt come throughout 2017, there should be plenty of upside potential medium term.
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Disclosure: We have no position in CBDS and have not been compensated for this article.