Supreme Cannabis Pulling Away From Peers, Guides Up to $180 Million in 2020 Revenue

While still in its infancy, the cannabis industry has reached an inflection point where some clear separation is happening between companies. To use some old axioms, “The cream is rising to the top” and “The wheat is being separated from the chaff,” if you will.  

Companies with strong operations and core businesses are being positioned as dominant players with the fundamental numbers to prove it. For example, earlier this month, Aphria (NYSE: APHA) (TSX: APHA) became the first major “pot stock” to record a quarterly profit.

The Supreme Cannabis Company (OTCQX: SPRWF) (TSX: FIRE) wrapped up its fiscal 2019 year on June 30, 2019 and recently disclosed expectations for record results from the 12 months through June while providing some impressive guidance for revenue during fiscal 2020.

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Fiscal 2019 Highlights

Supreme Cannabis has five brands and subsidiaries in its portfolio and partnerships that have led Supreme to become one of the fastest growing, premium cannabis lifestyle companies in the world. The model is diverse and global, including the high-end, award-winning 7ACRES brand, Canadian Licensed Producer Blissco Cannabis Corp., plant genetics and cultivation IP company Cambium Plant Sciences, South African cannabis oil producer Medigrow Lesotho, and European CBD-focused investment platform Supreme Heights.

In July, Supreme said it was acquiring privately-held Truverra Inc. in an all-stock deal. The transaction was closed on Monday, bringing the international evidence based medical brand with Health Canada-licensed facility for research and development under Supreme’s umbrella with the other five entities.

Also on Monday, Supreme released limited preliminary estimated financial results for the fourth quarter of fiscal 2019 (ended June 30, 2019), saying complete audited results are expected to be made public on September 17, 2019.

For the quarter, management estimated net revenue of about $19 million net of excise tax. $19 million represents an improvement of approximately 449% over $3.55 million in the year prior quarter. Further, it is a jump of roughly 97% from $9.9 million in the third quarter of fiscal 2019.

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It will be Supreme’s eighth straight quarter of sequential revenue growth. $19 million in sales during their latest quarter is indicative of the company scaling rapidly, considering revenue from the first three quarters of fiscal 2019 totaled about $21.3 million.

Estimates weren’t provided on profits, but management did convey that it expects positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for Q4 fiscal 2019.

“In a sector dominated by headlines, our measured approach to capital deployment and brand-building sets us apart. We believe our preliminary results demonstrate the strength of our business during an inflection point within the industry, path towards profitability and continued disciplined growth,” said Navdeep Dhaliwal, CEO of Supreme Cannabis, in Monday’s news release.

Looking for a Big 2020

Based upon prior quarterly reports and the preliminary estimate for Q4, Supreme should post sales of approximately $40 million for fiscal 2019. Owing largely to ongoing scaling of 7ACRES production and introducing new, higher-margin products entering the market, Supreme is forecasting net revenue for fiscal 2020 in the range of $150 million to $180 million. Management also expects positive adjusted EBITDA for fiscal 2020.

The 7ACRES indoor hybrid facility in Kincardine, Ontario was operating at approximately 180,000 square feet of flowering room capacity until May, when Health Canada approved the addition of another 50,000 square feet. At 230,00 square feet, the company can now generate about 33,580 kilograms of dried cannabis annually.

The 7ACRES Team Hard at Work

Per the plan, the facility (including offices, grow space, etc.) will span over 440,000 square feet when expansion is complete, with expected production of 50,000 kilograms of premium dried cannabis each year. 

It is also expected that 7ACRES will complete its transition from a wholesale business to premium consumer brand by Q3 fiscal 2020, with complete in-house packaging capabilities for all flower products under the 7ACRES’ brand.

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Supreme is seeing growth coming from multiple sources in its portfolio, as many of its business developments are relatively recent. As mentioned, Truverra was acquired this week. The acquisition of Blissco was completed only a month ago. Blissco is expected to produce more than 7 million tincture bottles per annum by this December with a focus on sales throughout the global cannabidiol (CBD) markets.

The partnership with hip-hop superstar Wiz Khalifa and his Khalifa Kush Enterprises (KKE) Canada was forged earlier this year with the purpose of launching a new ultra-premium lineup of cannabis products under the KKE brand line. The first product, KKE Oil, was introduced in June.

Supreme Cannabis is in a partnership with hip-hop superstar Wiz Khalifa, Khalifa Kush Enterprises.

A new partnership with PAX Labs was also penned in June. Through this collaboration, 7ACRES became one of only four licensed producers selected as a partner to create cannabis oil pods for PAX’s Era, a market-leading vaporizer and best-selling pen-and-pod system in the United States.

Elsewhere, the launches of Cambium Plant Sciences and Supreme Heights were only announced in April and June, respectively.

In South Africa, CBD was officially removed from the country’s Schedule 7 list of highly controlled drugs in May, opening a substantial market opportunity for Supreme’s Medigrow subsidiary, a licensed producer headquartered in Lesotho.

No Need for Share Consolidation

With all these wheels in motion, management has decided that it will not pursue a reverse stock split that was approved at the company’s 2018 annual general meeting. At the end of March, FIRE had about 277 million shares outstanding and $75.02 million in cash on hand, enough to fund all its planned initiatives.

Leveraging its fundamental strengths and litany of upcoming revenue drivers, management believes it can secure non-dilutive financing with tier-one banks and other lenders on favorable terms for any future growth initiatives.

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 For additional information, visit the company’s website at: https://www.supreme.ca/about-supreme-cannabis

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About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.