Back
4 MIN READ
The California marijuana market is one of the most exciting emerging investment opportunities and we have been closely watching this market.
The recreational marijuana market opened on January 1st and is the world’s largest market. Although the market has been growing quickly, we expect growth to slow after new regulations were put in place. The new regulations require retailers to only sell marijuana products that have been tested by a licensed third party that is registered with the state.
While these regulations will have a negative impact on sales, they are better for the consumer which is the most important part of this business. Today, we have issued an update on Plus Products (aka “PLUS”) which is a California-based edibles manufacturer and distributor. Last month, we highlighted the edibles company which plans to go public later this year on the Canadian Stock Exchange (CSE).
This is a very exciting early stage opportunity and investors need to keep an eye on the company. PLUS is a company that we are excited about due to the following reasons: 1) Sales numbers continue to improve, 2) The company is focused on significantly increasing production capacity, 3) PLUS is led by a management team that has a proven track record of success, 4) The company continues to execute, and 5) The valuation is very attractive.
Demand for its Product Line Continues to Increase
In 2018, PLUS has recorded strong revenue numbers and according to BDS analytics, its products generated more than $1.5 Million in retail sales during April. The company has been laser focused on growth and according to BDS they are succeeding, as PLUS edibles market share grew from less than 1% in Q4 2017 to nearly 5% in Q2 2018.
Plus Products has been seeing incredible demand for its gummy product and is focused on further increasing its production capacity. Earlier this year, the company moved into a new facility and brought in state-of-the-art production equipment in order to accomplish this goal. This is a significant initiative for the edibles company and we are bullish on the growth potential.
In March this year, PLUS completed an oversubscribed non-brokered private placement resulting in approximately $6 million in proceeds. This was a significant raise and it generated a lot of interest, including from some well known investors in the space. This is a very good thing to see and indicates the company will continue to have access to capital.
A California Focused Cannabis Company
Plus Products has been using the capital to fund growth initiatives and to expand its reach. We are favorable on these growth initiatives and will monitor how the team continues to execute. The company is led by a strong management team that has a proven track record of success in both finance and technology, and this appears to be key to their growth. The CEO, Jake Heimark, used to work at Facebook, and the chairman, Craig Heimark, was formerly CIO at UBS. The presence of Matt Schmidt, EVP of Corporate Development at the Green Organic Dutchman (“TGOD”) as a board member of PLUS speaks to the management teams international ambitions.
The PLUS continues to execute and has the company positioned to capitalize on what will be a major opportunity in California. While many companies have expanded their focus to new markets, PLUS remains laser focused on winning in California and we think this is the right move.
While other markets are tempting, none are as big or as competitive as California. Also, once PLUS proves they are able to succeed in California, the company can easily expand into new markets. When it comes to a strategic location, PLUS is located in a market that is second-to-none and we think the company is positioned to capitalize on the cannabis boom in California. The focus on California is not an accident, PLUS moved from Colorado to California early in its history to try and compete in a more competitive and larger market, and we think the growth of the brand in California speaks well to managements ability to execute.
Plus offers a product that is meant for users that are looking for a low dose and we find this to be very appealing. PLUS’ gummy product has been rising in the ranks and according to BDS Analytics, their Sour Watermelon product was the most popular gummy product in all of California during q2 of 2018.
An Attractively Valued Opportunity
The March financing was completed at a valuation of approx. $25 million (pre-money) and we think the continued execution warrants a much higher valuation. When compared to a company like CannaRoyalty, which has a market cap that is above $250 million, PLUS management was willing to take capital at 1.7x revenue. This is significant and leaves massive room for upside and speaks to a management team that wants to share that upside with its shareholders.
If you look at Nutritional High International Inc. (EAT.CN), which is much less developed when compared to PLUS, the market cap is close to $110 million. PLUS has a very attractive valuation and fundamentals continue to improve. This is an opportunity that cannot be ignored.
We think PLUS represents one of the most exciting new opportunities and cannabis investors need to keep an eye on this one. The strong and improving fundamentals, leading management team and attractive valuation make this a company that cannot be missed.
All good -- no spamming here.
Comments