Investment Analysis of MMJ Companies / Ancillary

[rongillispei]

I am trying to create a thread to perform financial analysis of companies financial statements / forecasts. I have a strong background in investments and financial analysis and want to share my knowledge and advise if it's a strong investment or not.

As an example, I've already done a couple of companies namely MJNA in the US whereby reading the financial statements throroughly, one can see it's just a house of cards.....

Also, the Canadian Joke known as FITX.....this wasn't so much financial analysis as calling bullshit on Bill's crap he kept dishing out to pump the stock so he could sell daily on the backs of small investors unfortunately!

Tweed is another I will be doing in the coming days

I want people to suggest or ask for specific companies and I'll do in depth analysis and post......it's free, so what is there to lose???

 

[sourpuss]

How about tilray(privateer holdings canada something like that)? Seems to be the leader in canada currently. Is it financially sound? Personally think tilray will tank once the real growers r up and licenced. Prices r way too high. Im sure they will cake till some xompetition comes. Then its tank time.

Im sure financially they look great now.... just like their product u cant always judge a book by the cover... what wpuld happen to them if market price was 1 to 5 dollars a gram.

Wheres the gov intervention. 13 dollars a gram aint even close to market price. Supposed to compete with market prices. Thanks for ripping off people who need it as medicine and have no other way to get it. Really awesome. Feel good about yourself type shit. Any9ne woth a cpuple connections knows its a rip off. Already see the black market quality going up.

Oh and I know its not public just wondering....

 

[satva]

Do you have a list of public marijuana / hemp companies that have audited financials reported on EDGAR (USA) or SEDAR (Canada) that have reported a profit in Q1 and Q2 2014?

 

[rongillispei]

I'm putting together the list of companies both here and the US. Ill try to cover them on a macro basis initially and then we can hone in on particular companies from there.

Tweed announced their quarterly results :
http://www.newswire.ca/en/story/1403658/tweed-announces-fiscal-q2-results-and-provides-update

I'll probably dig into this first, but a couple things :
- on a cash basis only, the company is rich!! Though, they may have financed at a lower amount if they'll produce as they forecast.
- Why were sales so minimal?
- What are the rest of the operational costs?
- What are they hiding in the notes

Any other questions you may have, post and I'll try and cover. I'll cover more than just those questions but those are the ones that jump out from the summary I posted above.

 

[rongillispei]

- Cash increased because of Bought deal?
- Accounts receivable consist of what? AR turnover ratio?
- HST recoverable, what’s this made up of and when does it come in?
- Inventory – what stages?
- Prepaid went down by $156K
- Property plant and equipment went up by $10mm why?
o What does it consist of
o Financed?
- Current liabilities went up by $350K from what? And prepaid went down in conjunction, so where did this go?
- Park Lane Liability
- Share capital went up by $24MM is this the valuation? Or is it the

WOW there are a lot of questions…..I’ve only just reviewed the balance sheet and quickly scanned the Notes to receivables.….but just from off the top of my head and

- They raised $24MM and $15MM but only have $12MM in cash left?
- Their prepaid expenses had $100K in MISC that isn’t noted……this isn’t good
- Leashold improvements are worthless as they aren’t assets really, and they have $5MM already…..just on the Hershey location.
- They’ve already put out $1.5MM on this Park Lane property that may be worthless if they don’t get the MMPR liscense
- They are forecasting $49MM in sales between the two locations they have (though one is liscensed only)….but they made not even $200K…was there inventory issues etc…..

I downloaded the full Tweed Financials off SEDAR.....I'll just say, of the 23 pages, 17 pages are the NOTES....this is where you find out the real story if you can weave through the muck they attach to try and confuse it all!!! The fun begins....I've tried to attach the PDF here .....

If you have anything specific about them, fire it off, I'll hopefully get a chance tomorrow to spend the hours that'll be needed I'm sure !!!!

 

[rongillispei]

First, I’m not a great writer so please don’t make fun!!! Lol, I’m more of a fact person with no real writing flair!!!!
So first, this is a little concerning
Notice of No Auditor Review of Interim Financial Statements
The accompanying unaudited condensed interim consolidated financial statements of Tweed Marijuana Inc. for the six months ended June 30, 2014 have been prepared by Management and approved by the Board of Directors. The Company’s independent auditors have not performed a review of these financial statements, in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor. This is saying that they are obviously unaudited. Being such a new company and dealing with 10’s of millions now they should have audited statements, especially reporting on a public market none the less. Hopefully they’ll produce audited statements in the coming days or weeks at most.

Balance Sheet
First Glance and things are hopping good; Current assets increased by $12MM+. This is largely made up from the cash / cash equivalents which is great for liquidity and for investors should things go bad, that cash is there to be disbursed.
Accounts Receivables went up by $54K, when sales were only 188K, that’s not a great thing as it’s unknown what makes this up. Their revenue recognition method, though acceptable, also leaves room for manipulation since some is just recognized (on paper) but not realized (cash coming in to pay). Also, the AR days are approximately 30 days. How are people getting their medicine on credit? I would think it’s a cash transaction. They could be credit card transactions, but I don’t know then that they wouldn’t’ be classified as cash.
HST recoverable – this jumped a LOT. Again, no description of what it’s from, though I suspect it’s the capital improvements (leaseholds). However, since it’s approximately 8% of CA I’d like to understand better.
Inventory has approximately $224K of finished products. Since they have a lot of bought out inventory still, one can assume they didn’t “sell out” as they had stated. Since they would have had this inventory the whole quarter. Also, the in process stuff, they are realizing it at market value (what the sales value is) but make no mention of the possible losses during the growing cycle etc. This should be discounted in and if they did and based on media reports alone, the would insinuate up to 35% loss, or $420K less.
Prepaid went down $243K – no description other than MISC for an increase of almost $100K, little better reporting. Also, I’m not sure the rent deposit would be considered a prepaid expense, since the rent is on a place they’ve done millions in improvements and the lease isn’t’ up until 2018 so maybe more appropriate under long term assets.
Accounts payable increased, but this is to be expected as they ramped up operations.
The Park Lane Liability was completely worth it since they did get approval, high risk, high reward we hope!
Beautiful equity / debt picture, with essentially no short term or long term.

Income Statement
Healthy margin it seems (57.9%), now it’s hard to compare without others in the industry to compare to , though I’m sure we’ll have lots to compare too within a few months with all the activity going on within the industry and the capital markets.
Sales and marketing was a huge chunk at $664K this quarter but again to be expected. Although, it would be nice to understand what strategies they are employing as typical advertising isn’t going to be available it looks like. However the ratio of marketing to sales is ridiculous, using 5 times as much as they made in sales!! CONCERNING
General Expenses are also a large chunk $409K, again it’d be nice to see the information as to what they were for since they were 217% more than top line sales!!! CONCERNING
Expenses were 1000% more than income!! NOT GOOD
Net loss and comprehensive loss (1,160,317) - (3,778,197) – YIKES!!!!

There were some nice stock option grabs too, all save for one were all exercised at less than $1!!! The regular employees I’m guessing were exercised at $2.96…..UNFAIR maybe?????

Like this monkey

Exercise of consultant options prior to reverse acquisition (1,212,991) $0.62

MADE A FEW BUCKS!!! A few other transactions

Cash Flow:

They purchased a huge amount of equipment yet only recorded amortization of $49K….that doesn’t add up! That’s less than 1%.....c’mon, that’s ridiculous!!!

Stock based compensation, how did they expense this on the income statement?

Leaseholds are worrisome. Since they are renting / leasing the property they don’t own it and therefore the leaseholds are essentially worthless as soon as they are attached to the existing property. If they have an option to buy the property that makes a difference, but again, no mention






The total purchase price was determined to be $5,200,000. The preliminary allocation of the purchase
price is as follows:
Land $722,821
Greenhouse 4,367,079
Building 110,100
Total $5,200,000

This the Park Lane property, with a greenhouse and therefore a lot of value over the long term. However, is this price on top of the funds of $3.2MM???

They are listing the shares being issued to purchase Park Lane on top of the assets purchases……so this is a little tricky in details as a deal.

The Park Lane deal needs to be broken down More

Opinion
Well, without going through the financial notes yet, my first knee jerk is be cautious, very very cautious! I realize they are a brand new company but there is no reason they aren’t audited statements, they certainly cannot cry poor!!!! So this issue translates into a lot of questions surrounding disclosure of information. I may find some in the notes, but I don’t think in regards to any of the statements above where I indicate better / more information before being able to make an informed decision.
- The receivables are of concern due to the amount relative to sales or even the fact of how they are giving credit to customers!! Based on their revenue recognition, they could recognize those receivables as sales and thereby inflate the sales…..because it makes little to no sense how they
have individuals that owe money. Do they take personal cheques? What???
- Inventory, is that the value if 100% of the crop pulls through? Why not discount it?
- Prepaid, HST recoverable etc need more explanation.
- Property Plan and equipment went up an astonishing $10MM+, this was largely related to the Park Lane property, but the worrisome issue is the leaseholds. They actually are over $5MM! They didn’t expense the amortization of the leasehold improvements even though they listed over $4MM on the March 31st numbers – THIS IS BIG, BECAUSE IF IT’S EVEN AT BEST 20%, THAT’S ANOTHER $800k THEY LOST!!!!!!!! WTF IS WRONG HERE THEY ONLY HAVE $15k
- Income is feeble at best. I mean $188K in sales and they were saying at one point they sold out. I could be wrong, but how’s that possible since you have over $137K in bought out product that I would assume would have been in their possession for the full quarter. A disconnect.
- I would hope that they would explain their marketing as it’s a lot of money relative to sales they put out.
- This goes for general and admin as well, however this is typically a little more fixed and therefore as sales scale up, this shouldn’t nearly as fast.

So, personally, I’d be leery just yet before sinking any large amount of cash into Tweed. They have some reporting issues, some stuff they need to clear up or tell me I’m wrong with respect to the amortization that could add hundreds of thousands more to the loss. They will need to figure out how to increase those sales especially relative to their inventory and in process on top of the brand new Park Lane production. They have a strong balance sheet and are up and running which is more than can be said for a lot of MMPR companies. I’m going to read through all the notes to see if maybe there’s explanations, however I did perform cursory looks in relation to any questions I had and didn’t find much!!!! Any thoughts? Am I wrong?