Columbia Care $CCHWF released its earnings with a miss on revenue and earnings. But, they also reiterated future guidance. Columbia Care is in the middle of closing two acquisitions and the future guidance has the addition of the acquisitions included. While the current revenues amounted to USD $61M, the next few quarters will amount to $400M in total revenues.
At the same time, some of Columbia Care’s financial metrics are positive and moving in the right direction. I wanted to break down the latest earnings numbers and then project over the next four quarters what they will be printing and how that affects the stock price of $CCHWF. Here is a look at the most recent stock chart:
The stock price has moved higher over the past few weeks in concert with other cannabis stocks. However, Columbia Care’s stock missed out on the surge in February as well it is missing out on the recent softening.
Columbia Care Revenues
Here are the latest revenues for Columbia Care
Columbia Care has printed progressively higher revenues over the past few quarters. But, with their pending acquisitions, revenue growth will substantially increase. Still, on an organic basis, this revenue growth rate is impressive. Alone, without having to acquire new companies, Columbia Care is on track to continue to grow.
But, the acquisitions of Green Solution and Project Cannabis increase Columbia’s footprint and ability to sell products in other markets. Already, the contributions are having a positive effect on revenue increases and will continue so into the future.
I have put together a future revenue chart (below) that shows what the new revenue picture looks like; it is impressive.
Future guidance by management has Columbia Care printing $400M in revenue. Guidance was a range and I used the lower end of this range for the projection. This helps to visualize how the next four quarters will play out with revenues.
Columbia Care Gross Margins
Columbia Care has been able to improve its gross margins the past quarter; there is plenty of room to grow from here:
The natural progression of company management is to drive up sales and revenues while keeping costs contained. If management were to normalize Columbia Care’s gross margins, then this chart will start to push up naturally.
I have broken down many company financial statements. What I have found is that dispensaries consistently print very high margins; usually between 60% – 65%. The fact that Columbia Care is acquiring two dispensaries will enable them to print more consistent margins in the future.
In my future projections, along with revenues, I have a chart that shows a more natural gross margin outlook and how this will contribute to the bottom line:
The dispensaries will help in the continued movement upward with gross margins. I have used a slower projection with the lower end of the range gross margins. As I said, dispensaries tend to have higher margins closer to 65%. The reason is that producers tend to see more variability from growing plants versus a dispensary that is going to be purchasing products on a wholesale basis at consistent prices.
Columbia Care Operating Efficiencies
Operational costs are equally important when looking at a company’s financials under a microscope. Here is the operational efficiency for Columbia Care:
The latest quarter has Columbia Care hitting its stride with operating efficiency, the total operating expense over revenue. Basically, what this tells someone is that based on operating expenses, Columbia Care can efficiently produce a product on a relative basis versus total revenues. The lower the number, the more cost-efficient management is.
The best companies I see are hitting between 25% – 35% on a quarterly basis. With revenues about to increase as they will, I expect this metric to remain fairly contained at these levels. Should that occur, Columbia Care’s financial picture will look very impressive.
Here is a future projection of Columbia Care’s operating efficiency:
As I mentioned, I am maintaining the lower-range of this cost metric. The addition of two dispensaries will allow for consistent numbers along with Columbia Care’s own organic financials.
Columbia Care Future Earnings
With all of these future projections, what does this all boil down to? Columbia Care is growing rapidly on its own. Revenues were continually and progressively increasing. Margins were on the lower side but, were moving higher.
If cost-of-goods can be maintained while economies-of-scale continue to increase, then Columbia Care’s gross margins will naturally move higher. This is the natural progression of a company as management pushes the matrix of variables and costs; they will continuously strive for better gross margins along with increased revenues. Acquiring two dispensaries will go a long way towards the normalization of gross margins.
At the same time, Columbia Care will have two additional footprints in two very strong markets, Colorado and California, on which to build up its brand. Each of these dispensaries will be able to carry each other’s various products adding additional revenue potential along with the increased margin possibilities. I see this as being generally positive across the board.
With operating costs, Columbia Care has been solid at keeping these numbers contained – within my projections, I raised costs on a relative basis to get them to more normal levels.
Is CCHWF A Good Buy?
The bottom line is this:
- Future revenues will be about $400M over the next year – this is the lower end of the guidance; it could hit $430M;
- With margins at 60%, that is about $240M in gross profits;
- Total operating costs will be $120M;
- Continuing Ops will deduct some $60M from that;
- There are 260M shares outstanding of $CCHWF;
- This is approximately $0.23 EPS;
- With a future multiple of 50x, the stock will more than double to $17.50
First, revenues may come in higher, so there is some potential for more. Margins do have to work themselves upwards but, with the addition of the two dispensaries, this is going to be a natural progression. Operating costs are probably dead-on.
I see this projection as being realistic. But, I used a 50x earnings multiple, after all, the normal S&P 500 earnings multiple is 35x and revenue growth on average for the S&P 500 is 3.5% annually versus revenue growth of cannabis companies being in triple-digits. It may be higher, perhaps 75x – 100x. This could push the stock upwards to as much as $22.50.
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