I have had Next Green Wave $NXGWF on my list for some time. But, not many others have heard of this cannabis stock and yet, they outperform some of the biggest cannabis stocks out there. They are increasing revenues QoQ; they have increasing gross margins and keep costs down; they are EBTIDA profitable, and they are net earnings profitable. And yet, $NXGWF continues to drift downward. This is one of those gems that you have to dig through a big pile of stocks until you find. This stock will outperform many other cannabis stocks.
And, even the OTC recognizes Next Green Wave as being one of the Top 50 OTCX stocks.
Next Green Wave is a “Craft Cannabis” company. They are opting for higher quality, less volume approach. They are located in Coalinga, CA… I had to look it up too. They operate about a 35K sq. ft. grow and operation facility (They were just approved for an additional 50K sq. ft. facility). But, they also just signed a deal with Cookies dispensaries to distribute products in California. The deal allows for Next Green Wave products to be sold in Cookies dispensaries and Next Green Wave will also produce Cookies-labeled products. This will add even more volume to an already growing revenue level.
Here is a look at the latest price action for $NXGWF:
As with most other cannabis stocks, there was a surge in January following the Georgia senate run-off. The thinking is that having The House of Representatives, The Senate, and the Executive all being Dems cannabis legalization in the United States would finally push through. There seems to be traction with some laws such as the SAFE banking laws. The bill has passed through the House and another version is sitting in committee in the Senate. If that passes, the two bills will get rectified in each chamber then voted on again. That looks probable.
In the meantime, since that price surge, cannabis stocks have mostly settled down back to levels close to the pre-Georgia run-off election. That is about where $NXGWF is sitting.
Revenues are climbing and I expect this trend to continue:
Already announced was revenue of $4.85M for Q1, so this chart will continue upwards in the next quarter (I am still awaiting some information on this). Nonetheless, with the Cookies deal, I expect revenues to increase even more on a consistent basis. The partnership for this deal is to commence immediately and last for two years. Likely, if all goes well, it may be extended.
In the meantime, I am looking for robust growth from this. Cookies dispensaries are not only in California but other states as well and possibly, if this craft product segment proves to be a solid winner, a new deal can have products distributed throughout the other locations.
Margins are sitting on the high end of the range I normally see:
A range between 60% – 65% is about normal for the better-performing companies. Therefore, at 68%, this is well above-average. And, with higher volumes in revenue just around the corner, I can see this continue to improve.
This is one of the reasons why I appreciate these small-ish cannabis companies. These craft brands are more likely to have cost metrics that are well-contained while at the same time revenues continue to climb rapidly. The bigger companies are trying to dominate the landscape. A brand such as Next Green Wave is more interested in a smaller customer base that can appreciate a higher quality product.
Speaking of keeping costs contained:
By focusing on a far smaller production scale, Next Green Wave has been able to put together a facility that makes sense. They are scaling in on a level that will allow them to have a solid balance sheet versus over-extending themselves with a vision of being a mass production facility.
At this level, costs are relatively minuscule in comparison to revenue generated. They are in the process of starting a build-out for a new facility that is going to be far larger than the current facility.
EBITDA & Net Income
EBITDA profits have been on the rise over the past four quarters. They recently announced Q1 2021 earnings with a record $2.9M EBITDA level:
Over the past 4 quarters, $6.5M in EBITDA profits were printed. They have 170M shares outstanding giving them a $0.041 EBITDA per share rate. That is about 8% EBITDA yield. And, this will continue to grow.
Even more, Next Green Wave is profitable on the absolute bottom line:
EPS for the past four quarters comes in about $0.025 per share. At $0.50 per share this is about 5% yield total. And yet, $NXGWF continues to trend lower while the net income will continue to trend upwards.
Is Next Green Wave a good buy?
There are a few variables I look for in a company when I buy their stocks.
First, I want to see increasing revenues. The cannabis industry is legalizing and companies are growing rapidly. California will be the mother of all cannabis markets in the United States. They are about $4B annually now and are said to achieve some $15B in the next few years. Next Green Wave is building a rapidly growing boutique cannabis company in a market of discerning consumers. Box checked.
Next, I want to see margins at levels that are competitive. The best companies I see come in about 60% – 65%. Next Green Wave is printing at a higher rate than that. I am anxious to see if that continues. Box checked.
Next, I want to see that management is conscious of costs. At an operating rate in the teens, operating efficiencies demonstrate to me that this is an organization run by individuals who are not over-extending themselves. With the new distribution deal, the new facility will already provide product that has a built-in demand. This will keep costs capped. Box Checked.
Profits? Are you kidding me? Why is it that I and a specific follower of mine who’s scratching his own head wondering why $NXGWF stock continues to drift lower, are the only two people that seem to be seeing the potential of this stock? Box checked.
Yes. Next Green Wave $NXGWF is a solid value investment.
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