C21 Investments is a cannabis stock I like very much; they are one of my Top Picks. Although they have operations in Oregon, primary operations are in Nevada. Metrics on this cannabis company are solid and improving. But, what I like most about C21 Investments is that as they have a solid and growing footprint in Nevada. Nevada had very punitive restrictions during COVID. It is also a huge destination location for tourism and travelers. With restrictions being lifted, with a solid foundation in place, I believe we will see accelerated growth in revenues. Along with this, metrics, which are already solid, will only improve from here. Given this, you can see why this cannabis stock is one of my top picks.
Here is a look at the price movement for $CXXIF:
The pattern is generally the same with C21 versus all other cannabis companies. There was a bottoming towards summer of last year and into fall. Then, in November, with the Blue Wave that swept through the federal government, cannabis stocks perked up. There was the January rally from the Georgia Senate run-off and then the Redditers had their fun in February. Stocks sold off modestly from there as we have seen some sideways trading since then.
I expect that we will start to see price movement over the next few quarters. However, I also am cautious of some of this potential because of one thing: There’s likely to be some general price pressures from inflation concerns.
As value investors, however, it is not about stock price movement. It is about the value you get from owning the share of stock. With this, as long as these cannabis companies continue to increase their revenues and earnings, the eventuality will be higher stock prices.
Revenue was muted for the quarter but, that had to do with the divestiture of assets in Oregon:
Cannabis sales took a dive in Nevada after the COVID lockdowns. We are already seeing some bring spots with cannabis companies as the state rolls back restrictions. I have seen a couple of companies print some decent numbers over the past quarter. With C21 Investments, they saw an increase in revenue of 10% in Nevada. But, the divestiture of Oregon facilities meant a lower amount for revenue.
I am looking for a big move upwards in revenues over the next two quarters in Nevada. Then, I am looking for progressively higher revenue increases beyond that. At first, Nevada will bounce back from the COVID restrictions. Then, there will be natural, organic growth for these companies.
I am anxious to see what will happen in Nevada with a couple of the companies that are in there. We are already seeing hints that the removal of ultra-harsh restrictions is resulting in positive moves upwards with revenues.
Gross margins were off slightly:
Gross margins should continue to increase moving forward. As C21 ramps up production in response to growing demand from the restrictions being lifted, economies of scale and productivity gains will benefit gross margins. I see this as adding significantly to the bottom line. Off of the $9M in revenue that was generated the past two quarters, the drop from 65% to 45% meant about $1.8M in gross profits that did not happen. That is a very big chunk. Once these numbers start to show up and trickle through this will improve the prospects of owning this stock; I see this as a definite opprotunity.
Total Operating Costs
Operating costs are the true bright spot for this cannabis company. C21 has the ability to really be a stand-out from this perspective. Most companies are some 10% higher in this metric:
The business model for C21 is scalability. If, from that perspective, C21 can scale up operations and replicate these cost metrics, this will be a huge boon to the bottom line. Couple this with the potential of increased gross margins, this could be a cash-producing company. This will certainly drive investors to getting into the stock when on a comparative basis another company is performing below these levels.
If revenues start to drive upwards, if gross margins improve, and simultaneously total operating costs are kept at lower levels, this is the standout metric that impresses me to put C21 into my top picks.
EBITDA Profit & Net Income
Is the core business profitable? We always look towards EBITDA as the first stop to answer this question. As it turns out, EBTIDA profitability is something these guys have been racking up for some time:
Outside of some growing pains, the uptrend shows that this core business concept is profitably growing. This shows that with very little growth in revenues the continued move upwards in EBTIDA means the company is learning how to squeeze profits out of every corner they can find.
Just imagine if there is a solid increase in revenues after the COVID restrictions are lifted, gross margin improvement, and the maintaining of industry-leading cost metrics, this could become a profit machine.
Net income positive has mostly eluded C21 for now:
Net income is just around the corner. For this quarter, there were costs outside of normal operations that pulled net income downwards.
But, inject higher revenues with improving gross margins along with minimizing costs not associated with normal buiness operations and all of a sudden this picture changes significantly. And… so does the stock price.
C21 Investments Stock Projections
What do I like most about C21? Oh, let me count the ways. I love EBITDA, actually. That may be the one thing that is impressive to me. But, there are many things about C21 that make this a solid opportunity.
First, during a global pandemic, when restrictions were harsh, revenues were flat, EBTIDA grew quarter after quarter. This tells me that C21 management took working effectively as a #1 priority. When you push management in such a way, they work extra hard to put together what it takes to be successful. If it would have been easy they would have not have had to learn as they did.
Now, push revenues upward; that will happen next with restrictions being lifted. From that, gross margins will improve. Couple this with strict cost-effectiveness, and you have the makings of a very strong cash machine.
I looked at possible scenarios for C21 Investments. Given their metrics, and the possibility of significant growth in revenue, I looked at how the company’s numbers could break down.
- $100M Revenue
- 35% Cost of Goods
- 25% Operational Costs
- 11% Continuing Costs
- 177M shares outstanding
- $0.1356 EPS
I do not believe that C21 Investments will hit $100M in revenue this year. But, they may easily hit about $60M – $75M this year and during the year be able to create a run-rate of that. Maybe the run-rate for $100M starts in two quarters? Given that, my new price target for C21 Investments is $8.35 with about 60% of the $100M achieved this year. Then, more upside over the course of the future four-quarters.
But, that all is predicated upon the stock market cooperating; I believe we are due for a major correction.
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