Plus Products PLPRF Stock Bankruptcy, What to Watch For

Plus Products PLPRF stock has filed for bankruptcy protection in Canada.  This was brought to my attention from one of my subscribers here, although I had seen headlines on this.  This follower, John, is invested in Plus Products PLPRF stock.  Plus Products PLPRF stock is on my list of things to do her on this site.  But, since one of you reached out to me and it is a potentially bad situation I figured I would put together a piece on this.  My hope is that you can put together some pieces to see what went wrong here, with Plus Products PLPRF stock, and potentially stay away from these stocks.

Mind you, there is no certainty that Plus Products are not going to reemerge from bankruptcy protection and not be in a better place.  So, for this shareholder, this is an anxious moment.  Oftentimes, these things do not turn out well.

The real reason Plus Products went into bankruptcy, from what I can tell, is that they have an upcoming bill due that they have no way of paying: Warrants are coming due at an exercise price of about $6.50 with a stock price of what was $0.30 per share.  By restructuring, they may be able to save themselves.  They have cash with what I can see being about $6.5M as of the latest financial data release.

But, what they do not have is consistently growing revenues, most recent record revenue increase notwithstanding, in an environment where that is the norm.  Nor has Plus Products PLPRF stock achieved EBTIDA profitability.

Let’s break down where they were.

Plus Products PLPRF Stock Comparison

When you look at these kinds of metrics you cannot look simply at just one variable but need to incorporate the entire picture.  Here is how Plus Products PLPRF stock compares on the Complete List of Top 100 Cannabis Companies.

  • #44 Market Cap: $68M
  • #9 Revenue Growth Rate: 92%
  • #31 Revenue Per Share: $0.063
  • #40 Gross Margins: 39.6%
  • #41 Operating Efficiencies: 60.3%
  • #52 EBITDA/Revenue: -16.7%
  • #23Cash/Debt Ratio: 41%

Plus Products has cash.  They also have debt.  But, what you cannot really see here is the future obligation that is sitting there like a ticking time bomb.  Also, if you just looked at the latest revenue picture you would think they are expanding nicely.  You need to view all of the metrics in totality.

Plus Products PLPRF Stock Financial Data

Let’s break down each area of the financial data to show what was hiding.

Revenue

Plus Products had a record revenue increase as well as achieved a record level for revenue.  But, prior to this they were unable to achieve upwardly growing revenue:

Pus Products Revenue
Revenue: For Complete Plus Products Financial Data visit PLPRF Stock Page

Plus Products was a first entrant with its edibles in California.  They did well initially.  However, on came distribution issues as well as competition and the initial success waned.  Plus Products took on the task of self-distribution to remove outside influence in getting product to market.  That proved to be successful and the latest revenue increase shows what was achieved because of this.

This elicits two questions:

  • Too little, too late?
  • Will the momentum continue and can it be expanded upon?

Let’s see what comes next.

Gross margins

Looking at gross margins for Plus Products are decent but, flat and below average:

Plus Products Gross Margins
Gross Margins: For Complete Plus Products Financial Data visit PLPRF Stock Page

After production begins and revenues start to generate, there is one specific goal for any fledgling company: Achieve EBTIDA profits.  This is mathematics.  You need to hit enough revenue volume to pay the core costs of production and running the business.  Plus Products has not achieved gross margin levels at a level that would afford them this possibility yet.

Operating Efficiencies

The two main costs for a company can be categorized are cost of goods and the costs of running the corporate affairs of a company.  Total operating costs can be viewed by dividing operating costs over revenue to see how efficiently management is with producing revenue:

Plus Products Operating Efficiencies
Operating Efficiencies: For Complete Plus Products Financial Data visit PLPRF Stock Page

Referring back to gross margins, you need to contain costs at levels that mathematically will get any company to profitability.  With some 60% in cost of goods relative to revenue as well as 60% total operating costs relative to revenue, that adds up to 120% of revenue going to costs.  Mathematically, this becomes an impossibility at these revenue levels for both cost of goods and operating costs.

But, this is also mathematics.  If total operating costs remain at the same level and revenues move higher to, say $6M, all of a sudden this metrics improves to 50%.  Continue with cost saving measures as well continuously increasing revenues, then this metric continues its improvement.

This would work if the self-distribution tactic pays dividends and Plus Products are more effective at getting product to market.  So, there appears to be a pathway to success.  But, this could take several quarters to achieve.

EBITDA Profits & Net Earnings

Once you start producing and selling product, it should be a mad race to EBTIDA profitability for any startup:

Plus Products EBITDA
EBITDA: For Complete Plus Products Financial Data visit PLPRF Stock Page

Despite the first mover status, and getting initial success with sales, there was never enough scale to achieve the mathematics of getting to EBITDA profitability.

I cannot stress it enough that this is such an important metric to achieve for a new venture.  And, the markets as well as fund managers look toward this metric to see where any company may be.  If this baseline is achieved in an environment of increasing revenues, then this will inevitably be a successful venture.  But, Plus Products never made it to these levels.

Net Earnings

As can be expected, net earnings are negative:

Plus Products Net Earnings
Net Earnings: For Complete Plus Products Financial Data visit PLPRF Stock Page

There is a term you need to keep in mind: Burn rate.  This is the rate at which a company is blowing through its cash on hand.  Right now, Plus Products has approximately $6.5M cash on hand.  At the rate above, that is 3 quarter.  Then, Plus Products will need more cash merely to maintain operations.  But, there are other bills due.  Perhaps Plus Products can negotiate stock issuance to pay for these future obligations.

Let’s see how they emerge, what their plan is, and how this affects investors.

Earnings Per Share

Consistent with net earnings, earnings per share for Plus Products came in negative:

Plus Products Earnings Per Share
Earnings Per Share: For Complete Plus Products Financial Data visit PLPRF Stock Page

This metric will mostly mirror net earnings.

Shareholder Equity

Creating shareholder equity is the ultimate goal of a company.

Plus Products Shareholder Equity
Shareholder Equity: For Complete Plus Products Financial Data visit PLPRF Stock Page

In the case of Plus Products, there is a continuous decline in shareholder equity that is troublesome.  If Plus Products needed to go to the ATM they do not have enough leverage with their metrics to show how they could improve their disposition.

I am interested in seeing how they emerge out of this bankruptcy.

Cash/Debt Ratio

The cash on hand situation is similar to a ski slope:

Plus Products Cash on Hand
Cash on Hand: For Complete Plus Products Financial Data visit PLPRF Stock Page

Despite having $6M in cash, the bankruptcy had more to do with upcoming bill that they have no ability to pay while juggling a company that is losing money.  The lesson here is that with these smallish boutique companies that are up-and-coming, you need to do significant due diligence and make certain that the pathway forward has no insurmountable obstacles.

Plus Products PLPRF Stock Chart

Lately, cannabis stocks have seen a bit of a bid on the hopes of SAFE making it through congress.  But, prior to that occurring, PLPRF stock stopped trading.

PLPRF Stock Chart

Trading halted on PLPRF stock and here is the last look:

Plus Products PLPRF Stock
Plus Products PLPRF Stock

There really is not a lot of downside left in PLPRF stock.  Still, if you had invested significant funds into this, then the potential downside could be significant to you.

As I mentioned, I am anxious to see how the emergence occurs.

MSOS ETF Chart

PLPRF stock is not part of MSOS ETF, but I am tracking this with my content to show what the broader market is doing at all times:

MSOS ETF
MSOS ETF

We are seeing what I have affectionately dubbed the SAFE Bump.  There is the potential that the SAFE Act is placed inside the latest NDAA in congress.  This bill gets passed every year as it deals with national defense and is an obvious requirement.  Tacking this in seems an easy way to get it through congress and should have positive ramifications for undervalued marijuana stocks.

What to expect with PLPRF Stock Next?

What to expect?  John, the subscriber that alerted me to all of this thinks there may be something else going on with a potential clean up of the company’s disposition in order to sell itself to another company.  For me, what I can tell (Again, as I mentioned, if I am reading this correctly) the upcoming warrants that are deliverable need to be funded and there is simply no way to do so with the current cash position.

At the same time, despite initial success, Plus Products has not been able to capitalize on this success.  Instead, with COVID and issues with distribution, and the competition taking its place, the initial success with Plus Products waned.  But, the retool looks promising.

Moving ahead

I’m balanced with what I believe may occur going forward.  On the one hand, there is new momentum with the latest revenues and I hope this can continue.  If so, there could be a positive outcome.  If there is enough momentum with revenues and Plus Products can achieve EBTIDA profitability, then turning to debtors and swapping debt for shares is a solution that will help move forward.

A lot rides on the potential of new revenues and whether Plus Products can gain more financial stability from that.

For now, I do not see this as terrible and a total loss, but a protective move to ensure a future.  I’m interested in seeing how this future plays out.

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