CLS Holdings CLSH stock is a vertically integrated Nevada-based cannabis company. CLS Holdings is at near breakeven EBTIDA profitable with projections of increasing revenue much further for 2022. As far as cannabis investments go, this is the first real metric that I look for once a company begins to sell products. Already in January, CLS Holdings has seen record revenue.
But, the company is upside-down with total equity. It may be that CLS Holdings needs to undergo some restructuring in order to get its finances working again. Still, if CLS Holdings can scale up its sales, and cross the line for EBITDA profitability, while also restructuring its debt, this may be a possible consideration for your cannabis investments.
While analyzing this company, I found both positives and negatives. There is some potential here and I believe CLS Holdings is just on the cusp of profitability. However, I also believe they have some interesting obstacles to cross. CLS Holdings does have proprietary, patented extraction processes that are being licensed out and that may be key to future success.
Let’s look at the numbers.
CLS Holdings Latest Financial Release
Here is a breakdown of CLS Holdings Q4 financial data.
CLS Holdings Gross Profits
Revenues are expected to hit record levels for CLS Holdings in 2022. For now, gross margins are just at the 50% level. But, if more revenue pushes through its dispensaries, this will have outsized margins simply because the big bills are already being paid. I will be looking intently at the gross margin levels over the next four quarters.
So, if we factor that out, if CLS Holdings hits record revenues in 2022, we can expect that revenues will probably exceed the $6M level already achieved. Maybe the average for all four quarters is $6.5M per quarter, about $26M in revenue total. If CLS Holdings were to hit an average of 55% at a minimum, that would mean $14.3M in gross profits; they just printed approximately $10.3M. This is a potential 40% increase. That extra $4M will trickle downward and even push CLS Holdings into net earnings profitability.
CLS Holdings Operating Profits
Total operating expenses have largely remained flat-line over the past four quarters, and from a margin perspective, while considering the future potential EBITDA profitability, if CLS Holdings continues with this cost level, given the potential $6.5M in quarterly revenue, and a continued average of about $3M in continuing costs, this is just below the 50% level at approximately 46%.
CLS Holdings only has one dispensary but, they are in some 33 dispensaries throughout Nevada. The singular dispensary is right in Las Vegas with the potential to target tourists. Acquiring tourists is not inexpensive as nearly every dispensary and cannabis company is already looking for those loose tourist dollars looking for a party. So, in order to acquire these tourist dollars, CLS Holdings is going to have to increase its sales in SG&A.
At the same time, Nevada has seen a very tight tourist market, but that is changing with endemic status in Nevada and around the country. People are going to want to make up for two lost years of missed leisure time.
But, note, there are a few other companies in Nevada that are also going to want to capitalize simultaneously.
CLS Holdings EBTIDA & Net Profits
If CLS Holdings hits its goal of record revenue for 2022 and can achieve the margins I am eyeing up, positive net earnings is a possibility. The numbers are simply there. But, the overall picture is not necessarily the best there is.
Gross margins will need to increase beyond the 55% I am eyeing up for 2022. And, CLS Holdings is going to have to figure out how to get far more revenue in order to justify current operating costs where they are. All this means is that on the one hand, CLS Holdings may very well achieve net earnings positive this year but will have done it on low margins.
I believe that CLS Holdings is going to have to ramp up its capabilities and expand elsewhere outside of Nevada in order to optimize its capabilities.
CLS Holdings Cash On Hand
Cash on hand is sufficient for now. However, there is a cash burn rate and cash may become critical. At the same time, the cash:debt ratio is low. For that matter, total equity is negative. CLS Holdings is going to have to restructure its debt situation and bring in more cash.
But, that may be part of a far bigger plan. And, it may incorporate far more upside.
CLS Holdings Total Equity
As mentioned, CLS Holdings is under water where liabilities exceed assets. I have wondered on how CLS Holdings can create a bigger revenue stream outside of just one dispensary and the current dispensaries its products are distributed under. If CLS Holdings were to be able to achieve EBTIDA profitability in 2022, as well as net earnings positive, then approaching its next phase of ramping up nationally, while incorporating a total revamp of debt and bringing in new cash may work.
This is something that a prospective investor is likely to need to look at: What is the future and how does CLS Holdings get there. Nonetheless, CLS Holdings needs to be able to get there and it needs to work towards lowering debt while increasing cash. Net earnings positive will go a long way to achieving that.
CLS Holdings CLSH Stock Forecast
CLS Holdings CLSH Stock DCF
As I always do, I am going to wait until CLS Holdings achieves EBTIDA profitability before I do the CLSH Stock forecast. This is likely to happen soon, most likely in the next two quarters.
Is CLS Holdings CLSH Stock A Good Investment?
There is some potential with CLS Holdings and, I can see how this company can get to profitability. It is close right now. But, I want to see how CLS Holdings can achieve the next level and get to that point where they optimize their cost structure with the $3M in SG&A over a quarterly basis.
The national picture needs to be expanded upon. And, strategic partnerships are likely to be a big factor moving forward as well as revamping debt. Still, they are close to net earnings positive and likely to hit that goal in 2022. They are just going to do so with low margins. Imagine if they optimized their company structure and were able to grow accordingly, and increase margins, this could be an interesting choice for one of your cannabis investments.