Ionic Brands IONKF stock is becoming a Multi-State Operator on the West Coast – Washington-based, Oregon, and expanding into California.  They focus on vapes.  But, the small company still has some growth to go.  On a quarterly basis, Ionic Brands is printing roughly $7.5M in revenue.  Gross margins are low (approximately 17.5%) but climbing.  Operating efficiencies are strong, however, coming in about 35% of revenue.  These metrics are starting to attract my interest because, with operating costs already at competitive levels, should revenues increase over the course of the year, gross margins are likely to move higher.  This means EBITDA profitability is close.  And, net earnings positive is not far from that point.

Scaling up utilizing their extraction methods and growing organically is the next phase for Ionic Brands.  Look for California to start operating and debt restructuring to occur.  In the meantime, it would appear that the slowing we have seen in revenue from COVID-19 has affected revenues for Ionic Brands.  Simultaneously, gross margins have fallen to negative.

If this is the case, maybe the fact we are going endemic will see a return to growth in revenue as well as the increase in gross margins.  In the meantime, operating efficiencies are very solid.

Ionic Brands Comparison

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Ionic Brands Financial Data

Here is a breakdown of Ionic Brands Q3 financial data.

Ionic Brands Gross Profits

Expectations are for continued increases in revenue and to exceed the all-time high of $8M quarterly.  If Ionic Brands can achieve this, perhaps printing as much as $35M in the next four quarters.  With additional revenue, economies of scale will kick in and gross margins will have the opportunity to improve.  For now, they are on the lower side, albeit at least positive.  But, if IONKF stock revenue projections come true, this could potentially accelerate profits.

This is one of the biggest objectives, for now, achieving EBITDA profitability.  As it is, Ionic Brands has very low operating costs relative to revenue.  The latest drop in revenue has driven gross margins lower.  This is going to be the case when you have a company so close to the break-even level.  A return to revenue increase will see a return to improvements in gross margins.

In the meantime, operating efficiencies are some of the best in the industry.

Ionic Brands Operating Profits

Ionic Brands operating costs are competitive with some of the better companies out there.  This metric is a ratio of total operating costs versus revenues.  Because it is a ratio based upon costs, you want the lowest number possible.  The better cannabis stocks are hitting approximately 30% – 35%, and there are a few that are printing in the 20s as well as 2-3 printing single-digits.

Given this, from an operational basis, Ionic Brands is where they need to be.  But, in order to achieve EBITDA profitability, Ionic Brands also needs to improve gross margins, as I mentioned above.  This may be nothing more than scaling up revenues.  Keep in mind that running facilities costs money in terms of rent and electricity, along with the cost of actually acquiring the goods and processing the products through production.  Should there be a meaningful increase in revenue, this could easily improve overall gross margins.

Given that operating costs are already low, achieving EBITDA profits is close at hand and from that starts to drive IONKF stock higher.

Ionic Brands EBITDA & Net Profits

As mentioned, EBITDA is the next level for Ionic Brands.  And, I feel as if this could achieve this with an approximate 20% increase in revenues.  With the stellar operating efficiencies and the increase in gross margins, EBITDA profits are not far off.  From there, and as the company states in its Investor Presentation, the focus is retooling debt, increasing cash, and focusing on organic growth.  This is a solid focus for a company at this stage and, before they really push into California, should they also ensure they hit net earnings positive first, it would be a sign of management that is focused on stable growth moving forward.

The key to this, obviously, is scaling up revenue.  And, with the recent effects of COVID-19 playing on revenues, it is very possible that revenues will resume its upward moves.

Ionic Brands Cash On Hand

Cash to debt ratio is in a difficult place.  But, and as I pointed out previously from the Investor Presentation, a sound financial position is going to be the future focus of management.  Given this prudence, with the potential return of revenue growth, and improving margins, should Ionic Brands be able to simultaneously restructure its debt, bring in some additional working capital, and get closer to EBITDA break-even – and beyond, this will put Ionic Brands in a strong financial position.

Ionic Brands Total Equity

Despite a cash-to-debt ratio that is less than where it needs to be at this point, there is ample equity to lean upon.  Restructuring debt, bringing in cash, and seeing a return to revenue growth will really position Ionic Brands in a solid position as well as drive IONKF stock upwards.

Ionic Brands IONKF Stock Forecast

As I always do, I will save IONKF stock forecast using a Discounted Cash Flow Calculator until they hit EBITDA positive.  They are not far, and it is likely that I can do this within 2 quarters in 2022.

Is Ionic Brands IONKF Stock A Good Investment?

Ionic Brands is just on the cusp of profitability.  I believe that if they see revenues pop up above $8.5M in a quarter, gross margins will be there.  Coupled with the ultra-low operating efficiency metric, this gets Ionic Brands to EBITDA profitability and possibly net earnings profitable.  This is an opportunity for a savvy investor to take advantage of right now.

Ionic Brands focuses on a niche.  The more I look into some of these companies, the more I see that although some companies may do very well in a niche, it may be that incorporating a strategic partnership is the way forward for a lot of cannabis companies.  Ionic Brands has a management team that has not splurged too much, a la MedMen.  Still, being a smallish company may be a challenge.

And, if there were a way to incorporate a strategic partnership or, M&A activity, that could help drive revenues.  I fully believe that this is the future of a lot of cannabis companies.  I am not suggesting this will happen in the immediate future, but likely sometime over the next 1 – 2.5 years, or so.

With the potential of net earnings profitability via organic growth, IONKF stock is undervalued relative to valuations that the rest of the market sees.  These guys are close.  IONKF stock may very well take off.

Ionic Brands IONKF Stock Financial Data

MariMed MRMD Stock Financial Data

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