Red White & Bloom, RWBYF stock is a company I have looked at a before. But, it is also a company I have been forewarned regarding their capabilities being overstated by management, and underperformance in getting the job done. Recently, management was replaced. That should tell you something about Red White & Bloom. In the meantime, RWBYF stock looks like it wants to fall off a cliff.
Time is money. When you invest in something, you are given a choice of opportunities. Choose one that may not play out as favorably as another option and you are losing out on your opportunity to see a stock appreciate. While all cannabis stocks look set to ignite with either SAFE+, rescheduling of cannabis, or the Canopy Growth plan of using a holding company as an investment tool for US-based cannabis companies, regardless, I feel certain cannabis stocks are going higher. But, Red White & Bloom may not be going higher as much as other opportunities. The management replacement should tell you something.
Nonetheless, I wanted to dig through the numbers to see what I could find with RWBYF stock and whether RWBYF stock was a good investment.
Red White & Bloom Financial Data
Red White & Bloom Gross Profits
From the latest financial earnings report, gross margins are dwindling. Red White & Bloom has plans to open facilities in several states and continually build on these foundations. But, it may be that Red White & Bloom has bitten off too much and are falling behind. Revenue should continue higher with more and more dispensaries being opened in the areas that Red White & Bloom wants to do business.
The problem with the strategy is that it takes time, and because of that, money, to have multiple states. One of the things I like about Schwazze so much is that they focused on Colorado first and acquired to get into the next state, New Mexico. By focusing on Colorado, Schwazze was able to keep its costs contained because they only had to focus on one state with only one state’s licensing process and costs.
One of the things I like about Lowell is that they are getting in to new states via strategic partnerships instead of opening new, and costly, facilities in new states. So, when you see Red White & Bloom entering in to the fray a little late to the party, and then sluggishly getting stores open, their revenue growth is not where expectations were set. And, at this point, gross margins continue to wear downward in the opposite direction.
Red White & Bloom Operating Profits
From the perspective of costs, operations are not too far off relative to revenues. The latest numbers showed a 45% operating efficiencies. This states that costs are low relatively. But, operating profits are going to have to hit at least zero in order for Red White & Bloom to get to the all-too crucial first goal of EBITDA positive.
Red White & Bloom EBITDA & Net Profits
When you do the math on this, with a -35% EBITDA/Revenue, gross margins would need to improve significantly as well as operating costs needing to come down even more to get to zero and then go positive with EBITDA. I did some quick numbers and Red White & Bloom would need to double its revenues and hopefully improve its gross margins to more than double where they are in order to see EBITDA hit the levels it needs to hit. But, that is in a linear world. When you increase revenue, there is often operating costs that increase as well.
Getting to EBITDA positive is the first real finish line, of sorts, for a new company. This shows that the concept works and that all a company would need to do is scale upward even further in order to get to net earnings profitability. I think Red White & Bloom may have a ways to go in order to get to the point where they are EBITDA positive. At the current pace, maybe in 2024. But, it may be pushing it too far for them at that point.
Red White & Bloom Cash On Hand
Cash on hand is like oxygen for a company. Run out of cash and you run out of the ability to breath. On a ratio basis, relative to debt, cash on hand is tight, near zero ratio. While there are assets and total equity is positive, cash is low. The fix for this is to simply fund for more cash. But, that either dilutes shareholders via a stock sale or, that adds more debt.
Red White & Bloom Total Equity
Neither assets nor revenues are increasing progressively enough for my liking. A company should be adding more and more assets in order to generate more and more revenues. And, while there is positive total equity, everything appears to be moving sideways instead of generating growth. This may be one of the reason that revenues have fallen below expectations of investors.
It is sort of a push/pull. You need increasing assets in order to get increasing revenues. But, with increasing revenues, you will get increasing assets. This boils down to momentum. It may be that Red White & Bloom does not have that necessary momentum to get to where they are trying to get too.
Red White & Bloom RWBYF Stock Forecast
Red White & Bloom DCF
| Assumptions | |
|---|---|
| Tax Rate | 25% |
| Discount Rate | 8.000% |
| Perpetural Growth Rate | 20.0% |
| EV/EBITDA Mulltiple | 25.0x |
| Transaction Date | September 1, 2022 |
| Fiscal Year End | 12/31/21 |
| Current Price | $0.053 |
| Shares Outstanding | 457,127,000 |
| Debt | $207,900,000 |
| Cash | $2,300,000 |
| Market Value | |
|---|---|
| Market Cap | $24,227,731 |
| Plus: Debt | $207,900,000 |
| Less: Cash | $2,300,000 |
| Enterprise Value | $229,827,731 |
| Equity Value/Share | $0.0530 |
| Discounted Cash Flow | Entry | 2022 | 2023 | 2024 | 2025 | 2026 | Exit | |
|---|---|---|---|---|---|---|---|---|
| Date | September 1, 2022 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2024 | Dec 31, 2025 | Dec 31, 2026 | Dec 31, 2026 | |
| Time Periods | 1 | 2 | 3 | 4 | 5 | |||
| Year Fraction | 0.33 | 1.00 | 1.00 | 1.00 | 1.00 | |||
| EBIT | $11,250,000 | $16,500,000 | $30,000,000 | $45,000,000 | $62,500,000 | |||
| Less: Cash Taxes | $2,812,500 | $4,125,000 | $7,500,000 | $11,250,000 | $15,625,000 | |||
| Plus: D&A | $3,150,000 | $3,850,000 | $5,250,000 | $7,000,000 | $8,750,000 | |||
| Less: Capex | $13,500,000 | $16,500,000 | $22,500,000 | $30,000,000 | $37,500,000 | |||
| Less: Changes in NWC | -$9,000,000 | -$11,000,000 | -$15,000,000 | -$20,000,000 | -$25,000,000 | |||
| Unlevered FCF | 1 | $7,087,500 | $10,725,000 | $20,250,000 | $30,750,000 | $43,125,000 | ||
| (Entry)/Exit | -$229,827,731 | $675,000,000 | ||||||
| Transaction CF | - 0 | $2,362,500 | $10,725,000 | $20,250,000 | $30,750,000 | $43,125,000 | $675,000,000 | |
| Transaction CF | -$229,827,730 | $2,362,500 | $10,725,000 | $20,250,000 | $30,750,000 | $43,125,000 | $675,000,000 |
| Intrinsic Value | |
|---|---|
| Market Value | 1,392% |
| Upside | 34% |
| Market Value v Intrinsic Value | |
| Market Value | $0.05 |
| Upside | $0.74 |
| Intrinsic Value | $0.791 |
The good news is that there is some 1,400% of intrinsic value with Red White & Bloom that is not being realized by the market. The bad news is that this only gets the price up to where it was just a few months ago and not much beyond. There simply is not enough cash, assets, or growth for Red White & Bloom to justify the intrinsic value much higher. However, I do not see this as a catalyst for the stock to perpetually decline. But, it is.
Is Red White & Bloom RWBYF Stock A Good Investment?
There is probably a reason that RWBYF stock continues to slide lower and lower into some form of abyss. While Nasdaq-listed cannabis stocks, and a few leading OTC-listed cannabis stocks are getting a bid tone, many are still heading lower and I imagine the cause for RWBYF heading lower will push this stock further downward.
I had been forewarned regarding Red White & Bloom previously that the management was shaky and questionable. That may be one reason why RWBYF stock is in a tailspin. But, with management having been replaced, this could be the beginning of the bottom. Still, the chart does not seem to be setting itself up for any bounces any time soon.
For me, time is money is the absolute factor for investing. With everything going on with potentially having cannabis federal legalization, all cannabis stocks are likely to head higher. But, which will head the most higher? And, is there justification in getting in to a stock that is underperforming? Not in my book. The numbers don’t add up and it looks as if the stock wants to continue to slide over a precipice. I’d rather have odds in my favor that say the stock I own has a better upside potential. Not certain that is here with Red White & Bloom.
