SpeakEasy Cannabis Club SPBBF stock has been on my list of things to look at for some time. But, they’ve not been publishing data on revenues; only costs. So, when a recent news release showed they went from $0 in sales to $600K I became curious. Within that report, they stated they were profitable at $0.01 EPS. Of course, that made me even more curious. Unfortunately, the financial information they did report was via a press release that largely does not add up. Usually, I break down financial charts and show what is possible for a company. But, SpeakEasy does not have enough data for that. Instead, I’m going to break down the industry numbers to show what could be possible for future sales.
SpeakEasy Cannabis Club is a mostly outdoor grow with some 60 acres planted. They claim they are the largest outdoor grow production. That is the company claim and, I’ve not run into too many other companies planting that much capacity. They had a record 72K kilos of harvest biomass in 2020 to be sold throughout this year; SpeakEasy Cannabis Club is looking for 140K kilos of biomass.
This year’s harvest is hoped to be 100% more than the previous year. The thinking is that the many years of generational farming can push product growth development beyond where they were just last year. Basically, they took their first year and grew some product but along the way realized they could do things differently and the experience is challenging them to push what they achieved last year.
Given that, their production costs were all of $0.04 per gram. What I am wondering is will the production costs move lower with a resulting doubling of output? Also, what do they mean production costs? Is that a cost during the grow season or afterward as the cannabis is harvested, processed, dried/frozen, and turned into another usable product?
SpeakEasy Cannabis Club SPBBF Stock:
SPBBF stock has mostly gone nowhere. But, this is even less price movement than the rest of the cannabis industry. At least with the rest of the cannabis industry there were moves upwards in November 2020 and then again in January 2021 and February 2021. This, however, is far flatter than the rest of the industry.
SpeakEasy Cannabis Club financial reports
The very latest financial data that was posted in the press release states these metrics:
- 205K grams of cannabis sold;
- C$725K revenue;
- C$650K gross profits;
- C$1.8M total operating costs (Subsequent decline of 11% from previous quarter);
- $0.01 EPS
There are some 150M shares outstanding. So, given the C$0.01 EPS that puts earnings at approximately C$1.5M. Hmmm… how do you get to C$1.5M in net income off of $725K in revenue? This of course, negates any cost of goods or operating costs. And, that’s the thing: Operating costs were C$1.8M. That, is after the C$725K revenue less costs of goods (Approximately C$75K for gross profits of C$650K.
Oftentimes with these cannabis companies you see a lack of consistency in reporting making if difficult to put together an analysis of a company. The current price for SPBBF is US$0.475, or thereabouts.
But, what is a good price to pay for SPBBF; is SpeakEasy Cannabis SPBBF stock a good buy?
Is SpeakEasy Cannabis Club SPBBF Stock a good buy?
Since we do not have consistent numbers for SpeakEasy Cannabis Club then we need to sort of reverse-engineer the process to determine what could be the total revenues and earnings from that and then what the stock price could be.
Cost of Goods/Gross Profits for dispensaries
Whenever a company sells a product they receive revenues. Then, at the top of the financial report a company begins to deduct costs from these revenues. The first cost to be deducted is the cost of goods. These are the costs of actually making the product, or product costs; not running the business.
Most dispensaries are running about 40%/60% for cost of goods v. gross margins. That means if there is a $10.00 pre-roll sold 40% of the sale, or $4.00, goes towards cost of goods. But, included in that cost of goods are two metrics: The actual cost of purchasing the product wholesale and then the labor/rent and other costs to sell the product to a customer. My best guess is that a dispensary is purchasing its final goods off of the producer for about 50% of the total amount of cost of goods. In this example, that is about $2.00.
Cost of Goods/Gross Profits for manufacturers
Going backward one more step is the manufacturer of a product, perhaps this being the company that makes edibles/drinkables, or vapes, or pre-rolls. At this level of the value-added process the manufacturer may have the same variables for the cost of goods at a 40%/60% rate. Given that, of the $2.00 in cost of goods that was charged to the dispensary, this would be about $0.80 in cost of goods for the manufactured product. Given the same metrics, this would mean that about $0.40 was the cost of the cannabis to the manufacturer from the actual grower.
Cost of Goods/Gross Profits for the grower
Last in the process is the level that actually grows the product. If we continue down the line we can see that the grower would have sold their products for about $0.40 in this example. The would have a cost of goods of roughly 40% of that, or, about $0.15.
This checks out.
SpeakEasy Cannabis Club Inventory and Cost of Goods
SpeakEasy Cannabis Club states they sold about 205K grams of cannabis for the quarter. They harvested ~72K kilos of biomass. They also state they have C$14M remaining in inventory.
In my example above, I used a $10.00 pre-roll. But, the average in British Columbia, the home state of SpeakEasy Cannabis Club, is only about $7.00. Multiply every number I have above at a rate of .7, or 70% of the cost of a $10.00 pre-roll.
Given that, this puts the average of about $0.28 per gram which is pretty darn close to the inventory amount SpeakEasy Cannabis Club states they have on hand.
Is SpeakEasy Cannabis Club a good investment?
Given this, we can now break down what is possible for SpeakEasy Cannabis Club. If the company is hoping to hit about 140K kilos of biomass with this year’s harvest then this will amount to about C$35M in potential revenue.
If SpeakEasy were to hit a modest 10% of revenue for net income this would equate to C$3.5M. This translates into C$0.023 EPS for the year. And that translates into an approximate $0.019 EPS for SPBBF stock.
My expectations are that the 10% marker may be a bit low seeing that SpeakEasy Cannabis is printing $0.04 in production costs the 10% net income is a very low-ball estimate; there is far more upside potential. Given that, my metrics may mean more upside potential should SpeakEasy achieve its goals.
Given this, with the S&P 500 valuing companies based upon earnings the way it currently is this puts SPBBF stock at about $1.00 – $1.50. That is an approximate 100% – 200% potential increase. But…
The confusion of numbers
My prediction is for $0.019 EPS for the year based upon the C$35M in potential revenue and average costs/margins. Again, I think I am low-balling this. But, SpeakEasy already states they printed $0.01 EPS.
How?
If you keep going back up to the numbers they simply do not add up. There were revenues of C$725K and costs at nearly 5 times that. Yet, they state they were profitable. I can see how SpeakEasy Cannabis Club is a cannabis stock to watch. But, beyond that, I’d like to see more consistent reporting of the numbers.
I sent an email to the CEO but, as of yet have not heard back from the company; I’d like an explanation. SpeakEasy Cannabis Club is a cannabis stock to watch. I will be watching this stock. But, I will hold off on investing until I get clarity and consistency in the numbers.
Nonetheless, I will be watching.
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