Business
The Future of Cannabis is All About Delivery (APHA, MMNFF, SGMD, UBER, ACB, TLRY, GRUB, AMZN)
As the Cannabis space continues to mature as a legitimate commercial marketplace, there are a number of dynamics we can expect to appear and change the game. One, in particular, seems likely to offer investors a big opportunity: Delivery.
With mobile ordering, real-time geospatial tracking, and sophisticated logistical processes in place, developed in industries like supply chain management and food distribution, the infrastructure and knowledge capital is already developed for transportation into other industries for efficient deployment. And newly emerging consumer growth markets are the most obvious implementation.
Cannabis is already huge and it’s going to get a whole lot bigger as the legal obstacles are inexorably toppled over coming quarters and years. It’s just a matter of time before millions of people will be going to their mobile phones and tapping a pot-leaf symbol to open up an app and order some weed.
But there’s three ways it might go:
- Current leading players in the cannabis industry will develop effective delivery operations (or strategic relationships),
- Current leading players in the delivery industry will develop effective cannabis operations (or strategic relationships), or
- New companies will gain a dominant foothold by specializing in delivering cannabis.
Either way, this is likely to be a huge business and a defining opportunity for savvy investors in ahead of the game, and whoever gets into a leadership position will have a first-mover advantage.
With all of that in mind, we take a look here at some potential scenarios involving likely players in this theme over the near term: Aphria Inc (NYSE:APHA), Medmen Enterprises Inc (OTCMKTS:MMNFF), Sugarmade Inc (OTCMKTS:SGMD), Uber Technologies Inc (NYSE:UBER), Aurora Cannabis Inc (NYSE:ACB), Tilray Inc (NASDAQ:TLRY), GrubHub Inc (NYSE:GRUB), and Amazon.com, Inc. (NASDAQ:AMZN).
Aphria Inc (NYSE:APHA) commands a market cap of $908M as a leading global cannabis company driven by “an unrelenting commitment to our people, product quality and innovation.” The company has been a clear innovator and grown through strategic relationships in the past. Hence, it’s a decent candidate as a possible innovator willing to cultivate delivery operations, but we haven’t yet seen signs of it.
Headquartered in Leamington, Ontario – the greenhouse capital of Canada – Aphria has been setting the standard for the low-cost production of safe, clean and pure pharmaceutical-grade cannabis at scale, grown in the most natural conditions possible. Focusing on untapped opportunities and backed by the latest technologies, Aphria is committed to bringing breakthrough innovation to the global cannabis market.
The stock has suffered a bit of late, with shares of APHA taking a hit in recent action, down about -6% over the past week.
Aphria Inc (NYSE:APHA) managed to rope in revenues totaling $120.2M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 454.5%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($497.7M against $152.5M).
Medmen Enterprises Inc (OTCMKTS:MMNFF), together with its subsidiaries, operates in the cannabis space in the United States, with a clear emphasis on the California market, where we already see some development in the cannabis delivery marketplace. But the company hasn’t yet found its way into this niche.
MMNFF, more broadly, is a leading cannabis company in the U.S. with assets and operations across the country. Based in Los Angeles, MedMen brings expertise and capital to the cannabis industry and is one of the nation’s largest financial supporters of progressive marijuana laws.
The company cultivates, produces, possesses, uses, and distributes/retails cannabis in the recreational and medicinal cannabis marketplace. As of June 6, 2018, it owned and operated 18 licensed cannabis facilities under the MedMen brand name in California, Nevada, and New York.
The company frames itself as “the preeminent cannabis company in the United States” with multiple assets and operations in California, Nevada, New York, and Florida. MedMen owns and operates licensed cannabis facilities in cultivation, manufacturing, and retail, and is one of the most well-recognized cannabis brands in the world today.
The Company is the single largest financial supporter of progressive marijuana laws at the local, state and federal levels, giving directly to pro-legalization groups, industry organizations and political candidates.
Overall, MedMen has been mired in legal issues already and seems unlikely to take the strategic risks necessary to gain a foothold in the emerging delivery opportunity.
Sugarmade Inc (OTCMKTS:SGMD) is perhaps the most interesting stock on this list because the company is the only name that is already doing this. SGMD is a cannabis company that just took a major controlling interest in Budcars, a leading cannabis deliver company in the Sacramento area.
Sugarmade says it is focused on vertically integrating the theme, cultivating, marketing, and delivering cannabis to customers in northern California.
To that end, the company just announced a dramatic 300 percent sequential monthly jump in delivery volume in BudCars in February.
According to its release, the rise in volume follows the Company’s negotiated agreement toward a controlling stake in Budcars and its investment in expanding the leading delivery service’s operations and reach in Northern California. Management now projects a Budcars top-line run-rate capable of surpassing $15 million in sales in 2020, provided recent data on growth in daily orders is reliable and indicative of the impact of the Company’s recent measures over coming months.
As noted above, the Company has negotiated a 40 percent stake in Budcars with a provisional option to assume a controlling ownership position through the acquisition of an additional 30 percent stake.
“Some of our shareholders have suggested that our vision for a massively expanded and vertically integrated Budcars might be explained to the world as the ‘Uber Eats of the cannabis market.’ But we believe that’s actually a dramatic underestimation of where Budcars is headed,” remarked Jimmy Chan, CEO of Sugarmade. “This is far more promising from a bottom-line perspective, given that we aren’t simply delivering someone else’s product. The retailer gets the juicy 20 percent net margin in this business. We are positioning ourselves as a ‘Cannabis concierge service’ focusing on a truly unique cannabis experience.”
Across the board right now, SGMD is probably the most obvious candidate to take the early lead in this cannabis deliver theme.
Uber Technologies Inc (NYSE:UBER) bills itself as a company that develops and supports proprietary technology applications that enable independent providers of ridesharing, and meal preparation and delivery services to transact with end-users worldwide.
The company operates in two segments, Core Platform and Other Bets. Its driver partners provide ridesharing services through a range of vehicles, such as cars, auto rickshaws, motorbikes, minibuses, or taxis, as well as based on the number of riders under the UberBLACK, UberX, UberPOOL, Express POOL, and Uber Bus names; and restaurant and delivery partners provide meal preparation and delivery services under the Uber Eats name.
The company’s move into the Uber Eats division is a clear precursor to the core premise of delivering consumer goods like cannabis. But the brand management idea is important here as well. It may happen – if it does at all – as a stealth investment in a new startup that is geared toward this theme.
However, one major drawback for this model is that the company would only be capturing the fee for delivery, and volume in cannabis isn’t likely to be enough to make a major difference in its numbers for the markets. The real point here is the margins available in the cannabis space. And mere delivery fees just don’t match up well in that analysis.
Uber Technologies Inc (NYSE:UBER) generated sales of $4.1B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 6.7% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($11.4B against $5.6B).
Aurora Cannabis Inc (NYSE:ACB) is one of the most widely diversified players in the cannabis space due to its powerful strategic investments.
In addition, the company has demonstrated rapid organic growth and strong execution on strategic M&A, which to date includes 15 companies – MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland (formerly Pedanios), H2 Biopharma, Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics, Anandia Labs, HotHouse Consulting, Agropro, Borela, and the pending acquisition of ICC Labs.
We would expect expansion on the way given the inflow of investment capital. But, at present, the Company operates a 55,200 square foot, state-of-the-art production facility in Mountain View County, Alberta, known as Aurora Mountain, is currently constructing a second 800,000 square foot production facility, known as “Aurora Sky”, at the Edmonton International Airport, and has acquired, and is undertaking completion of a third 40,000 square foot production facility in Pointe-Claire, Quebec, on Montreal’s West Island.
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action ACB shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -9% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities.
Aurora Cannabis Inc (NYSE:ACB) generated sales of $56M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of -25.5% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($227.5M against $213.9M).
Tilray Inc (NASDAQ:TLRY) engages in the research, cultivation, processing, and distribution of medical cannabis.
The company offers its products in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New Zealand, and South Africa. Tilray, Inc. was incorporated in 2018 and is headquartered in Nanaimo, Canada.
One of its key subsidiaries is High Park, which was launched to produce and distribute world-class cannabis brands and products for the Canadian market. Based in Toronto and led by a team with deep experience in cannabis and global consumer brands, High Park has secured the exclusive rights to produce and distribute a broad-based portfolio of cannabis brands and products in Canada, subject to applicable laws and regulations.
TLRY has had a rough past week of trading action, with shares sinking something like -21% in that time. That said, chart support is nearby and we may be in the process of constructing a nice setup for some movement back the other way.
Tilray Inc (NASDAQ:TLRY) pulled in sales of $51.1M in its last reported quarterly financials, representing top line growth of 408.6%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($122.4M against $130.2M, respectively).
This is not a well-run company and its debt-servicing burden alone makes it extremely unlikely to ever be able to forge into new and innovative directions. So, taking a lead in captaining the cannabis delivery market on a mainstream basis is out of the question.
GrubHub Inc (NYSE:GRUB) trumpets itself as a company that provides an online and mobile platform for restaurant pick-up and delivery orders in the United States.
The company connects approximately 105,000 local restaurants with diners with diners in various cities. It offers Grubhub, Seamless, and Eat24 mobile applications and mobile Websites; and operates Websites through grubhub.com, seamless.com, eat24.com, and menupages.com.
The company also provides corporate program that offers employees with various food and ordering options, including options for individual meals, group ordering, and catering, as well as proprietary tools that consolidate various food ordering into a single online account. In addition, it offers Allmenus.com and MenuPages.com, which provide an aggregated database of approximately 440,000 menus from restaurants in 50 U.S. states; Grubhub for Restaurants, a responsive Web application that can be accessed from computers and mobile devices, as well as Grubhub-provided tablets; point of sale (POS) integration, which allows restaurants to manage Grubhub orders and update their menus directly from their existing POS system; and Website and mobile application design and hosting services for restaurants, as well as technology and fulfillment services, including order transmission and customer relationship management tools.
And the stock has been acting well over recent days, up something like 7% in that time. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -6%.
GrubHub Inc (NYSE:GRUB) generated sales of $341.3M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 6% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($425.7M against $249.4M).
Amazon.com, Inc. (NASDAQ:AMZN) is another obvious player in this narrative. The company takes over every industry at some point. Next it will probably be Amazon Oil Company or Amazon Airlines. Will they eventually move into cannabis? Only time will tell.
We put them here because they have the history of innovation and creeping horizontality to suggest it isn’t impossible, and they also certainly know how to drive commerce through delivery.
It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -4%. But that’s pretty good considering the Nasdaq is down 10% in the same period.
Amazon.com, Inc. (NASDAQ:AMZN) pulled in sales of $87.4B in its last reported quarterly financials, representing top line growth of 20.8%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($55.3B against $87.8B, respectively).
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