With people stuck in their houses all day trying to avoid COVID-19, cannabis stocks are seeing a rare surge. That’s good news for watchers of RichTV Live, as Rich has plenty of pot stocks to profile. Last week, he broke down the latest news for Canopy, HEXO, and Tilray. Today, he’s turning his sites on Delta 9 Cannabis (TSX:DN) (OTCQX:VRNDF).
In fact, the company’s Co-Founder and CEO, John Arbuthnot, joins Rich via a teleconference call. In 2012, John founded Delta 9 with his father, Bill, while still a fourth-year business student at the University of Manitoba.
Rich and John discuss DN’s reaction to COVID-19, as well as its strong fiscal position.
Diversified, Vertically Integrated, and Expanding
Based in Manitoba, Delta 9 is a vertically integrated cannabis company. Its wholly-owned subsidiary, Delta 9 Bio-Tech Inc, produces medical and recreational cannabis. It also operates an 80,000 square foot production facility in Winnipeg, Manitoba’s capital and biggest city.
In addition, the company owns and operates a chain of retail stores under the “Delta 9 Cannabis Store brand.”
Like most stocks—in the cannabis space or not—DN is down for the year to date. The share price has lost 42.9% value since the start of January but has remained stable for the past week. Fortunately, John explains that his company is remaining open during the COVID-19 crisis.
“Like everyone else, we’re taking this thing very seriously,” he says. “We’re taking all necessary precautions, including giving people a mask to wear at the door.”
Delta 9 is Approaching Profitability
The company reported its fourth-quarter and full-year fiscal results on March 19.
For Q4, operating revenues came to $10.6 million, up 101% compared to $5.3 million for Q4 2018. Gross profit also increased to $3.2 million, up 157% from the same quarter last year. Finally, the company’s profit for the quarter was $481,121, compared to a $625,072 loss from operations in Q3 2019.
Ultimately, the company only lost $215,556 for Q4, making it a hair’s breadth away from profitability. For the full-year, it reported record operating revenues of $31.8 million. This represents 315% growth compared to the $7.6 million revenue reported in 2018.
“We’re bullish across all our segments,” John tells Rich. “We’re seeing significant returns on our invested capital, and we’ve got a sufficient cash cushion to continue to operate towards profitability.”
Delta 9 currently owns four stores in Manitoba and is looking to expand broadly over the coming year.
Continued Strategic Partnership with Auxly
In September 2018, Delta 9 entered a strategic partnership with Auxly Cannabis Group (TSXV:XLY) (OTCQX:CBWTF). As per the agreement, Auxly has the right to purchase up to 5,000 kilograms of cannabis and 500 kilograms of cannabis trim per year until July 1, 2030. In exchange, it invested $16.25 million in Delta 9 through the purchase of 5.9 million shares.
On February 25, 2020, the two companies entered a new agreement, whereby Auxly will supply Delta 9’s retail stores with a suite of cannabis 2.0 products. This will include cannabis oils, chocolates, and chewables. Vape products will also be sold where permitted.
There’s a good chance the influx of sales from cannabis 2.0 products will tip the company into the green over the next quarter or two. DN shares are currently trading at $0.40, not far from the 52-week low of $0.33.
What do you think? Is Delta 9 a buy? Let us know what you make of this hot pot stock.
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