The company’s 2nd fiscal quarter ended March 28, 2018 can be found at SEDAR on www.sedar.com. Key takeaways from the report include a reduced cash cost per gram of production to $0.97, as well as a 9% increase in sales QoQ. In addition to having a fully funded Quebec facility yielding 108,000kg annually (coming online Q4, 2018), the company still has $265 million cash and zero debt on its balance sheet.
During the conference call on April 11, Mr.St-Louis was forthcoming about the company’s plans to expand into Ontario and Western Canada. One could expect that supply agreements in these regions could begin in year two of adult use access in Canada. The company may also be looking at entering various other provinces through acquisitions, which could be supported wholly or in part with their current cash position.
Share structure is becoming increasingly more valuable when assessing companies in the sector. As the industry matures, metrics such as Earnings Per Share and traditional valuation metrics will be the light to which companies are held. Those able to keep lower share counts and a high margins, generally, will be the ones to see greatest share price appreciation.
A first glance look at Hydropothecary Corp. shows that they have ~155 million shares outstanding. This is impressive considering that they have raised greater than $375 million since inception. A closer look at their share structure finds that there are approximately ~65 million warrants and options, bringing their fully diluted share count to ~220 million shares. The vast majority of these derivatives have expiration dates within the next 24 months, and are currently in the money. In the event that they are all exercised, the company will receive in excess of $150 million to further fund its growth.
In summary, Hydropothecary Corp. seems to have significantly de-risked itself with its recreational supply arrangement with SAQ. The revenue visibility and market share gained from this deal provides the company a solid foundation for future growth. Additionally, the company has high ambitions and a strong balance sheet to expand domestically and internationally. With a market capitalization of approximately $600 million, Hydropothecary Corp. is valued quite attractively when compared to peers, and even on its own when using forward looking metrics.
Additionally, case study #2 highlights QCA’s investment in THCX.
HYDROPOTHECARY CORP.
TSXV:THCX; OTC:HYYDF
As At April 11, 2018
Shares Outstanding: 155,295,660 (www.tmxmoney.com)
Share Price: $4.02 Market Cap: 624,288,553
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