The company now estimates revenue of between USD $55-$60 million from sales of in-house branded products in California and third party agreements. Healthy gross margins of between 40-50% will be realized from product lines during the ramp-up stage of in-state operations. Aggregate revenues do not include contributions from Full Scale Distributors, LLC or Natural Health Services Ltd.‘s clinics in Canada—both of which could add another $15-20M to the top line.
Today’s guidance doesn’t take into account Sunniva’s planned production capacity from its Cathedral City cultivation facility. Should the company adhere to previously-stated late-Q2 first harvest forecasts, another $15-30M revenue could be recognized on the top line. While today’s guidance omits this possibility, there is a decent chance this upside scenario does materialize; 3-4 bays are near completion and seedling transfer should occur in around 5-6 weeks from their Oakland genetics lab.
Today’s guidance also officially discounts any possibility of Sunniva recognizing revenue from its Canadian greenhouse operations. While the company purchased an 126-acre industrial zoned property in Okanagan Falls BC, for the purpose of building a 740,000 sq. ft. greenhouse and cGMP compliant “campus”, facility funding was never secured. In turn, this placed its supply agreement with Canopy Growth in jeopardy, thus contributing to the overall morass in the company’s share price. The hope is that proposed U.S. banking reform could spark financing interest from willing American financial institutions once reform clears.
Until that fateful event, cash procured from yesterday’s announced $15 Million convertible debenture financing will keep working capital topped-up until cash flows turn positive. Proceeds will be used for general corporate purposes, securing additional biomass and fostering extraction production expansion for its Sun-Oil facility.
Additionally, Sunniva announced positive news on the sales front. The company secured an additional USD $4.0 million in purchase orders from select retail dispensaries in southern California for Sunniva branded cannabis products. This increases the total sales orders received to date to USD $11.5 million of products to be sold in the first four months of 2019. Sunniva is projecting continued and increasing monthly sales volume growth throughout the year.
While today’s guidance is a long way from analysts FY2019E forecasts released in 2H 2018 (which to be fair, incorporated anticipated Canadian production capacity), investors pounced on the news nonetheless.
Exhibit Z on why listening to sell-side analysts is often harzardous. Check out Beacon Securities FY2019E on Sunniva $SNN $SNNVF in their July 30, 2018 research report. Now check how Sunniva actually guided today. All told, could be upwards of $80M in rev; a far cry from $231.5M! pic.twitter.com/C7XDw95GPU
— Benjamin A. Smith (@BenjaminA_Smith) February 14, 2019
At publishing time, SNN was higher by $0.54 to $5.20 (↑11.59%). Although the company has faced numerous challenges and setbacks along the way, investors appear pleased with the guidance provided. I suspect the news is working synergistically with yesterday’s debenture offering, allowing the company more breathing room to execute its business strategy, thus allowing cash flow to catch-up with cash depletion. The initial closing price milestone on the daily is $5.42—the yearly high set on January 8th.
Midas Letter will have further coverage as events warrant.
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