Miami, FL – February 6, 2019 (EmergingGrowth.com NewsWire) — EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on FingerMotion (OTC Pink: BCCI).
Baristas Coffee Co(OTCPK: BCCI) has been one of the top breakout stocks in the OTC markets in recent weeks, having jumped a mindboggling 1011% from $0.009 per share on January 15thto $0.10 per share on February 1st. However, when trading resumed on Monday February 4th, the stock plummeted to $0.05 per share. At the time of writing, it was still hovering at this price, bringing its market capitalisation to slightly over $7 million.
With interest in the stock still high—considering the current trading price is still 500% higher than it was two weeks ago—it is imperative to understand the key drivers of BCCI’s wildly volatile share price. Is this another short-term momentum play, suitable only for speculative high-risk traders, or could there be real underlying value in the business that the market has just begun pricing into the stock?
BCCI is a coffee company that sells coffee related products under its Baristas brand across the U.S. It has two key brands – Baristas White Coffee single serve cups and the Baristas EnrichaRoast CBD Coffee.
The company’s Baristas White Coffee single serve cups, which is compatible with the Keurig 2.0 brewing system, is its flagship brand. Compatibility with the Keurig 2.0 brewing system is key for product uptake, as this particular brewing system is manufactured by Keurig Dr Pepper(NYSE: KDP), the third largest beverage manufacturer in the U.S following Keurig’s move to take control of Dr. Pepper in a $18.7 billion deal in early 2018. Thanks to the size of KDP’s distribution network following the deal, the Keurig 2.0 brewing system is widely available nationwide, giving BCCI’s Baristas White Coffee market access across the whole nation.
The company’s second product, Baristas EnrichaRoast CBD Coffee, is new to the market. The company intends to capture the growing segment of consumers interested in cannabidiol (CBD), the non-psychoactive compound in hemp touted for its medicinal properties.
Based in Seattle, BCCI currently relies on ecommerce for distribution as it does not have physical outlets. It sold its last retail location in Seattle on June 2, 2017 for $68,000, according to its SEC filingsfor the nine months ended September 30, 2018.
Throughout 2018, BCCI was rejigging its business model amid its transition into a full-scale online distributer of coffee products. During this period, it has achieved very little in terms of revenue as most of its efforts and resources have been dedicated to laying the ground work for its ecommerce strategy. Tellingly, SEC filings show that its revenue for the nine months ended September 30, 2018 came in at just $3450 compared with $205,759 a year earlier when its last retail shop was still operational.
Based on BCCI’s corporate profile, it is clear that the company is still in the nascent stages of a full-scale reboot. It has divested out of brick-and-mortar and is now fully immersed in ecommerce, though the dividends are yet to show, as evidenced by the dismal revenue in the first nine months of 2018. If the dividends are yet to show, why has the stock witnessed a blistering rally over the past few weeks? The answer is that the rally has been fuelled by a potent mix of two catalysts.
CBD and Superbowl draw in eyeballs… and trading accounts
The first catalyst is its bold foray into CBD. Its new CBD infused product line positions it in a high growth market expected to reach $22 billion in size by 2022, according to research by cannabis industry analysts, Brightfield Group. The market for CBD is huge and growing, especially after President Donald Trump signed the Farm Bill legalizing hemp farming. The amount of acreage under hemp farming in the U.S. has been growing at a frantic pace in recent years. It surpassed 30,000 acres in 2018, according to data from the United States Department for Agriculture, and will explode even further in the wake of the passing of the Farm Bill into Law.
The second and potentially more potent catalyst for BCCI’s strong rally is the aggressive marketing push for its products. The company has made advertising history by being the first ever cannabis company to secure ads on the Superbowl, the Grammys and NASCAR events.
Securing these ad spots is no mean feat, considering other companies involved with cannabis have unsuccessfully attempted to secure spots on the Superbowl. For example, Acreage Holdings(OTC: ACRGF), a $1.98 billion market cap Canadian stalwart, had its ad for the Superbowl rejectedby CBS(NYSE: CBS), the network that carries the Superbowl and the Grammys.
Viewership of the Superbowl may be declining, according to data from Statista, and the Grammy’s ratings may have tanked, but the two platforms are still very influential in the advertising world. The same applies to NASCAR events, which attract millions of viewers every year.
While BCCI’s marketing push on these platforms is certainly drawing in eyeballs, it isn’t clear yet whether this will translate into actual sales. What is clear is that traders are taking note and capitalizing on increased interest in the stock. BCCI’s traded dollar volume has exploded in the course of the past three weeks, along with the share price, as illustrated earlier in this report. Coincidentally (or not), against the backdrop of this rally, BCCI has been churning out press releases about its marketing push on the Superbowl, Grammys and NASCAR events, dropping big names like Maroon 5, a band is associated with pop star Adam Levine.
However, on closer scrutiny of the underlying business, it is clear that BCCI does not have a clear strategy – the commendable ads notwithstanding. The ads have only served to create hype among traders. Once this hype wanes, which is inevitable, the stock could go back to previous lows, as there is currently no underlying value in the business. Sales of $3450 in first nine months of 2018 cannot justify a lofty market cap north of to $7 million, especially considering that there is no indication of how the recent marketing push will impact 2019 sales.
No clear strategy and history of pivots
BCCI has a history of relying on flashy PR and advertising campaigns, but not being able to deliver strong commercial results. The Superbowl, Grammys and NASCAR, as historic and impactful as they are, are not the only rabbits in BCCI’s hat. According to its boilerplate, the company has been “featured nationally including during Shark Tank on CNBC with Front Montgomery, CNN, ESPN, Food Network, Cosmopolitan Magazine, Forbes Magazine, Modern Living with Kathy Ireland, Sports Illustrated, NFL Monday and Thursday Night Football with Megs McLean, and other notable media.”
However, this publicity has never translated into significant sales. The $3450 it made in the first nine months of 2018 is not even enough to pay monthly rent for a decent office in Seattle, where it is based. To survive, the company has been paying most of its expenses, including compensation for its top executives, through issuance of securities, its SEC filings show.
Even in 2017, when BCCI still had an operational retail outlet in Seattle, the first nine months revenue of $205,759 was still insufficient to pull it out of losses. Granted, revenues will grow tremendously on a year-on-year basis in 2019, as the company is coming from a low base of $3450 in 2018 and venturing into a new ecommerce space that has some potential. However, the revenue growth is unlikely to be sufficient to pull the company out of financial doldrums. BCCI has an accumulated deficit of at least $13.4 million, latest SEC filings show.
As earlier stated, BCCI has been paying most of its expenses through issuance of securities – the most voluminous section of its annual report is actually comprised of dozens of pages that painstakingly enumerate all the securities (such as convertible notes) that have been issued in recent years to third parties in exchange for services. With the recent marketing push on high profile platforms, we can only imagine how many huge invoices BCCI is drowning in – bear in mind that CBS sells a 30 second spot on the Superbowl for around $5.2 million. With these kinds of expenses, and only securities to issue to suppliers as compensation since it has zero cash—BCCI has been working with media buying partners such as Reeltime Rentals(OTCPK: RLTL) and not directly with networks who wouldn’t accept securities in lieu of cash payments—the inevitable outcome is massive stockholder dilution (in case of share issuance/conversion of convertible notes) and mountains of debt (in case of issuance of notes).The company is basically eroding shareholder value in order to stay afloat. Moreover, besides the ads, it doesn’t appear to have a clear strategy and is actually haunted by a history of pivots. Some due diligence on its history reveals that it has pivoted several times since its founding in 1996, as the excerpt from its SEC filings below indicates.
At one point in every startup’s journey, a pivot is inevitable and sometimes even strategic and beneficial. However, when it happens too frequently, it can be a signal that management has not conducted robust market analysis and is not fully aware of the full range of opportunities and risks in the market. This seems to be the case with BCCI. While there are certainly huge opportunities in CBD and ecommerce, which is where BCCI has pivoted into, there are equally great opportunities in drive-thru coffee, the space it has left behind. For example, Starbucks Coffee(NASDAQ: SBUX), which is also based in Seattle like BCCI, has in recent years embraced the drive-thru model is now rolling it out alongside its legacy walk-in model. The world’s largest coffee chain has realised that while some of its customers still enjoy sitting at its outlets to drink latte or mocha while enjoying free wi-fi, an increasing number want to grab coffee and go where they need to be. The company last year announced that, going forward, it will fit drive-thru lanes in 80% of all new locations in the U.S.,underlining the scope of the opportunity in the coffee drive-thru business.
The average espresso drive-thru business sells approximately 200-300 cups of espresso and coffee-based drinks per day. This is according to a 2017 national surveyby The National Coffee Association and The Specialty Coffee Association of America. This once again highlights the magnitude of the opportunity in specialty coffee; an opportunity that BCCI walked away from in search for new opportunities in CBD and ecommerce distribution. When a company moves from one high growth market to another because it did not gain traction in the former, often the challenge isn’t with the market it is leaving but the company itself. This could be the case with BCCI.
ConclusionThere are certain corners of the stock market where its easier to make money when you are a speculative high-risk trader than when you are a long-term investor. BCCI is one of the plays you can find in these corners of the market. The share price movement over the past few weeks has certainly made some traders a lot of money—$10,000 would have yielded $100,000 in two short weeks. In the coming weeks, many more traders shorting the stock could make a killing once the hype over the Superbowl and Grammys ads blows over and stock freefalls. However, any investor who mistakenly thinks that the recent rally was an indicator of a solid underlying business is bound to suffer losses in the long-term if they back this play. The company needs a clearer business strategy and a well-articulated plan of how it will fund this strategy. Until then, it remains a strong sell. The share price could go back to the $0.007 – $0.010 range that has been witnessed for the better part of the past 52 weeks.
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