Miami, FL – May 16, 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 Terra Tech Corp (OTCQX: TRTC).

It’s hard to find an investment that has consistently rewarded shareholders as much as cannabis stocks have over the past couple of quarters. The Marijuana Index which tracks the top cannabis stocks in the United States is already up roughly 30 percent since the beginning of the year, illustrating the sustained momentum carried over from the previous year.

(Source: The Marijuana Index)

A number of reasons have been put forward to explain the surge in pot stocks. The top two reasons include the fact that recreational cannabis use was decriminalized in Canada and a rising number of companies developing cannabis-based treatments. In fact, the FDA approvedGW Pharmaceuticals’ (NASDAQ: GWPH)Epidolex, an oral solution whose active ingredient is CBD for the treatment of seizures associated with two rare and severe forms of epilepsy. This helped boost cannabis stocks as it marked the first ever CBD based drug to gain regulatory approval in the country and hinted that the government was willing to loosen regulations around the schedule 1 substance.

Industry observers have further stated that at no point in recent history has cannabis use enjoyed such widespread public support, evidenced by the fact that more than half of the U.S states have passed legislation allowing for either recreational or medicinal cannabis use.

To better appreciate the prospects of the cannabis sector going forward, here is what you need to know.  The overall cannabis market was worth about $5.1 billion in 2015 and conservative estimates project that the industry will be worth $21.6 billion by 2021, representing a CAGR of about 33 percent. However, according to research from Cowen & Cothis figure could explode by 2030 to top $75 billion. 

Unfortunately, although there has been soaring demand that will only increase in the future, the supply hasn’t been able to match it. Due to this fact, the cannabis landscape has been exhibiting a number of interesting trends. For instance, alcohol and tobacco companies which have been struggling with declining sales driven by shifting consumer preference in favor of alternatives like cannabis infused products, have begun strategically moving intothe space.  

Thanks to the supply constraints facing the sector, we believe that one company that is well positioned to provide above average shareholder returns is Terra Tech Corp (OTCQX: TRTC), currently trading at about $0.75 per share and up about 15 percent since the beginning of the year. This can largely be attributed to allegations of fraud and infrastructure issues, both of which are just about sorted out. Before going into more details concerning these two issues, a brief overview of the company can be found below for readers who aren’t familiar with it.

Corporate overview

Terra Tech is a vertically integrated cannabis company with retail, production and cultivation operations. The company has a presence in three states: California, Nevada and New Jersey and operates two main segments which are Produce and Cannabis. The cannabis business has three units as described below:

  • MediFarm: Terra Tech’s fully owned subsidiary which is focused on medical and recreational cannabis cultivation and production. MediFarm has operated licensed facilities in California for more than two years and was recently awarded approval to operate facilities in Nevada.
  • IVXX: High-quality medical and adult use cannabis produced in company-owned lab and sold in select dispensaries throughout California and Nevada. At the moment, IVXXTMis carried in more than 200 locations.

Blüm:This is the company’s retail medical cannabis dispensary chain. Through Blüm, the company offers a wide selection of medical cannabis and related products, including flowers, concentrates, and edibles in locations such as Oakland, California, and numerous sites in Nevada.

Terra Tech’s Go-to-market model (Source: TRTC Investor presentation 2019)

Although Terra Tech was originally focused on covering multiple markets within the U.S, a stream of well-capitalized competitors such as MedMen Enterprises (OTCQX: MMNFF)and Acreage Holdings Inc. (OTCMKTS: ACRGF)have intensified the fight for market share forcing the company to rethink its strategy. As a result, Terra Tech is now positioning itself to primarily focus on California as its main target market. The rationale here is that, not only is California the 5th largest economy in the world, it’s arguably the largest cannabis market in the U.S. Furthermore, chairman and CEO Derek Peterson states that Terra Tech has a strong political, reputational and operational nexus within California that can be effectively leveraged to unlock more shareholder value.

Allegations of financial manipulation

As mentioned earlier, one of the main reasons the company’s stock took a nose dive was due to a lawsuit surrounding the firm’s accounting. Back in December last year, it was revealedthat a businesswoman who apparently was a former manager at Blüm was suing Terra Tech. Heidi Loeb Hegerich accused Terra Tech of allegedly looting from the Blum dispensary, one of the joint ventures she co-owns with the company, to fund its other business interests. 

She claimed the company didn’t properly audit its joint ventures and attempted to remove her as a manager of Blum. She also claimed that when Terra Tech was unsuccessful in doing so, the company made a false report in its 10-Q filing, claiming total control over management. Understandably, Terra Tech’s stock price immediately dropped about 42 percent during the day’s trading session and a further half percent before the week was over. However, Peterson maintains that the allegations made by Hegerich have no factual basis whatsoever and he issued the following statement in response to the lawsuit:

“Far from the image portrayed in recent interviews, Heidi Loeb Hegerich is in fact a wealthy, sophisticated investor with a history of disputes with business partners. Ms. Hegerich was married to David Loeb, one of the founders of Countrywide Mortgage. She has described herself as a business executive, real estate developer and self-described ‘mistress to the rich and famous.’ We reaffirm our commitment to our shareholders to correct any misleading and inaccurate reports and remain committed to providing accurate information to our investors.”

Although the lawsuit hasn’t been resolved, Peterson’s response appears to have calmed the market down for now and even restored a bit of investor confidence judging from the stock price recovery over the past three months.

Expansion plans

With regards to expansion, Terra Tech announced that it had secured eight new medical cannabis provisional operational certificates in Nevada which include four dispensaries (all of which are open), two cultivation centers, and two production and extraction facilities, making it one of the largest operators in Nevada.

Additionally, the City of Santa Ana granted Terra Tech’s East Dyer Road, East Carnegie Avenue and South Tech Center Drive locations vertically-integrated Phase I permits. These permits allow the company to commence development of cultivation, manufacturing and distribution capabilities at these locations. All three locations have retail licenses in place. The company also continued constructing its 13,000 square foot cultivation facility in Hegenberger, Oakland which has the capacity to produce up to one metric ton, or 2,000 pounds, of cannabis per year.

In spite of the fact that Terra Tech’s peers haven’t been left behind in the expansion drive, it is important to note that the company has limited construction expenses for the remainder of 2019 and its focus is now on bringing all current projects through the final stages of permitting and opening.

Financials and valuation

Total revenue generated for the most recent quarter ended September 30, 2018 were approximately $7.1 million, compared with $10.1 million in the same period in 2017. This decrease was due to lower IVXX revenues as a result of the production facilities of IVXX being relocated to an upgraded facility that would facilitate an increase in production to support greater distribution throughout California. However, gross margin improved significantly from 30.5 percent in 2017 to 39.7 percent in the prior year.Full year revenue for FY2018 was $31.3 million with roughly $26 million or 83 percent of revenue being derived from the cannabis business resulting in a net loss of $39.75 million. The company revealed that with the existing permits it holds, it believes it can grow top line revenue to a $63.3 million run rate and increase gross margins to 45 percent by Q4 2019, while executing on its plan to generate positive cash flow. The following table shows projected run rate by Q4 2019 assuming additional revenue from the sources indicated below. These operations will be coming online at different stages throughout 2019.

(Source: TRTC Shareholder letter 2019)

As at December 31, 2018 cash and cash equivalents totaled approximately $7.2 million compared to $5.4 million in the prior year period while total liabilities amounted to $120 million against total liabilities of $25.2 million. Terra Tech’s current debt-to-equity ratio is 19.3 which although is slightly higher than the industry average of about 10 is far better than most of its peers.

Although management believes its existing and available capital resources will be sufficient to satisfy the company’s funding requirements through Q4 2020, shareholders should be aware that there’s a dilution risk due to the company’s issuance of convertible debt which has led to outstanding shares more than doubling over the past two years alone.

(Source: YCharts)

Back in 2017, the company issued five 12 percent convertible notes for an aggregate value of $20 million due by June 2019 and this full amount was converted to the company’s common shares by December last year. In March 2018, the company entered into a $40 million Security Purchase Agreement with an accredited investor after issuing 7.5 percent senior convertible promissory notes in eight tranches of $5 million. By the end of last year, Terra Tech had converted $18.70 million of the convertible notes into its common stock and in Q2 2019, it intends on taking one more $5 million tranche of the financing.

CompanyTickerRevenue (ttm)Market CapSales Multiple
AphriaNYSE: APHA$44.1 M$1.9 B43.0
MedMenOTCQX: MMNFF$59.3 M$1.8 B30.3
Acreage HoldingsOTCMKTS: ACRGF$10.6 M$979.3 M92.4
OrganiGram HoldingsOTCQX: OGRMF$11.9 M$994.2 M83.5
 Average62.3
Terra TechOTCQX: TRTC$31.3M$81.6 M2.6

(FY2018 Revenue) 

From a valuation standpoint, it seems that Terra Tech has been grossly undervalued by the market as the table above shows. Taking conservative estimates, it is evident that if the company could obtain even a tenth of the average sales multiples of its peers, the stock price should increase to roughly $5. This translates to an upside potential of about 500 percent. While this may seem highly optimistic, it is important to note that we have not even taken into account the company’s 2019 targeted revenue of at least $63 million. 

Bottom-line 

Terra Tech’s stock has taken a severe beating over two issues we believe have largely been dealt with. With the relocation of the IVXX production facilities completed and further expansion in the final stages, it seems highly likely that Terra Tech will attain its goal of doubling last year’s top-line. 

The strong response to the fraud allegations which has gone a long way in stabilizing the share price coupled with the trend of declining marijuana spot prices finally buckling bodes well for Terra Tech. According to a Colorado Department of Revenue report, “…the average price per pound of bud and trim rose moderately from the previous quarterly update, specifically to $781 per pound for the bud rate (from $759) and $396 per pound for the trim rate (from $325).”

In conclusion, Terra Tech as a speculative buy for risk tolerant investors with a price target of $5 over the next 12 months.

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