Miami, FL – December 8, 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 Citation Growth Corp. (OTC Pink: CGOTF).
Citation Growth (OTCQX: CGOTF) distinguishes itself in the world of cannabis through its branding and it seems to be paying off and translating into financial performance. Citation Growth is a multi-state operator (MSO) which means that they have operations in more than one state. Their brands include Gardens of WeEden, Blunt Box, Superior, Fiore, PureCloud 9, and Diamante, which squarely targets the cannabis connoisseurs looking to purchase the highest quality products. This means that they are constantly experimenting with genetic combinations, different growing techniques, and processing protocols.
Citation established footings in multiple legalized regions to provide the highest quality products to consumers. By focusing on their branding message, coupled with attractive consumer packaging, they are able to charge a premium price that allows them to expand their offerings.
For Citation Growth to be successful in their business model, they need to wholesale their product to retailers and the most effective way is through branding and having a massive retail distribution channel. The company is expanding operations in a period where other MSO’s like MedMen (OTCQX: MMNFF) are laying off 190 employees in an effort to achieve profitability. According to MJ Business Daily MedMen is “joining a growing list of cannabis companies shedding workers amid falling MJ stock prices and a dearth of outside funding.”
Show Me the Money Mentality
Cresco Labs Inc. (OTCQX: CRLBF) is an MSO, and was due to merge with Origin House in what was supposed to be an $823 million transaction. For a period it was on hold until just recently when this was renegotiated and got slashed in half to a $400 million deal. According to MJ business Daily “terms of the renegotiated deal had a small effect on the overall value – analysts estimate about a 7% decline from the transaction restructuring versus almost 50% just on falling stock prices alone – it is a significant change, because the deal is now more likely to close.” When the ex-CEO of Canopy Growth (NYSE: CGC) joined the board as executive chairman of Vireo Health International (OTCQX: VREOF) the stock ran only to give up its gains in a couple of days. This price action just goes to show how sour the market sentiment is toward cannabis companies when news of the most successful cannabis entrepreneur joining a board is unable to move the needle on stock price. Investors are clearly focused on profitability.
Challenges Facing Cannabis Companies
- Limited funding to build out the business
- M&A deal renegotiated or canceled due to declining stock prices
- Top level executives shaken up
- Huge layoffs announced in USA and Canada
- Stigma of Federal Legality
This chart illustrates the flow of capital into the cannabis sector over the past 2 years. It’s absolutely chilling to see the precipitous drop off in deals. The bubble burst and everyone including the marijuana companies are looking for new investors but they are few and far between.
The top reason investors are seeing all this pressure in the marijuana stocks is because most of these companies are unable to get funding and when they do scrape funding together it’s typically a highly dilutive financing.
This is precisely what is allowing Citation Growth to outperform its peers. They are profit oriented and unlike 95% of their peers looking for financial scraps, they are working towards executing their business plan in stages, focusing on increasing revenues for sustainability.
Potential Turnaround on the Horizon
In an industry plagued by heavy taxation the recent move via the Marijuana Opportunity and Reinvestment and Expungement Act of 2019 (the “MORE Act”) was a welcome site. A group of lawmakers fired the first salvo in their quest for US legalization of cannabis. The house judiciary committee approved the Bill in late November by a margin of 24-10 with bipartisan support. What this rule does is level the playing field with normal business. No longer would cannabis companies be treated like 2nd class citizens and have to hire specialized lawyers and bankers to have access to the infrastructure like normal business banking. This is one of the first cracks in getting legalization legislation enacted.
Citation Growth Blueprint
Since 2014, Citation Growth Corp. (OTCQX: CGOTF) has set a new standard in the medical and recreational cannabis space with licensed cultivation and production facilities as well as dispensary locations in key North American state-legal jurisdictions. Their innovative operation is a fully integrated process from seed to sale that has made them a dominant industry force.
As a Multi-State Operator Citation Growth needs to expand geographically and expand its product lines and brands. In terms of territory, the company gives investor’s exposure to Canada and the US markets. They have fully operational facilities in Nevada, a facility nearing completion in Celista, BC, Canada, a dispensary in CA and licensed properties in WA and CA. They have 6 brands. Fiore is their triple-certified organically cultivated cannabis. Diamante is their ultra-premium brands of cannabis concentrates which include resin from their crop of triple-certified organically grown Fiore flower. Superior is all about the highest quality of genetically grown flower in the Las Vegas market. The Gardens of WeEden brand relates to the seed genetics used to makes strains the consumers want. BluntBox represents traditional flower rolled cannabis. PureCloud 9 is a skincare line of high potency products that are blended with hemp oil and other botanicals.
North Las Vegas: This operation is expected to be completed in the next 2 years with a finished footprint of up to 275,000 SF of space. Within the facility they will have area for cultivation, processing, and distribution. The facility is designed to produce up to 23,000 kg of triple-certified organic flower. The processing is expected to fit into about 16,000 SF of the facility and yield $80 mil in sales. Distribution is in place for their brands and Citation has 75% market penetration in the state of Nevada and is in 47 of the 60 dispensaries across the state. When totally completed the facility could produce close to 180 million in revenue. The facility is expected to be highly efficient and produce 4.5 crops annually.
Pahrump, Nevada: This facility is also expected to be built in phases reaching up to 195,000 SF. This facility will house the genetic experts working to build award winning varieties of cannabis. At full capacity this is expected to produce $113 million and do 5.5 crops per year.
Californian Dispensaries/Cultivation: In Coachella Valley, California they have two 1.25 acre sites in proximity to the dispensary. Coachella Valley is known for its concerts which attract 600,000 visitors annually. The expected revenue is $17.2 million annually, once fully built out.
Washington Grow Facility: The company has a 13.8 acre site and a 28,000 SF facility cultivation facility and a 30,000 SF processing facility in Lynden WA.
British Columbia: This is an industrial grade facility with ten 10,000 SF buildings on a 40 acre site. At full capacity it’s expected to produce 19,000 kg of flower which will translate into $74.5 million in revenue. It will use co-generation to power the lights and keep the operating costs low.
In the latest quarterly filing they had $650K in sales which represents an 81% increase from the $358K in same period last year. The company turned a gross profit of $111K for the quarter.
In May 2019 they did a non-brokered offering for CDN$250,000 on similar terms this time with a $1.25 warrant. In October 2019 they also closed a CDN$1,084,500 private placement for $.30 and half a warrant coverage with a strike price of $.60 for 2 years. Track record is everything in this period of financial uneasiness in the cannabis sector. Citation Growth’s ability to attract capital in this downturn is an attestation to the viability of management and their business plan. This access to capital makes them power players in a consolidating market.
Citation Growth’s high-end user basis is the foundation of their business strategy. They have created an ecosystem of high-end users. Brand building is a small part of what they do. The company has the ability to assimilate organizations and is well positioned to attract capital in the harshest of financing environments. This demonstrates their ability to seize opportunity wherever it exists. If there are potential acquisitions on the horizon, Citation Growth should be able to capitalize on it.
We are just scratching the surface of this story because something has to explain the relative price performance to its peers. In the past 2 months Citation Growth has increased 25% with a price movement from $.20 to $.25. Over the same period market leader Canopy Growth slid $27.00 to $18.30 which represents a 32% decline in just the past 50 trading days. Juxtapose Canopy Growth and the large cap cannabis names against the rest of the sector. Cannabis investors that want exposure to the sector are sustaining large losses by staying in these large cap names. Profitable MSO’s represent the perfect balance of risk and reward. Sales multiples are no longer the measuring sticks they used to be in cannabis.
The only thing working in the space seems to be Multi-State Operators focused on profitability. Citation Growth (OTCQX: CGOTF) is well positioned to weather the storm, and when the downturn ends it could be a star performing MSO with a proven track record. They have growing revenue, expanding product lines, some of the highest quality certified organically grown plants, and have the right packaging to entice the retail buyers. The most important point to investors is that they are outperforming the entire sector primarily due to their strategy of selling high margin consumer packaged goods. The ship is sinking on these large cannabis names, if you are a cannabis investor is it time to fine tune your portfolio with a name that floats or sinks?
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