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Cannabis Stock Moves Higher After 420% Rally in 2016
04/18/2016 9:33 am EST
Focus: CANNABIS INVESTMENTS
Although shares are up more than 420% during 2016, Michael Berger, Associate Editor of MoneyShow.com, highlights a vertically integrated cannabis-focused agricultural company that continues to break through its resistance levels and trade at new highs.
One of the top performing cannabis stocks during 2016 has been Terra Tech Corp. (TRTC), a vertically integrated cannabis-focused agricultural company committed to cultivating and providing the highest quality medical cannabis and related products.
TRTC has seen its share price rally by more than 420% during 2016 and shares continue to break through its resistance levels and find new highs.
Increasing Market Share in Several Subsectors of the Cannabis Industry
Through its subsidiaries, Terra Tech has penetrated several industries focused on or levered to the cannabis industry and the company continues to increase its market share through organic and inorganic growth initiatives. Terra Tech’s subsidiaries include:
- GrowOp Technology: Specializes in controlled environment agricultural technologies. GrowOp integrates hydroponic equipment with proprietary software and hardware to provide solutions for indoor agricultural enterprises and home practitioners.
- Edible Garden: Cultivates a premier brand of locally and sustainably grown hydroponic produce, sold throughout New Jersey, New York, Delaware, Maryland, Connecticut, Pennsylvania and the Midwest.
- MediFarm: Consists of MediFarm, MediFarm I, MediFarm II, and MediFarm I Real Estate. Through these subsidiaries, Terra Tech owns interests and plans to operate medical marijuana cultivation, production, and dispensary facilities in Nevada.
- IVXX: Formed for the purposes of producing a line of cannabis flowers and cigarettes, as well as a complete line of cannabis pure concentrates including: oils, waxes, shatters, and clears. IVXX currently sells its products to approximately 200 dispensaries in California.
- Black Oak Gallery: Acquired in March 2016 and the assets associated with this acquisition include Blüm Oakland, a medical cannabis dispensary in Oakland, California, as well as Blüm's fully integrated supply chain which includes an onsite cultivation facility, its portfolio of proprietary strains and retail storefront.
A Vertically Integrated Growth Story
Terra Tech recently closed the acquisition of Blüm Oakland, a medical cannabis dispensary in Oakland, California.
The dispensary has over 42,000 registered patients and serves approximately 1,000 patients each day. The trailing 12-month non-GAAP revenue for Blüm Oakland is greater than $14 million and TRTC expects this acquisition to provide synergies to its underlying business through additional customer and revenue opportunities.
Under the terms of the agreement, TRTC acquired Blüm's fully integrated supply chain which includes an onsite cultivation facility, its portfolio of proprietary strains and retail storefront. Blüm will feature Terra Tech's IVXX brand in its portfolio.
Expecting $20+ Million in Annual Revenue
TRTC expects this acquisition to generate approximately $9 million of incremental revenue in 2016, starting in April, with total revenues of $20 - $22 million currently estimated for the full year.
Terra Tech paid a pretty penny to get this done but we expect this deal to prove to be accretive and a seamless integration will result in better margins and exponential top and bottom-line growth.
The aggregate fair market value of the securities issued by Terra Tech to Blüm Oakland shareholders was approximately $22.9 million. Shareholders may also receive cash consideration equal to approximately $2,088,000.
2015 Results Show Improving Revenue and Margins
A few days before Terra Tech announced the closing of the Blüm Oakland acquisition, the company reported earnings for the 2015 year.
During the year, TRTC generated $9.98 million in revenue which was more than 40% higher than what the company generated during the previous year. Terra Tech attributed much of this growth to its Edible Garden and IVXX subsidiaries.
Terra Tech recorded slightly more than $1 million in gross profit during the year which resulted in a 10% gross margin. When compared to last year, revenue grew slightly more than 40% but gross margins improved by more than 400%. The better margins were a result of the higher margins recorded by its Edible Garden and IVXX subsidiaries.
Even though Terra Tech is generating approximately $10 million in revenue per year, the company said that the revenue is not enough to cover ongoing operating expenses. During the last two years, Terra Tech reported a greater than $30 million net loss.
Raising Capital to Execute on Initiatives.
Since its inception, Terra Tech has raised capital through private sales of preferred stock, common stock, and debt securities. As of December 31, 2015, TRTC had an accumulated deficit of approximately $46 million. The company also had a working capital deficit of approximately $523,600 and a cash balance of approximately $418,000.
Terra Tech expects to need additional capital for the commercial development of its subsidiaries. The company said that they expect their existing and available capital resources will be sufficient to satisfy needs through the third quarter of 2016.
Assuming MediFarm, MediFarm I, and MediFarm II receive all the necessary permits and licenses applied for, the company will need an additional $11 million in capital for the commercial development of these subsidiaries.
Cash Flow to Improve Through the Execution of Warrants
Earlier this month, Terra Tech filed an S-3 Registration Statement and announced plans to sell common stock, preferred stock, debt securities, warrants, rights, or purchase contracts, either individually or in units, with a total value of up to $75 million.
As of April 7, 2016, Terra Tech had more than 22,000,000 warrants outstanding to buy shares of TRTC for less than $0.21 per share. TRTC is currently trading at $0.48 and Terra Tech will generate more than $5 million when they are exercised by its holders.
Insiders Sell $500,000+ Worth of Stock in April
During April, several company executives filed Form 4s with the Securities and Exchange Commission which disclosed more than $500,000 worth of sales of common stock. These insiders still own more than $3 million worth of common stock and we continue to monitor insider transactions.
Out of the insiders who sold stock during April, the largest seller and holder is Michael Nahass who serves as the Secretary, Treasurer, and Director of Terra Tech. Other sellers include COO Kenneth VandeVrede, Steven and Mike VandeVrede, and Amy Almsteier.
One of the First Publicly Traded Cannabis Stocks
Although it typically does not look good when company executives are selling stock, these insiders have been with the company for a long time and they might need to sell stock for personal reasons.
Terra Tech was one of the first publicly traded cannabis companies and they entered the cannabis industry prior to the January 2014 green rush.
The company’s history has made it one of the better known cannabis stocks and it is typically associated with other first-movers like Medical Marijuana, Inc. (MJNA), Hemp Inc. (HEMP), Cannabis Science, Inc. (CBIS), and Cannabis Sativa, Inc. (CBDS).
Although Terra Tech is frequently associated with some of the first publicly traded cannabis companies, we think that the company has done a better job executing when compared to its peers. TRTC trades on a better exchange, generates more revenue, and is led by a management team that is focused on creating value for shareholders.
Shares Look Ready for Liftoff
As Terra Tech continues to execute on its business plan, the company will see operating costs go down as it recognizes synergies from previous acquisitions.
We view Terra Tech as a long term growth story that has a lot potential to grab market share in sectors levered to the rapidly developing cannabis industry.
While we are favorable on Terra Tech’s long-term outlook, we recommend waiting for shares to pull back before creating a position. Shares are currently trading in overbought territory and we see value in buying shares on a dip.