Cannabis News

CSE:CRZ

The US operator’s share price dropped despite a promising set of financial results for Q2 of this year. A conference call revealed more details on the report.

On Thursday (August 23) CannaRoyalty (CSE:CRZ,OTCQX:CNNRF) released its financial results for the three and six-month period which ended on June 30.

Thanks to some recent acquisitions and new partners, the company enjoyed a boost in its sales.

CannaRoyalty reported earnings of C$0.18 per share and an earnings before interest, tax, depreciation and amortization (EBITDA) of C$10.4 million.

During a conference call to discuss the results Marc Lustig, CannaRoyalty’s CEO, called Q2 an inflection point for the company, highlighting its revenue increases.

François Perrault, chief financial officer for the company, said the results for the quarter were record setting for the operator. He highlighted the C$3.5 million in revenue the company generated in the quarter surpassed the C$3 million generated during the entire fiscal 2017.

The second quarter revenue also represents a 446 percent increase from its Q1 2017 of C$643,437.

Perrault credited this revenue spike to the integration of Kaya Management and Alta Supply acquisitions for a full quarter, which he said are performing above expectations.

Despite having not closed its acquisition of River Distribution, the executives confirmed products are already running through this new partner – a move which boosted the financials for the company during this past quarter, according to Perrault.

CannaRoyalty expects to close the acquisition at a “later date in fiscal 2018,” according to company documents.

Afzal Hasan, president and general counsel of the company, told the Investing News Network (INN) the plan is to merge Alta Supply and River once the acquisition for the latter is complete.

“The really compelling part to us just like it is in California is where the consumers are and where the purchasing power is,” Hasan said when explaining the company’s strategy.

California tax revenue makes operator examine market potential

The California Department of Tax and Fee Administration (CDTFA) announced in May the state had secured US$60.9 million in tax revenue for legal cannabis sales in Q1 2018. This result caused the the Legislative Analyst’s Office for the state to drop its projections on tax revenue for the entire year.

This dip has been credited mostly to the challenges legal consumers face when buying product, instead opting for a thriving illicit market in the state.

When asked the impact these initial results in California had on CannaRoyalty operations, Hasan told INN he viewed the continued relevance of the black market as a potential for future growth.

“On the one hand we’re extremely happy in a lot of different ways about how this market has gone and that’s great, at the same time the market isn’t as big as anyone would like it to be,” Hasan said.

The executive said it was frustrating to know there are unlicensed cannabis companies in the state, avoiding payments needed to be compliant there. However, he said it’s up to the legal players and local governments to convince consumers to drop the illegal options available to them.

“There’s two methods governments can and will use to curve the illegal market, there’s sticks and carrots… The carrots are actually up to us as businesses to offer to consumers, to make products that are more compelling, more safe, more reliable and more reputable than anything else that they can find,” Hasan said.

Investor takeaway

Despite CannaRoyalty’s promising results in the long-term, Thursday’s market session wasn’t so favorable for the company’s stock. At the closing on Thursday, CannaRoyalty finished with a 1.35 percent drop to C$5.10 per share.

The company still holds a “Buy” rating from Canaccord Genuity analyst Matt Bottomley. The expert gave the company a C$8 price target.

Don’t forget to look for our coverage of MJBizCon INT’L, with show notes from the floor and exclusive interviews on INN. You can also follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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