http://oracledispatch.com/2016/10/05/...scann-interesting-case-study/
General Cannabis Corp (OTCMKTS:CANN) Top Line Growth
By Jermaine Farmer -
October 5, 2016
General Cannabis Corp (OTCMKTS:CANN) is one we took a close look at about 3 weeks ago. Our take was a bullish one due mainly to its broad exposure, recent funding in front of likely expansion, and the prospects of a ton of mojo in the marijuana space following an LA Times poll that suggested a near lock on the California recreational vote, which stands to triple the cannabis footprint in the US on November 8.
That view certainly turned out to be prescient, as the stock is up as much as 100% since that piece, and none of the three noted factors has changed in any respect. Furthermore, the company has witnessed a pop in transaction volume with a massive 630% jump in average volume during the past month.
General Cannabis Corp (OTCMKTS:CANN) trumpets itself as a company that provides services to the regulated cannabis industry in the United States. The company engages in the acquisition and leasing of cultivation space and related facilities to licensed marijuana growers and dispensary owners; and provision of security services, including on-site professionals, video surveillance, and cash transport to licensed cannabis cultivators and retail shops.
It also designs, distributes, and sells apparel featuring graphic designs; and offers consulting services to the cannabis industry that comprise obtaining licenses, compliance, cultivation, logistical support, facility design, and building services. In addition, General Cannabis Corporation provides shared office space, networking, and event services; and leases cultivation equipment and facilities.
The company was formerly known as Advanced Cannabis Solutions, Inc. and changed its name to General Cannabis Corporation in June 2015. General Cannabis Corporation was founded in 2013 and is headquartered in Denver, Colorado.
The Company bills itself as “the all-in-one resource for the highest quality service providers available to the regulated Cannabis Industry. We are a trusted partner to the cultivation, production and retail side of the cannabis business. We do this through a combination of strong operating divisions such as real estate, consulting, security, financing and the distribution of important infrastructure products to grow facilities and dispensaries. As a synergistic holding company, our subsidiaries are able to leverage the strengths of each other, as well as a larger balance sheet, to succeed.”
From a mechanical standpoint, the added attention during this industry-wide momentum into November has likely been aided by the sense that CANN is a sort of “jack of all trades, multi-tentacled pick and shovel tent”, as we called it last time.
As noted above, trading volume has skyrocketed of late, with 7x as many shares changing hands right now as had been the case on average a couple months ago. Traders should note this as important with the stock trading on a float that is very limited at just 8.99M shares. This type of thing is something to watch out for: ramping trading activity can overwhelm available supply in a stock with this type of small float, leading to an upward burst in prices.
With the September 22 news of increased financial resources, they should have the ammo to take advantage of new opportunities that may be afforded such a company as demand pushes higher.
As we noted earlier, the terms of the funding are critical: the Company issued $2.8 million of senior secured promissory notes and an aggregate of 8,400,000 warrants to purchase common stock. The notes bear interest at 12% per annum and are secured by all of the Company’s assets.
That’s a great situation if you are on the verge of an expansion in demand. Obviously, it has the potential to be a double-edged sword if the votes lean the other way in a month.
As it stands, the proceeds of this debt raise will be used primarily to fund the Company’s expansion, repayment of existing mortgages, senior secured debt, and for working capital, as well as to pay any fees and expenses associated with the placement. This is as much about managing cost of capital as it is the creation of significant new working capital resources for new acquisitions.
The CEO was quoted as saying: “The impact of replacing existing debt and this new capital is exceptional. It positions General Cannabis to continue its strategy of acquiring emerging companies in the cannabis space. With this transaction, we consider ourselves well capitalized to take advantage of the many opportunities that we see emerging in the near future.”
If there is a potential chink in the story it’s here: CANN is carrying a capital value in the market of $39.5M, but has almost no cash on the books, stacked against an appreciable load ($2.59M) of total accumulated debt.
However, CANN has seen monster top line growth over the past year, with y/y revs jumping 64% on a quarterly basis as of last 10-Q. That growth should be amplified in the forward year given the expansion of cannabis footprint on a purely legislative basis… provided we get what we are expecting on November 8.
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