Citation
Growth Corp. (OTCQX:
CGOTF) Weathering the Cannabis Downturn
Citation Growth
Corp. (OTCQX:
CGOTF)
Report released on EmergingGrowth.com
https://emerginggrowth.com/weathering-the-cannabis-downturn-with-a-revenue-growing-multi-state-operator/
CGOTF is an MSO – Has operations in more than one state
CGOTF turned gross profit in most recent quarter
Expected to yield $200 million in sales
Miami,
FL--(InvestorsHub NewsWire – December 9, 2019) –
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. (OTCQX:
CGOTF).
This could be the
biggest play in the Cannabis space. See the full story
on
http://www.EmergingGrowth.com
CGOTF
may not be at these levels much longer.
See the Press
Release and more on Citation Growth Corp. (OTCQX: CGOTF) at EmergingGrowth.com
https://emerginggrowth.com/?s=CGOTF
Citation Growth
Corp. (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 Corp. (OTCQX:
CGOTF). 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.
Financial
Analysis
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.
Summary
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 Corp. (OTCQX:
CGOTF) 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 Corp. (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?
CGOTF
may not be at these levels much longer.
See the Press
Release and more on Citation Growth Corp. (OTCQX: CGOTF) at EmergingGrowth.com
https://emerginggrowth.com/?s=CGOTF
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