They are a low cost producer of a number of high demand products and it won’t take much to increase their supply and revenues and from what I could see I think both are on their way. Management have been able to take advantage of the turmoil within the industry and prudently have purchased a number of assets on the cheap. They’ve structured deals, including their purchase of Lamplighter brands and their associated assets, with novel and beneficial terms. I think this is a key strategy that will help separate the winners from the losers in this space. In most cases, and for the time being, it looks like it is cheaper to buy than build in the cannabis space. And these guys have shown they know how to pull off a good deal when they can.

The industry is not only consolidating and right-sizing but it’s also learning what works and what doesn’t and some players like Simply look like they’ve been able to learn what’s working without blowing through millions if not billions in cash to do so. For example it makes no sense to build a cannabis grow operation, with high electricity needs, in Alberta where electricity prices are high but it sure does make sense to build processing facilities where land is cheap. Get your weed from cheaper locations like BC and process the product in Alberta, this is much more economical.

The company went public very recently through the reverse takeover of a capital pool corporation (CPC) but has been in operation for a number of years. Unlike many of the better known publicly traded cannabis companies they were now bombarded with investor capital. They’ve been mostly funded through their own personal funding and friends and family. They’ve done a few public raises but let’s just say that compared to others in the space they’ve had to stay very lean and mean as well as extremely creative in how they’ve operated.

Run by an accountant, this company is all about the numbers. Based on estimated January and February gross revenue generated, plus purchase orders received that are expected to be delivered during March, 2024, Simply Solventless projects record quarterly gross revenue during Q1 2024 of approximately $3.1-million (Q1 2023 -- $1,789,562), representing a growth rate of 73 per cent. Simply Solventless also projects Q1 2024 adjusted EBITDA of approximately $500,000 (Q1 2023 -- $318,978), a growth rate of 56 per cent, and record quarterly Q1 2024 net income of approximately $310,000 (Q1 2023 -- $44,491), a growth rate of 597 per cent. At this pace the company should show annualized profits of about $1.24 million which means the stock, which closed at $0.20 on Friday, is trading at about 8.1 times forward earnings. But that’s assuming no further growth. Simply Solventless received its Health Canada licences on June 30, 2022. In the 20 subsequent months, Simply Solventless's revenue has grown from $203,034 in Q2 2022 to a projected $3.1-million in Q1 2024, representing an increase of approximately 1,427 per cent. The company continues to grow.

The company is launching a number of new products and has applied to several new provincial markets to bring their existing products to those markets. The company had an average of 10 products in the market in 2023, currently has approximately 50 products in the market and expects to exit the year with roughly 100 different products in its current markets, Alberta and Ontario. In addition to the new products the company has applied to launch this growing pipeline of products into several other provinces.

I’d be surprised if the company doesn’t see significant growth over their current numbers. According to management, they should generate somewhere near $20 million in revenues for the next 12 months, and with a management projection of 10% profit margin, the company should earn upwards of $2 million resulting in a current forward PE of about 5 times. This looks very cheap in a market where very few are generating profit and most that are making money trade at multiples significantly higher.

Management has demonstrated their ability to grow inorganically as well. The Lamplighter acquisition should be the first of its kind and management has a healthy pipeline of additional acquisitions and partnerships that could lift their revenues.

The current financing will give the company additional buying power and allow for more production to keep up with demand. It will also allow the company to automate some procedures further improving economics. It’s not a lot of money but as the company has shown, they can make quite a bit happen with a small amount of cash.

And let’s not forget a bit of a potential windfall bonus that we might get this week. The Canadian federal government will be releasing their annual budget this week and some are expecting a change in the excise tax that cannabis companies are required to pay. The early establishment of this tax did not account for the current weakened conditions within the cannabis sector and some are expecting a significant change (drop) in the current tax structure. Some cannabis operators pay upwards of 40% excise taxes. This is a tax that is calculated on revenues before and profits and any other income taxes. Many companies are in arrears and have not been paying this tax. Others who have been paying this tax are seeing a substantial amount of their hard earned revenue submitted in tax while prices for their product have been dropping. No one was predicting this in any of their revenue forecasts. So should there be a drop in the excise tax companies like Simply Solventless stand to see a dramatic short term jump in profits as any lowering in excise tax falls straight to the bottom line. But, of course, when was the last time any government lowered taxes?

HASH.V is looking much more like a fat pitch to me as I come to understand the dynamics of the industry and the strengths of the company. Simply Solventless is a company that is profitable and growing, has significant optionality through new products and new markets.

As I said above, Trevor and I are both participating in this financing and have bought shares in the open market. I view this company as slightly above average risk but with very strong upside. The company trades well below the valuations of its peers and the sector itself is mostly out of favour with all sorts of mispricing as we witnessed with GRIN.C. While not exactly a fat pitch this one has some girth and I think anything up to and including $0.20 looks extremely appealing to me.  

To your wealth,

Paul and Trevor