Triple-Digit Revenue Growth Could Lead to Big Stock Gains
GSRX Industries (OTCQB: GSRX) Hits $11M+ Revenue Run Rate in First Year of Operations
GSRX Industries (OTCQB: GSRX) had an impressive first year of operations, hitting a revenue run rate of more than $11 million in the first quarter of 2019.
The rapidly expanding cannabis operator, which opened its first dispensaries in Puerto Rico at the end of the first quarter of 2018, generated $2.9 million in revenue in the first quarter of 2019, up a staggering 75% from the December 2018 quarter.
The company’s growing network of cannabis dispensaries (it operates six across Puerto Rico and California) has been a major driver behind its growth. GSRX has new dispensaries slated to open in both California and Puerto Rico once completed and fully licensed, as well as new Pure and Natural CBD stores scheduled to open soon in Texas and Tennessee.
“We see strong demand across all our operations and look forward to commencing nonvolatile extraction and lite manufacturing soon,” said GSRX CEO Les Ball CEO. “Our tremendous increases in revenues each quarter confirm the solid growth of our overall business operations.”
According to management’s last update, GSRX’s average daily sales for the first three weeks of the second quarter were approximately 27% higher than its average daily sales in the first quarter. Given such strong sales, management anticipates revenues of approximately $3.5 million for the second quarter 2019, the high-end of its earlier guidance, moving its annual revenue run rate to $14 million.
“It pays to be vertical”
That’s according to Curaleaf Holdings’ (OTC: CURLF) Joseph Lusardi, who made the comment at Benzinga’s Cannabis Capital Conference in January. Lusardi is CEO of one of the largest multistate operators in the space, a $2 billion giant holding licenses in 11 states, and he has played a key role in the company’s massive growth over the past two years.
While dispensaries have played a major role in GSRX’s recent growth, it represents just one segment of this growing enterprise.
GSRX management made a series of joint ventures and investments in California last year, including a majority stake in an established manufacturer of cannabinoid (CBD) products, Spirulinex.
Spirulinex has developed an all-natural, patent-pending method of suspending cannabinoids in water to create aqueous solutions, thereby eliminating the need for oils, butter, or synthetic lipids.
This proprietary method enables GSRX to develop and offer products in which cannabinoids are scientifically dosed for consistency and quality assurance.
Commenting on the deal, CEO Les Ball stated, “With our majority stake in Spirulinex, GSRX has now added a major link of the rapidly growing cannabis product supply chain to the Company’s portfolio of businesses.”
Another key link in the development of its vertically-integrated operation was announced last February, when GSRX entered a joint venture with the well-known Bay Area grow brand, Sunset Connect.
Sunset Connect produces top-shelf indoor flowers and a portfolio of branded extractions, including crumble, shatter, wax, and rosin. Its products are available in dispensaries and delivery services throughout the region.
Expanded cultivation space post-deal positions the operation well for a strong 2019.
Strong Competitive Advantages
With its deals with Spirulinex and Sunset Connect, GSRX got more than exciting operations. It also got a talented team with a wealth of experience, something not easily duplicated.
Founded by a biochemist and a master grower, Spirulinex has successfully developed the only plant-based THC and CBD suspension and powdered product in California.
Spirulinex’s head of extraction is a multiple Cannabis Cup winner and works closely with the company’s Chief Scientist in developing formulations and extractions. Together they ensure consistent dosing and ideal user experience for customers.
Commenting on the future of the industry, Curaleaf’s Lusardi said, “Bioavailability is going to become more important in order to differentiate products and effects and meet the needs of a broader consumer base.” He went on to add that precision dosing and lesser-known cannabinoids are also topics of discussion in terms of the future of the industry.
GSRX has secured the necessary licenses to begin its manufacturing operations in California, with an expected September 2019 launch date.
The company’s wholly owned subsidiary, Point Arena Manufacturing, will engage primarily in the manufacture of cannabis concentrate products related to vape cartridge filling and fulfillment, and upon the completion of planned expansion the manufacture of Dragonglass, the company’s proprietary edible THC formulation.
According to cannabis investment and market research firm Arcview, vaping accounted for 4.2% of the total legal cannabis market in 2015, capturing just $200 million in sales, yet grew to 12.9% of total legal cannabis sales in 2017 ($1.1 billion). By 2021, Arcview predicts that vape sales will surge to a total of $5.3 billion and will account for 25% of all legal cannabis sales.
CBD – A Rapidly Evolving, Multi-Billion-Dollar Opportunity
Beyond its growing operations in medical and recreational cannabis markets, GSRX is also quickly moving into the CBD market under its new Pure and Natural brand, which has generated healthy sales since its e-commerce site went live in January, and its first bricks-and-mortar location opened in Nashville in February.
As with its partnerships in California, Pure and Natural is best-in-class.
According to a deal announced earlier this year, “We made a rigorous search for a partner to supply a line of CBD products that are pure, organic, and which are worthy complements to our business,” said Cooper Ansett, Zen Stop Co-Founder. “In Pure and Natural, we found a brand that offers a broad range of pharmaceutical-grade CBD products that are manufactured to exacting standards and which provide both excellent quality and ease in dosing.”
Zen Stop is one of the fastest growing revolutionary wellness businesses. Zen Stop plans to provide a broad selection of Pure and Natural pharmaceutical-grade, certified-naturally organic, full spectrum CBD products, including capsules, tinctures/oils, salve, energy drink packets, vape pens, skin care and both dog and cat pet products. In addition, Pure and Natural will offer its patent-pending Spirulinex CBD Dragon Glass product via Zen Stop.
CBD Sales Set to Go Mainstream with Farm Bill Passage
The 2018 Farm Bill, signed into law by President Trump in late December, is expected to catapult the nascent but booming $1 billion CBD market into mainstream acceptance and multi-billion-dollars in sales.
"The passing of the Farm Bill is transformational for the industry, allowing for the national cultivation, production, distribution, and marketing of hemp-derived products in the United States," stated Hess Moallem, President and CEO of Charlotte's Web, a leader in hemp-derived CBD products.
Mile High Labs CFO Jon Hilley said, “We’re talking to big global brands now to implement CBD into their products but are underestimating how quick this market will develop."
Although consumers have been able to purchase CBD products in the 47 states where CBD sales are permitted, legality at the federal level has kept major retailers and other key players away.
But times have changed, and many in the medical community and in the public say that CBD can be helpful for certain health conditions. Most notably, it has clearly been proved to help reduce the number of seizures in people who suffer from two devastating forms of epilepsy. The FDA approved the CBD-based drug Epidiolex in mid-2018.
Now with the passing of the Farm Bill and the legalization of industrial-hemp production, experts expect the CBD market to expand rapidly.
"The passing of the farm bill will most certainly open up the marketplace for hemp products, specifically hemp extracts that are high in CBD," says Josh Hendrix, the director of domestic product business development for the cannabis company CV Science. “It will provide a higher comfort level for retailers and consumers and will lead to more investment and opportunity in the industry as it will continue to see rapid expansion."
According to cannabis industry analysts the Brightfield Group, the hemp-derived CBD market could hit $22 billion by 2022.
Low Valuations, Despite Potential
Now is the time to focus on cannabis growth and expansion in the U.S., according to Sean Stiefel, portfolio manager at Navy Capital.
“The [valuations] are way too low," he said. “Your mom, sisters, and brothers will be able to name brands by later this year."
We believe GSRX is one of the stocks that has yet to realize its fair valuation, based on both current performance and future expectations. It’s simply unknown on Wall Street right now.
With exciting deals underway, a commanding presence in the Puerto Rican market, a growing foothold in the massive California market, the beginning of a CBD segment set to take off in 2019, and an impressive track record of revenue growth, GSRX is one of the best bargains in the space at current levels.