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Ventura Cannabis and Wellness is proving its acquisitive business model works in the US cannabis sector

Snapshot

The company is proving it can acquire brands and execute a quick business turnaround

Ventura Cannabis and Wellness -

Quick facts: Ventura Cannabis and Wellness

Price: 0.06 CAD

CSE:VCAN
Market: CSE
Market Cap: $2.22 m
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  • Vertically integrated cannabis company with a unique, revenue-generating business model
  • Deep pipeline of acquisition targets and a proven model
  • Strong sales from in-house cannabis brand forecast to bring in millions of dollars in potential annual revenue

What Ventura Cannabis and Wellness does:

Ventura Cannabis and Wellness Corp (CSE:VCAN) is a vertically integrated, California-focused cannabis company currently building its distribution channels via revenue sharing agreements with dispensaries.

Based in Los Angeles, the company has ambitious plans to market its products to significant yet overlooked consumer segments: senior citizens, upwardly mobile middle-aged professionals, and individuals suffering from addiction.

Ventura is hoping to address the market with a line of cannabis products from CannaSun, a revenue-generating company that currently sells vapes and oils locally in Los Angeles.

Launched in November 2018, CannaSun is projected to pull in US$750,000 in total annual revenue just from its first-generation products sold in a small area of Los Angeles. At full capacity, Ventura estimates CannaSun will generate US$12 million in total annual revenue.

Currently, Ventura’s strategy is to focus solely on the California market, where it plans to establish a network of dispensaries with owner-operators. In doing that, Ventura plans to acquire dispensaries under a revenue share guarantee structure, allowing it to take a percentage of gross revenue and give the owner-operator the ability to operate its business independently.

The company projects a 12 to 18-month payback for cash invested into dispensary acquisitions through three different payment streams.

In the first stream, Ventura will have a fixed amount of at least 10% of revenue from each dispensary. Following the acquisition, Ventura will take premium shelf space to sell CannaSun products at an estimated 45% margin. Finally, once CannaSun is established, products are expected to increase cash return to Ventura via other local dispensaries.

How is it doing:

Ventura has a solid team that boasts years of experience in the full supply chain of cannabis, from seed to sale, with a proven track record for three consecutive quarters.

According to its most recent financials, released at the end of January this year, for its third quarter ended November 30 2019, Ventura had revenue of US$501,000, compared to $402,000 in the second quarter, a 24% increase.

In the first quarter of 2019, the company had hauled in just $92,000 in revenue. Annualized, the company saw an organic growth rate of 96%.

Gross margins for Ventura's cannabis operations were 34%, while cash remained roughly neutral quarter-over-quarter as the company continued to await regulatory approvals for new assets.

Total assets grew to US$19,182,000 as accounts payable decreased by $500,000 between the second quarter and third quarter of the year.

In April this year, Ventura secured a manufacturing and distribution location in Santa Rosa, California and received regulatory approvals from the state government. It's THC vaping product will be available for sale in the state as early as June.

Inflection points:

  • Finalize ownership of assets that provide licenses to manufacture, distribute and sell branded products in California and Oregon, focusing on post-acquisition revenue growth and generating positive cash flow
  • Divestments from the addiction business units working to reduce liabilities and better understand and deal with potential contingent liabilities
  • Launch of THC vaping product

What the boss says:

In a statement to kick off 2020, Ventura's CEO Chris Heath told investors: “We are seeing pretty good organic revenue growth rates post-acquisition. My hope is now with three successful quarters under our belt, and with no debt, market participants will be persuaded to become shareholders in our fast-growing company and we can finally set ourselves apart from the many listed cannabis companies in distress. Our strength, I believe, is now proven."

Contact Angela at [email protected]

Follow her on Twitter @AHarmantas

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