The cannabis market could be gradually warming up to “election fever” mode, with November 3 now just about 15 weeks away. The polls are skewing heavily in favor of the democratic challenger at this point, with Joe Biden recently jumping out to an unprecedented lead over an incumbent in modern election history as President Trump suffers from a series of setbacks.
While we know we need to be careful with polling numbers, even with a historic error margin figured in, something relatively dramatic would have to happen in Trump’s favor to turn this around. That suggests investment markets are likely already starting to price in Uncle Joe’s policy agenda. You can certainly see it in solar energy stocks, for example. Other themes will likely start to follow, with cannabis certainly on that list.
The Biden-Sanders “unity task force” put together a lengthy document of policy recommendations across a wide array of issues. Among the issues that the task force considered was recreational cannabis legalization, calling for the decriminalization of marijuana using executive action. The task force also expressed support for the federal legalization of medical marijuana.
Given that betting sites such as Predictit.org also show a massive skew toward the Dems taking over control of the Senate in a “blue wave” cycle, the items in the task force doc could be basically as good as law.
Since there are also a number of states voting to legalize, we may be just about 15 weeks away from a giant party for the cannabis stock sector.
For investors in search of interesting ideas to take advantage, we would suggest having a good look at Sugarmade Inc (OTCMKTS:SGMD), a cannabis player that operates now mostly through its controlling stake in BudCars, a leading California cannabis delivery company that operates on a traditional retail model with consistent 45-50% gross margins on cannabis inventory.
Sugarmade’s BudCars operates mostly in Northern California but has announced that it will be opening a new hub in the LA area soon as well.
Sugarmade Inc (OTCMKTS:SGMD) just issued a mid-month performance update for the month of July, which is now on pace to set multiple new company performance records for sales, gross profits, and total customer orders.
According to the company’s release, as of July 14, SGMD was on pace to meet or exceed its target of $650,000 in total sales in July, with well over 5,000 individual customer orders likely this month, suggesting that sequential month-over-month topline growth will be at or above the company’s target 30% level.
“Our BudCars Sacramento hub continues to demonstrate accelerating growth that suggests we still haven’t really found the ceiling here in terms of period-over-period upside potential,” commented Jimmy Chan, CEO of Sugarmade. “Ultimately, this is gratifying to see because we have taken a unique approach to retail cannabis product distribution.”
That kind of growth is unusual even in the rapid boom context of the pot space. SGMD has been ramping sales at a remarkable pace since taking full control of BudCars in late February. Given its wide-open margins on sales, the only reasonable step for the company is to expand.
The company also noted in its most recent update that the pace of sales so far seen in July, when used as a point of extrapolation including June and May performance, puts it on pace to reach the $11 million benchmark for annualized sales by the close of calendar Q3, as recently outlined in the Company’s updated guidance materials. That guidance was on pace for as much as $25-30 million in annualized sales by year end.
This is a small company, but it is growing much faster than the vast majority of its peers. It’s model is more resistant to the pandemic as well because people don’t want to go hang out in a dispensary when they can just order cannabis products delivered to their door.
This is also not a stagnant story in terms of strategic vision. The model is working extremely well. And we noted that geographic expansion is likely to be the next step to compound that growth. But the company also has a plan to push more cash to the bottom line.
According to its mid-month update, as organic growth through execution continues to drive strong BudCars performance, the Company also continues to make progress toward the launch of new locations, including a BudCars presence in the Los Angeles regional market, as well its verticalization initiative, which includes the incorporation of in-house cultivation and cannabis product manufacturing over time.
Chan added, “We are pursuing three primary avenues to drive growth: organic execution, geographic expansion, and verticalization of our supply chain. In each case, we continue to make progress. However, at this point, we have only scratched the surface of what is possible over the intermediate term for BudCars given that all of the growth we have booked so far has been exclusively about organic execution as we claim an increasing share of the market and drive enthusiastic repeat business from newly acquired customers.”
That’s a bold message for the market. “We have only scratched the surface of what is possible…”
In other words, the performance we see in place now may be very easy to surpass from here into year-end. If that also coincides with general sector-level excitement as the world re-embraces pot stocks into the election, then the company’s shareholders may really enjoy the ride.
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