Stone Fox Capital

About the Author Stone Fox Capital

Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: http://ibkram.com/stone-fox-capital Follow Mark on twitter: @stonefoxcapital

A New Dawn for Cannabis Stock New Age Beverages (NBEV)


New Age Beverages (NBEV) failed miserably to meet financial targets in 2018 due to capital constraints. The company ended the year by completing a major merger that offered scale, resources and infrastructure to embark on a CBD-infused beverage and health sciences brand that could push the stock to retest the previous $10 highs.

No Longer Small

With the completion of the Morinda acquisition at the end of 2018, New Age now forecasts $320 million in net revenue, 60% gross margins and $15 million in EBITDA for 2019. Not bad for a company that only generated $59 million in gross revenues last year and has a market cap of $400 million. The company is no longer small, even though, the stock remains very small.

The real story is the use of the Morinda resources and infrastructure to launch the CBD-infused beverage line under the Marley brand in the 2H of the year. In addition, New Age is already launching a line of CBD creams, oils and lotions under the ‘Nhanced brand with a goal of reaching multiple international markets by Q3.

In total, the company expects their wellness beverage business to generate $60 million in Q1 revenues. The market is likely to start taking the stock serious again when the company actually meets forecasts after the dismal numbers in early 2018.

No guarantees exist that New Age meets targets when aggressively integrating Morinda and working on global expansion of existing wellness beverage brands like Coco-Libre and Xing while launching CBD products. The company has a lot going on and now history of managing expectations.

More Capital

A big key to the story is an improved capital structure. New Age Beverages ended 2018 with $42 million in cash and thanks to a couple of recent financial transactions, the company has greatly improved access to capital while expanding in 2019.

First, the company completed a $25 million credit facility with East West Bank adding substantial capital to meet inventory needs and invest for the future. Second, the company sold a Japanese office building from the Morinda acquisition that adds another $12 million in cash to the balance sheet.

In total, New Age now has nearly $80 million in cash and credit facilities to tap now after starting last year with only $285,000 in cash. The liquidity levels are a big improvement over 2018 levels where the company estimated a $12 to $14 million revenue hit due to lack of capital for inventory to meet distributor and retail demand.

Takeaway

The key investor takeaway is that the stock trades at the recent lows near $5 as the market has rightfully lost confidence in New Age management. As the company starts reporting sales for CBD product lines whether infused beverages or skincare, the stock is likely to respond positively similar to most stocks in the related cannabis sector.

In fact, the company only meeting financial targets that don’t include any material CBD sales would lift the stock. The management team would obtain far more credibility for the hype related to CBD products by delivering on the $60 million Q1 revenue target and maintaining the $320 million goal for 2019. The company has entered a new dawn.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

 

Disclosure: The author has no position in NBEV. The information contained herein is for informational purposes only.

 

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