In a cannabis and CBD sector full of global growth opportunities, investors just don’t need to own New Age Beverages (NBEV). The company has a history of announcing big new ventures that don’t generate the forecasted sales and now the company has aggressive research questioning their Chinese business.
Grizzly Research
According to a report by Grizzly Research, New Age Beverages bought Morinda in order to hide weak operations in the U.S. The company only paid about $85 million to grab this large business in China.
According to Chinese SAIC filings Grizzly Research uncovered, pegged revenues far lower than what New Age Beverage presented in SEC filings. At the time of the merger, New Age presented the Morinda business as generating $300 million in net revenues for the trailing 12 months.
The business was even EBITDA positive to the tune of $20 million and had an incredible $40 million in cash and working capital. The big red flag was how New Age could purchase such a large and profitable business for only $85 million.
The business was so great that the beverage company could utilize the global distribution of the MLM business to distribute their growing list of health and wellness products. The potential to sell new CBD products added fuel to the bull thesis.
The research report even details how the Chinese business is operating illegally in up to six provinces. The Chinese regulators have recently cracked down on MLM businesses so the discount for purchasing Morinda was supposedly due to this risk.
Big CBD Announcements
The possibly bigger issue with New Age Beverage is the inability to hit financial projections and hype surrounding their new age health and wellness beverages and CBD products. The company had people excited about a large distribution deal with Walmart and Hudson News, yet all of the new hype is around the launch of the CBD portfolio in Hong Kong.
If one had followed the previous beverage deals, the investor perception was that New Age Beverage might not have the resources to meet demand. Now, the company is working on multiple fronts with CBD products including an expanded deal with Marley to expand drinks infused with CBD to new global markets.
Again, the company hasn’t even hit targets in current markets after missing Q1 revenue targets by over $3 million to even bother with expansion to Japan, Mexico, Hungary and Uruguay. Why even enter small markets like Hungary and Uruguay with so many irons in the fire already that the management promoted as having substantial opportunities.
Takeaway
Grizzly Research set a $2.00 price target on the stock, but the stock shook off this short report to close near $4.65 for the week. Despite some compelling evidence of shaky business deals and the complete lack of hitting financial targets, some investors are likely to buy into the hype and blow off the report as a short attack. Also don’t forget that Grizzly Research likely got clients short the stock before releasing the report.
The best way for small investors is to not play a volatile, high-risk stock like this. The company hypes the business far too much and constantly fails to meet targets. The research report just adds fuel to the fire on why New Age Beverages isn’t a good stock to own.
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Disclosure: No position.
