The action in the cannabis space appears to be heating up right now, and one play that could start to get increasing attention given its sudden explosion on the cannabis delivery scene is Sugarmade Inc (OTCMKTS:SGMD).
The growth in the delivery space for cannabis has been a revelation in recent months, with the COVID-19 pandemic accelerating an already well-established trend. Analysts now project cannabis delivery to top $10 billion in sales, making it perhaps the fastest growing sub-sector in this ramping overall theme.
SGMD popped onto the delivery radar through its acquisition of a controlling stake in BudCars, the leading Sacramento-based cannabis delivery service. BudCars just announced it is getting ready to open multiple hubs in the Los Angeles market, which is the biggest single municipal market for cannabis sales on the planet, so SGMD shareholders may be lined up for a windfall as operations ramp up in LA. According to the company, the expansion will add a “conservative” $40 million on the top line on an annualized basis.
This is further boosted by recent news that Los Angeles County is planning on extending its “Stay-at-Home” protocol through the month of July in response to the COVID-19 pandemic tragedy. As should be clear, the protocol grants a huge advantage for delivery plays because of the lack of access to in-store dispensaries. SGMD management recently stated that it will be up and running in LA in July.
.
Tailwinds
Sugarmade Inc (OTCMKTS:SGMD) casts itself as a product and branding marketing company investing in operations and technologies with disruptive potential. The company’s portfolio includes CarryOutsupplies.com, SugarRush™ and Budcars.com.
As noted, its primary locations in the Sacramento area have been experiencing dramatic growth, with revenues consistently increasing 10% week-over-week, driven by exploding demand for contactless delivery of cannabis products due to the coronavirus lockdown. The company now expects to surpass $30 million in annualized revenues at these locations.
“Our Sacramento locations will pass the $10 million mark for annualized sales within the next 60-90 days,” stated Jimmy Chan, CEO of Sugarmade. “The growth has been so dramatic that we have had to drastically revise our expectations to the upside, which demands expansion, both in terms of staff and fleet in Sacramento, and in terms of regional expansion into Southern California. As a result, we are acquiring two distribution hub locations in the LA area with cannabis licenses included so we can hit the ground running.”
That forms the context. But even ahead of the LA expansion, SGMD is seeing massive growth from BudCars on an organic basis. To wit: the company just announced record growth data during the month of April, with sales growing 58% on a sequential monthly basis over March sales on an average daily volume basis. In addition, data for the month of May already show a strong continuation of that trend, with May sales on pace to add another 16% over and above the strong breakout sales trend seen in April.
“We did about $6,000 per day in sales in March and over $9,500 per day in April, representing a very robust growth trend at our Sacramento hub,” notes Chan. “May is already off and running at better than $11,000 per day, demonstrating continued dramatic growth. And investors should also note that this $11,000 per day figure represents activity in only one area. With our LA hub set to come online at the start of summer, and with the unprecedented stay-at-home extension in that region, we believe our daily sales in the LA area could triple that figure relatively quickly.”
.
Twin Turbo Action
We highlight this stock right now for two reasons.
First off, the macro context for the California scene is on fire. In the company latest release, management notes that the California cannabis market is beginning to run into widespread shortages as demand surges over recent weeks. That’s either good or bad, depending on circumstances. But it highlights the demand in play right now for those able to capitalize.
Second, SGMD is one of those able to benefit: “The Company wishes to assure shareholders that it has extremely strong supplier relationships and sees low risk of any issues in securing forward product inventories. Furthermore, as the Company’s competitors run into potential issues in securing their own inventory for distribution, management believes BudCars will likely see market share gains, providing another potential driver for near-term sales growth.”
In other words, consumers will take what they can get. And only some of the players in this game are able to keep the weed flowing. SGMD has built a stable and reliable network of relationships that assures its ability to deliver ramping market share – and thus, ramping sales growth – for its shareholders as excess demand spills over.
