24 November 2024

Howe Street Reporter Title

Vext Science (VEXT.C) enters California market and records a COVID-19 era loss of only $1 million


If you stop and think about it, the fact that Vext Science (VEXT.C) only lost USD$1 million in Q1 of 2020 is fantastic. Today’s news, of their joint operation with Green Goblin Inc. of San Diego, California, for extraction, distillation and kitchen operations today is only of moderate importance.

Granted, it’s the next natural step in Vext’s bid for full vertical integration, having gone from merely a provider of cannabis accessories, and now through selective acquisition’s they’ve grown their business model to include a dispensary brand, and a full line of THC and CBD cartridges, concentrates and edibles, and represents a leap into the California market, so maybe it shouldn’t be discounted.

“Entering the California market is a significant opportunity for VEXT and the Vapen brand. California is a large but extremely competitive market for THC products. Our joint venture partnership with Green Goblin provides us with an established platform to successfully launch the Vapen brand while minimizing our capital costs. Minimizing risk while increasing shareholder value is the cornerstone of our expansion strategy. Our partnership strategy allows VEXT to enter new markets with lower costs by lowering our customer acquisition costs and working capital requirements for operations,” said Eric Offenberger, CEO of Vext Science.

Alright. Maybe California is a big deal, but let’s get back to Vext’s numbers.

The company reported a USD$1 million loss for the first quarter, mostly owing to COVID-19, which put a crimp in their supply chain specifically where China was involved. As a result, Vext’s revenues were $4.1 million, down from $6.5 million in the Q1 from 2019. Comparatively, the company’s operating expenses were $2.3 million, compared to the $1 million from last year, and mostly due to several one-time and non-cash expenses and other expenses related to being a public company that carried over from the same period from last year.

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These numbers are surprisingly good. This year has brought the cannabis bubble fallout and the economic whirlwind of COVID-19, and this company only claims a $1 million loss. That suggests that this company has either benefited from strong leadership, or some lucky bounces. Maybe both. Consider that ten months ago this company was recording profits right around the time when the ass fell off of cannabis and it leans towards strong leadership. Since then they’ve added verticals, including the Herbal Wellness Center dispensary, expanded their geographic range and changed their name.

“COVID-19-related delays on goods imported from China, including cartridges and packaging, limited sales to HWC in the first quarter. Shipments from China have resumed, and with HWC inventory levels replenished, we anticipate revenue to recover in the second quarter. Helped by increasing HWC sales, a second medical marijuana dispensary in Arizona, our multistate joint ventures and investments coming on-line, we anticipate returning to year-over-year revenue growth for the remainder of 2020,” according to Offenberger.

When adding new verticals there are generally always some logistical wrinkles that need to be ironed out, but in this case—not so much. Their supply chain kinks have been straightened and if that’s the principle problem keeping them returning from excelling then one has to wonder where they would be today if it weren’t for COVID-19. The next natural extension from that is wondering where they’ll be in the future after all the complications posited by 2020 are over, especially now that they’ve arrived in California.

And why not? Industry analysts forecast recreational cannabis sales in California to rise from over $3 billion in 2019 to over $6.5 million by 2025. The state has opened up its arms (and coffers) to cannabis, and is expected to grow again in 2020 with what they estimate is 300 new retail locations and over 5,400 licensed farmers to ensure adequate supply. Meanwhile, municipalities are removing moratoriums prohibiting recreational cannabis sales as the fear of missing out crowd overtakes the not in my backyard attitude, and the result is more revenue and more opportunities for companies like Vext to do what they do best.

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—Joseph Morton

Full disclosure: Vext Science is an equity guru marketing client.

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