Rally On, Traders!
This is a great moment to review the greatest hits of the year and see how well they can navigate what looks like rocky currents for 2019 and beyond. We've got to start that process with CLS Holdings (CLSH), the tiny green stock that delivered the NEWS to cover the map and get the job done.
Hard to believe now, but traders could still get a taste of CLSH for under $0.40 as recently as February. Even after the last couple of wild months, those early birds are still looking at triple digits on the right swing . . . the days of $0.40 look like a distant memory now and the long trend keeps pointing UP.
It's not hard to see why. CLSH did a lot of heavy lifting this year. They started with a light presence in a couple of green states, getting the commercial wheels turning. As the map expanded, they grew with it.
Nevada was the turning point. Las Vegas is a huge market because of all those tourists coming in looking for every legal thrill the state provides. CLSH is on the ground there doing a reported $850,000 revenue in a good month. As far as they can see, the math scales to allow a base of $20,000 a DAY.
On that basis, we’re looking at a run rate north of $7 million a year. We can’t really forecast a growth rate for the state yet, but even that’s only 1.6% of the $420 million Nevada opportunity as it stands right now.
What does a smart company do in that situation? Grow as fast as it can. Deep pocket investors allocated close to $6 million with CLSH last month to help accelerate the expansion path. Classic private placement, venture capital style criteria. The fund took a deep look at the business plan and apparently loved it.
If you're wondering, those investors are extremely choosy. Not even 30 applicants have ever made the cut. Here's what they look for in a new portfolio company:
* You've got to prove to them that you can gain market share over time in your respective vertical.
* They want businesses that have recurring revenue.
* And they want management teams that have a large share of their net worth in the company and are deeply passionate about their culture and customers are the most attractive to it.
That doesn't sound like a bad list of criteria for anyone, does it? CLSH made the cut. Now they're using the cash to keep growing the business in Nevada and beyond.
As the CEO put it recently, they need to TRIPLE production just to meet existing demand. Monthly turnover in the state already reached $40 million . . . and it's still ramping up as fast as the party people can leave the airport and call their Uber.
That's the market CLSH has just opened up. Right here at home. They're ambitious. They think they can TRIPLE production by the end of the year and move that product into the store.
Those Production plans suggest at least a 3x revenue ramp, not counting any of the steps along the way. That's just the BASE.
The store can do $38,000 a DAY when Vegas is really humming. Last I heard the company's 22,000 square-foot warehouse had room for vast expansion. All local, all domestic. Subject to Nevada law.
They have a reason to be confident. Floor traffic in the store is tracking 400 people a day, each buying above $50 on average. What they're buying runs the gamut: oil concentrates, vape pens, tinctures, you name it.
A lot of that product is branded and proprietary. CLSH is already a distributor here, selling "City Trees" in 20 stores from Vegas to Reno. Proprietary is usually a good thing for margins. We like that!
And it's still early stages. The goal appears to be vertical domination. CLSH grows the plant. It processes the raw material into value-added oils, extracts and so on. It distributes the material to stores. Now it's active on the store side as well, closing the "last mile" from back to front.
It isn't abstract or even especially esoteric. There's no jargon here or weird technology to get your head around, just a market that didn't even exist a year ago and now CLSH is a player.
At every step along the way, CLSH gets its "ticket" punched.Add up the steps and there's real money to capture here. Of course a lot of guys smell that money but this company is on the ground with the resources (expertise, commitment, connections, CASH) to roll up market share before the me-too players confuse the situation.
And that's just Nevada. CLSH is going EAST now as the map over there opens up. They've just closed another $12 million in convertible debt to make that happen. Note the terms of that deal closely: management is tired of letting other investors reduce their stake in the company they're building.
They're happy to borrow but these aren't straight equity deals any more. Management wants to protect THEIR skin in the game and other shareholders. Of course the debt can convert if the lenders push the button, but that fun doesn't even start until they see CLSH trading well above $0.80 for an extended period of time. Then the warrants kick in at $1.10.
People lined up $12 million for a piece of that deal. They're confident that it's going to be "interesting." And of course management is confident that they'd rather borrow than hand over one more share of their company at this price.
Because Massachusetts is big. Bigger population than Nevada or even Rocky Mountain High itself. Getting into the state via a dispensary and 80% of a grow facility changes the game. There's a lot of students in Boston, Cambridge, Worcester,
Amherst, etc. etc. etc. Do the math.
And beyond that, guess what? CLSH just applied last week to list up in Canada, the heart of the green revolution. They know where the heat is in this industry. Big money players can interact with the stock more closely once it trades in Toronto as well as down here.
Maybe management is thinking about acquisition offers down the road. After all, one of the top vertically integrated players in Nevada would make quite a prize for the right strategic investor looking for turn-the-key exposure to the burgeoning U.S. market.
The other states are the sauce. As CLSH covers the map, the opportunity deepens. For all we know, the opportunity will swing the other way once that Toronto listing goes live: top ambition and retail expertise coming to the Canadian recreational market, which is open-ended but bare bones right now.
We bring them the sizzle, they deliver the buzz. But either way, if it's been a cold couple of months for you in the market, take a fresh look at CLSH and see if it lights your fuse.
Compare it to what else you've seen. Other stocks have at best gone in a zero-sum circle this year. CLSH is well ahead of the game. Hard work, hot theme. And the best has yet to come.
Happy, Happy, Happy Trading!
