1933 Industries Soldiers On Despite Nevada's Lack Of Tourists

Last week 1933 Industries Inc. (CSE: TGIF)(OTCQX: TGIFF) reported its first-quarter financial results for the period ended October 31, 2020, in Canadian dollars. Total revenues were $2.7 million, a 13% increase from the previous quarter. The company said that the increase was attributed to its launch of cannabis flower and pre-rolls in the Nevada market. The net loss was $2.8 million or $0.01 per share for the quarter. This was a 61% improvement from a $7.2 million loss in the fourth quarter.

Company President Mr. Eugene Ruiz said, “During the first quarter of 2021, tremendous progress was made. That progress has continued into the second quarter 2021, with our operating business units achieving profitability for the month of November 2020. We continue to believe we are on the path to achieving Company-wide profitability by the end of the second quarter of 2021. We remain vigilant and cognizant of the challenges posed by COVID-19 on tourism in our state while remaining confident that the rebound of strong local cannabis sales experienced since the pandemic will provide for sustainable revenue growth.”

The company said that despite the drop in tourism in Nevada, demand for craft cannabis flower remains strong and that the company’s new saleable flower and cannabis products have sold out after each harvest. Gross margin was $729,000 or 27%, compared to $63,000 or 3% during Q4 2020. The increase in gross margin from the prior quarter is due to the company’s enhanced ability to produce saleable flower and biomass from its cultivation facility.

Cutting Costs

1933 was able to cut expenses in the quarter to $1.2 million versus $2.0 million in the fourth quarter and $2.3 million during Q1 2020. This change over the prior quarter represents the managements’ commitment to making strategic reductions to streamline operations with the overarching goal of reaching profitability in the near future. Expenses were $3.5 million for Q1 2021, a 35% decrease from $5.4 million in Q4 2020, and a 40% decrease from $5.9 million for Q1 2020. The company said it reduced expenses in all areas, including management and consulting fees, wages, and benefits.

Analyst Expectations

In July, Canaccord Genuity analyst Bobby Burleson downgraded the stock saying, “While we view cost-cutting and recent management changes positively, COVID’s impact on Las Vegas tourism poses a significant medium-term risk to TGIF revenues, in our view. Given modest cash levels relative to burn rate, we are downgrading shares to HOLD from Spec Buy as we monitor the pace of tourism recovery. Our estimates are reduced following the FQ3 shortfall, and our price target is lowered to C$0.10, a roughly 12.5x multiple of 2021E EBITDA.”

He went on to say, “Despite the reduced demand for TGIF products, the company’s cultivation facilities have continued to operate at full capacity with its recently expanded cultivation facility. In March, the company completed a second harvest at its new Nevada cannabis cultivation facility, and we believe TGIF will have ample capacity to meet a return to strong demand
levels as the market normalizes. We continue to expect the new cultivation facility to serve as a driver of both top-line growth and margin expansion as TGIF becomes less reliant on third-party suppliers of product.”

 

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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