urban-gro Archives - Green Market Report

Debra BorchardtFebruary 13, 2023


The author of a year-end letter to cannabis investors expects smaller cannabis companies to have an easier path than multistate operators going forward.

The letter came from the Bengal Catalyst Fund run by Bengal Capital, which outperformed the cannabis ETF MSOS by more than 2,100 basis points in 2022 and 2,500 basis points since inception – confirming its bona fide to comment on the industry.

Bengal questions the long-term performance of the large MSOs, noting, “Large MSOs often did not become large by being great cannabis growers, processors, and/or sellers, but instead good raisers of money and license applicants – which made sense for early cannabis.”

The authors said that the cost for these MSOs to package and distribute cannabis is more than $1,000 per pound, while smaller, more efficient operators can do the same for $500 a pound. The letter also points out that when faced with strategic decisions, MSOs tended to opt for the immediacy of more production and more sales versus trying to cut costs.

That strategy worked while prices stayed high in emerging market states, especially since MSOs tended to have that early market advantage. However, these markets have matured and many have expanded their licenses adding to more competition. Add falling prices to that equation, and the advantage evaporates.

Mistakes Made

“Many MSOs were not built to turn a profit when pricing becomes even mildly competitive, and the problem has only been exacerbated with their balance sheet choices,” Bengal Capital wrote.

The report highlighted the decision to use REIT financing, where companies sell real estate assets and then agree to lease the property back with rapidly rising rents. One example in the report explains that if a company borrowed $50 million from Innovative Industrial Properties (NYSE: IIPR) at 15% interest, it would need a profit of $7.5 million to pay back IIPR – and that’s before rent payments. This was easy in the salad days, but as the prices fall and the rent rises, watch out.

The report goes on to suggest that these large cultivation facilities built by MSOs don’t necessarily result in lower costs and that quality is harder to control in a large facility.

Bengal Capital also questioned how the large MSOs have spent money on acquisitions. It pointed to Curaleaf (OTC: CURLF) likely having spent $100 million on its West Coast businesses only to shut them all down. The company was essentially spending $2 for every $1 dollar that was coming in and suggesting that was just how the market dynamics were working.

At the same time, Bengal Capital points out that Grown Rogue in Oregon doesn’t seem to be facing the same problems Curaleaf cites.

“We see investors running for the door and large MSOs running into significant business issues. We see unloved, high-quality cannabis companies that are grinding away almost completely ignored,” Bengal wrote.

Small Cap Focus

The company points to the beer industry as a comparison. Craft beer accounts for only 13% of industry volume, but it makes up 26% of the revenue. The letter made it clear that these aren’t stock recommendations and calls the group its “Scrappy Operator Club.” They include:

  • Grown Rogue (OTC: GRUSF), craft cannabis in Oregon
  • Urban-Gro Inc. (Nasdaq: UGRO), cannabis facility operator
  • XS Financial (OTC: XSLF), cannabis specialty finance focused on equipment leasing
  • Body & Mind (OTC: BMMJ) cannabis operations in Arkansas, California, Nevada, and Ohio.

Bengal disclosed that it put together a special purpose vehicle investment of $3 million convertible debt in Body & Mind, with just over $1 million from a side pocket of the fund.

Bengal said that it once believed in the large MSO story. The company now believes it will see better returns by focusing on high-quality, smaller, and overlooked companies. While some MSOs will do well, Bengal thinks it will be harder to reliably predict their performance.

Adam JacksonJanuary 9, 2023


The Colorado-based food and cannabis grower urban-gro, Inc. (Nasdaq: UGRO) on Monday reported a record backlog entering its 2023 fiscal year and reaffirmed its financial guidance for the fourth quarter of 2022.

The company expects to enter 2023 with record consolidated backlog of around $87 million, a sequential increase of approximately $20 million from the third quarter of 2022’s announcement of $67 million in the backlog.

”We have demonstrated through our record backlog entering 2023 and reaffirmed fourth quarter 2022 financial guidance that we can continue to deliver growth in the face of broader market headwinds due to our integrated solutions and sector diversification efforts,” CEO and chairman Bradley Nattrass said in a statement.

The news comes nearly a fiscal quarter after the company posted a 32% year-over-year drop in revenue and a net loss of $8.7 million for the third quarter, which Nattrass at the time blamed on “headwinds within the cannabis sector.”

Urban-gro has attributed the revenue decline to “a decrease in cultivation equipment systems revenue…primarily reflecting significantly reduced equipment demand in the U.S. cannabis market as a result of ongoing state-level regulatory delays in the license-awarding process.”

The company is reaffirming its expectation for fourth quarter 2022 guidance, with revenue of approximately $17 million and an adjusted EBITDA loss of around $1.5 million. This would be a sequential increase over the third quarter’s revenue of $12.4 million.

“As we move into 2023, our team is aligned and laser-focused on scaling the company to service the increased demand that is evidenced by the signed contracts present in our record backlog,” Nattrass added. “We are experiencing continued momentum in our commercial design-build and services businesses.”

Ancillary cannabis businesses on the cultivation side have been particularly hit hard as oversupply has caused many producers to scale back on large operations. Still, more markets are opening up as the U.S. northeast adult-use markets have begun launching.

Debra BorchardtOctober 14, 2022


As the hydroponics industry has contracted, urban-gro, Inc. (Nasdaq: UGRO) has found other ways to grow. After the market closed on Thursday,  urban-gro announced it signed a binding letter of intent (LOI) to acquire Texas-based engineering firm Dawson Van Orden, Inc. (DVO) in a deal valued at $7.25 million. The accretive deal is expected to close in the fourth quarter of 2022. DVO generated approximately $5.5 million of revenue and greater than 20% EBITDA in the trailing twelve-month period that ended September 30, 2022.

DVO is said to have significant experience in  Controlled Environment Agriculture or CEA. Urban-gro also described DVO as having mechanical, electrical, and plumbing engineering services. In addition, the company will add fire protection engineering expertise and further urban-gro’s industrial architecture capabilities. Urban-gro said the enhancement of these offerings is expected to create new opportunities, as well as build upon DVO’s existing contracts and clients in the indoor CEA and industrial sectors.

“The addition of DVO represents an extraordinary opportunity to add depth and breadth of indoor CEA engineering expertise to our professional services offering,” said CEO Bradley Nattrass. “While this accretive and synergistic transaction increases our professional services revenues and margins along with future opportunities to leverage their existing clients, it also immediately adds a deep bench of talent and an engineering leadership structure to scale and meet the rising demand for our turnkey design build solutions. Furthermore, I’m excited about the opportunity to continue strengthening our presence in Texas, as we expect the state to be an influential future business opportunity as Cannabis legalization is considered.”

Urban-gro said it will fund the $7.25 million transaction, which includes a contingent consideration of up to $1.1 million paid in cash or equity at the company’s discretion, through a combination of $1.3 million in cash, a seller’s note of $3.8 million paid out over four quarters, and $1.1 million of UGRO common stock at a pre-set price of $4 per share.

Emerald Acquisition

The DVO acquisition follows the acquisition of Emerald Construction Management in the second quarter. That deal positioned urban-gro for a full turnkey design-build solution where the company provides a single point of responsibility, and manages architecture, engineering, cultivation design, construction, as well as equipment procurement and integration.  urban-gro’s leading, in-house professional services team provides design-build solutions for cultivation facilities, retail dispensaries, and various building types within the industrial and healthcare sectors.

The company said in a statement earlier this week that the incremental design-build contracts represent more than $50 million of signed projects in the third quarter and are from a diverse set of clients including cannabis CEA clients, as well as leading global consumer packaged goods enterprises.  Design-build contracts are typically recognized over a timeline of 6 to 24 months and are separate from any associated professional services or equipment system orders.

Nattrass said, “Client interest and engagement in our turnkey design-build capabilities have continued to progress as expected, and these new contracts demonstrate tangible value for urban-gro and our clients. While we are reiterating our third quarter guidance, the momentum we have established entering the fourth quarter gives me great confidence that the investments we are making in the business are positioning urban-gro for sustainable and consistent global growth over the long-term.”

StaffMay 10, 2022


Urban-gro (Nasdaq: UGRO) reported first-quarter financial results with revenue rising to $21.1 million versus $12.0 million in the prior-year period, representing an increase of $9.1 million, or 76%. This beat the Yahoo Finance average analyst estimate for revenue of $19 million.

Urban-gro attributed the growth to an increase in the specification, procurement, and integration of cultivation equipment tied to the growth of new and existing project contracts, as well as $3.4 million of incremental services revenue from acquisitions. Organic revenue growth was 48%, excluding the contribution from the 2WR+ acquisition.

The net loss was $(0.7) million, or $(0.07) per share, in the first quarter of 2022, as compared to a net loss of $(1.6) million, or a net loss per share of $(0.20), in the prior year period, representing an improvement of $0.9 million, or $0.13 per share. However, the earnings did miss the estimate for $(0.05).

Bradley Nattrass, Chairman, and CEO, said, “We are off to a strong start in 2022, reflected by our record first-quarter results, which continues to demonstrate our ability to drive unparalleled value for our clients through our full suite of in-house service offerings. We grew our revenue 75% on a year-over-year basis and continued to deliver positive Adjusted EBITDA while simultaneously making key investments that are geared toward driving long-term growth and enhancing shareholder value.”

Looking Ahead

As of March 31, 2022, the total backlog was $22 million, comprised of an equipment backlog of $16 million and a services backlog of $6 million. Urban-gro affirmed its 2022 revenue guidance of greater than $110 million and Adjusted EBITDA guidance of greater than $5.0 million, including partial year contribution from the acquisition of Emerald C.M. Inc.

Mr. Nattrass added, “I am very excited about the addition of construction management services to our platform following the Emerald C.M. acquisition. This completes our vision to create a turnkey design-build company with a full suite of capabilities and the requisite depth in indoor CEA expertise to drive value for our clients throughout the project lifecycle. Furthermore, while Emerald C.M. bolsters our project pipeline, our robust set of capabilities creates opportunities for diversification both in terms of revenue streams and industries beyond CEA. urban-gro is a formidable force with a focused strategy to deliver our value-added design, engineering, procurement, and construction management services through offering a bespoke design-build client solutions with a single point of responsibility.”

Debra BorchardtMarch 29, 2022


Urban-gro, Inc. (Nasdaq: UGRO) reported its fourth-quarter and full-year financial results, plus the company provided full-year 2022 guidance. Revenue was $19.0 million in the fourth quarter of 2021 versus $9.2 million in the prior-year period, representing an increase of $9.7 million, or 106%. It beat the analyst estimate for revenue of $18.8 million by Yahoo Finance. Urban-gro attributed the increase to a jump in cultivation equipment sales tied to an expansion in client base and incremental services revenue from acquisitions of $2.7 million.

The company reported a net loss of ($0.6) million, or ($0.06) per share, in the fourth quarter of 2021 versus a net loss of ($1.1) million, or a net loss per share of ($0.24), in the prior-year period, representing an increase of $0.5 million, or $0.18 per share. It missed the analyst estimate for a net loss of ($0.04) cents per share. The adjusted EBITDA was $0.5 million in the fourth quarter of 2021, compared to $0.2 million in the prior-year period. The increase in Adjusted EBITDA was driven by growth in revenues and gross profit, including the contribution from the acquisition of 2WR, and partially offset by increased operating expenses which include the Company’s ongoing investment to support its European expansion.

Full Year Results

Revenue was $62.1 million for the 2021 full year compared to $25.8 million in the prior year, representing an increase of $36.3 million, or 140%. this also topped the company’s own guidance for the year. The net loss was ($0.9) million, or $0.09 per share, for the 2021 full year compared to a net loss of ($5.1) million, or ($1.06) per share, in the prior year, representing an increase of $4.2 million, or $0.97 per share. The increase in net income was driven by properly capitalizing the company so management could effectively execute the strategic plan which is built on a high-margin services platform, which smoothly converts to the design, procurement, integration, and commissioning of equipment systems.

“I am thrilled about our strong fourth-quarter results, which capped off a record full-year performance for urban-gro,” said Bradley Nattrass, Chairman, and CEO. “In 2021, we more than doubled the company from a revenue perspective, achieved positive Adjusted EBITDA, built our backlog to record levels, and expanded our integrated service model with the strategic acquisition of the architect firm, 2WR. Building upon that momentum entering 2022, earlier this month we announced the pending acquisition of Emerald Construction, which adds an accretive and highly complementary CEA-experienced construction management services solution to our offering and further optimizes our in-house capabilities to provide complete design-built facilities to our clients. With these additional capabilities, we are in an ideal position to accelerate our momentum in the global CEA industry while simultaneously enhancing shareholder value.”

2022 Outlook

Urban-Gro gave full year revenue guidance for 2022 of at least $110 million, including urban-gro’s base revenue as well as revenue for partial year contribution from our pending Emerald acquisition. The 2022 full-year Adjusted EBITDA guidance of greater than $5 million, which includes a partial year contribution from the expected Emerald acquisition.

On March 14, 2022, the company announced the acquisition of Emerald Construction Management, Inc.  The acquisition further extends urban-gro’s services into early-stage conceptual design and planning, and it creates the industry’s first fully-integrated architecture-led design-build offering targeting the cannabis and food-focused CEA sectors. The company expects the transaction to be accretive to earnings within the first year and drive significant waterfall revenue opportunities for urban-gro’s existing suite of products and services.

Mr. Nattrass added, “I’m very excited to see what lies ahead for urban-gro. Our strong balance sheet and positive cash flow gives us the flexibility to diversify our revenue streams and pursue profitable growth opportunities. Furthermore, our differentiated set of capabilities puts us in an optimal position to generate opportunities across all geographies, crops, and equipment types and cement our footprint in the burgeoning $17 billion global vertical farming market.”

StaffMarch 14, 2022


urban-gro, Inc. (Nasdaq: UGRO)  reported it is buying Emerald Construction Management Inc. in a deal valued at $7 million. Emerald is a 37-year old Colorado-based construction management firm providing comprehensive construction and supervisory services, from initial design through final build-out. Emerald C.M. said it expects 2021 revenues of $26.5 million and adjusted EBITDA of $1.2 million.

“The Emerald C.M. acquisition represents an important step in our strategy to supply the global indoor CEA market with turn-key design-built facilities,” said Bradley Nattrass, Chairman and CEO of urban-gro. “The market for mid-sized turn-key cultivation facilities and vertical farms is underserved, providing urban-gro a unique opportunity to bring the expertise and experience that is needed to deliver high-performance facilities. This acquisition enables us to get our clients to market more quickly while maintaining elite service levels.”

The total purchase price for the transaction, inclusive of a maximum $2.0 million contingent earnout, is $7.0 million. Urban-gro said it will fund the transaction with a combination of $2.5 million in cash and up to $4.5 million in equity. The transaction is expected to close within 60 days, pending successful completion of due diligence, and the Company expects the acquisition to be immediately accretive to earnings in 2022.

Nattrass continued, “Beyond completing our turn-key strategy, the addition of Emerald C.M.’s contracts and project pipeline provides us with incremental opportunities to generate significant waterfall revenue by providing our current services and equipment solutions to Emerald C.M.’s existing clients. Coupled with our strong balance sheet and positive cash flow, we are in an ideal position to build upon our momentum in the global CEA industry while simultaneously enhancing shareholder value.”

Jim Dennedy, President and COO of urban-gro, added, “Today, many controlled environment agriculture companies are served by a variety of providers, many of which lack the depth in human resources, systems maturity, and financial stability to satisfy the requirements that are inherent in large and complex construction projects. The acquisition of Emerald C.M. not only strengthens our capabilities and services offerings, but also enables us to provide our clients with a single point of accountability to manage their project needs.”

Christopher Cullens, CEO of Emerald C.M., concluded, “This union will provide immense value to all our CEA and non-CEA clients as they will be able to take advantage of the expertise, scale, and the complete suite of professional services that urban-gro offers. We’ve developed a strong partnership with urban-gro, and I couldn’t be more excited for both our clients and my team to experience what the combined company will offer. There is a gap in the global CEA industry, more specifically with the design build of indoor mid-sized CEA facilities, and we now have the ideal solution to fill it.”

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