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Running the numbers: Just what has Lifestyle Delivery Systems (LDS.C) got into here?

05/09/2018

There’s been a lot of news coming out of Lifestyle Delivery Systems (LDS.C) these past few weeks, with the primary slot dedicated to a deal they’ve struck with Quality Resources Inc., which has “developed commercial scalability in the areas of extraction and distillation for cannabis oil.”

Yawn, right?

Every oil extractor would boast the same thing, whether they had one machine cobbled together from old stolen bicycle and barbecue parts in a New Brunswick boat shed, or a gleaming Quadron Cannatech (QCC.V) BOSS mega extractor. Extracting cannabis oil effectively, and at a price that makes sense, is a bit of an art, but it’s not game changing at this point.

Which is probably why the stock price rose a little on the news, but not a whole lot.

Lifestyle Signs Deal for New Specialized Extraction Equipment – Bets on the Whole Buffalo

So I figured it might be worth digging into see what’s the reality of the deal.

A visit to the website wasn’t much help. Just a logo. Oh dear..

But a trip to WeedMaps opened some eyes.

 

So LDS is in bed with the best team in terms of quality extraction, which is good.

But what’s the differentiator?

In addition to the extraction and distillation technology, QR is developing a pesticide removal technology to achieve clean cannabis oil from previously contaminated cannabis raw plant and processed materials.

The addition of the QR technologies is intended to develop new revenue streams that will be capable of supporting the supply chain demands of CSPA Group’s products as well as many other manufacturers and dramatically reduce cost of raw material for all of CSPA Group’s product lines.

This is BIG, if it’s legit.

90% of California’s weed supply six months ago was covered in pesticides, which had led LDS to a supply issue for some time. In searching for a solution to that, so they could truly ramp up production of their CannaStrips, they appear to have stumbled on something unique – and potentially groundbreaking.

If you can remove the impurities from impure oil, and not screw the oil up in the process, you’ve just opened up the entire industry. Hell, growers will pay you to clean up their act, or take the stuff they can’t find a buyer for. I’m not saying LDS would mop the floor of a growhouse and stick it into their extractor equipment to pass off as consumer ready product under their label, but to be able to ‘white label clean’ other people’s oil not only fixes a problem for those people, but makes it far easier to have LDS do all the extracting, rather than laying out big capital for machinery and permits so you can do it yourself.

This is important.

Says LDS CEO Smirky McSmirkface, AKA Brad Eckenweiler, “The addition of the QR technologies will allow CSPA Group to offer extraction and distillation to the entire California cannabis industry at a price point that should cause most manufacturers in California to rethink the cost and the challenges of self-operated extraction and distillation.”

That boy’s got reason to smirk.

During the week of April 30, 2018, [LDS extraction affiliate] CSPA Group received 240 pounds of cannabis biomass to convert into distillate for cartridges. The biomass will be tested prior to extraction and distillation. The resulting distillate will be tested for cannabinoid and terpene content, as well as its purity.

That was the test run. Two days later, they upped the ante with this, buried in the bottom of a newser about something else entirely:

CSPA has also taken delivery of 1,500 pounds of biomass for contract extraction with an anticipated yield of between 60 to 70 litres of high-grade extraction.

That’s six times the initial delivery.

I’ve found listings for wholesale oil sales for vape pens in California at $7,500 a litre, but usually it goes for around 10k, maybe 12k. High quality, consistent supply from a permitted extractor, and one that can clean impurities into the deal, would be on the high end of that equation.

So the 1500 lbs that was delivered will come out at a value of around $450,000 – at the low end.

I don’t know what the annual capacity of this facility is going to be, but judging by how they churned through the first 240lbs of flower, I imagine this is going to be restocked often.

If we assume the amount of oil being produced now will take the month to extract, and that’s a pretty luxurious pace going on prior form, they’ll be producing around $5 million of oil a year.

Take these numbers with the heaviest grain of salt, because I’m guessing at a lot of things here, but LDS can use those oils in their own products, in CannaStrips and Reveur vape cartridges, both of which have been heavily promoted at Coachella music fest and its surrounds these past few weeks. They can also white label it for other brands.

We all love the potential of the strips, but locking down a strong oil supply and power and partners and brands, is a real forward move.

In addition, this was the ‘other news’ in their recent release:

CSPA and LDS Agro are finishing the installation of a four-inch gas line to the natural gas generator and associated electrical connections to supply 480 three-phase power of over 4,200 amps to the cultivation and nursery facility in Adelanto. This is the final step in the completion of the cultivation and nursery projects. Upon completion, the company will schedule its final inspection for the certification of occupancy of the cultivation division. Once the final certificate of occupancy is issued, CSPA will be able to apply for the state licence to begin its cultivation of isogenic strains, specifically developed for the CannaStrips and Reveur product lines.

If that seems like a lot of power, it is. More than LDS likely needs, which means they can consider pushing it back to the grid and making a little dough out of power generation, something that California needs and wants.

Some people don’t like LDS because it came to market bumpy AF. And some don’t like Eckenweiler because he’s a promoter at heart and rarely settles on just one elevator pitch.

But credit where it’s due, LDS has set itself up nicely here, and done so in a time of great regulatory turmoil, in a way that offers multiple paths to revenue.

The market hasn’t recognized that yet, but hot damn it will.

Lifestyle Delivery Systems (LDS.C) receives source materials: Cannastrips now being produced

— Chris Parry

FULL DISCLOSURE: Lifestyle Delivery Systems is an Equity.Guru marketing client, and has been for more than a year.

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Comments 2

  1. Kevin says:

    Great article Chris.

    But I think your estimate of $5 million a year in oil is way too low. I was told they did 24 liters in one day recently.

    • Chris Parry says:

      I’m always going to take the worst case scenario option, even when dealing with client companies. If they beat those numbers, that’s great. But I want to know they’re going to make good profits on the bottom side, which it appears they are.

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