Shares of Supreme Cannabis (FIRE.T) surged on Tuesday after the premium cannabis grower gave mouth-watering guidance on fiscal fourth-quarter revenue growth, projecting supreme gains in 2020.

The guidance comes on the heels of a solid fiscal third quarter, where Supreme Cannabis managed to grow net revenue by 382%.

The company expects even bigger gains in Q4, setting the stage for a promising 2020.

All said, Supreme Cannabis could be one of the first legal marijuana companies to turn a profit since prohibition ended. We’re not talking about a Sinaloa Cartel rake-in, but positive adjusted EBITDA is a good start.

Given Supreme’s Canadian exposure, we expect more red, purple and blue notes. But we’ll save you the eyesore of Canadian currency. | Source: GIPHY

In a Tuesday press release, Supreme announced that it expects revenue of CAD$19 million for the fiscal quarter ended June 30, 2019. That represents an increase of 449% over the same quarter a year ago. It’s also a gain of 97% from the previous quarter.

It might be a better idea to visualize Supreme’s revenue growth in recent years. Take a look:

Supremely impressive revenue growth. | Source: Supreme press release

Overall operations are expected to improve in Q4, with consolidated earnings before interest, tax, depreciation and amortization (EBITDA) forecast to turn positive.

[contextly_sidebar id=”bcSUaN7x5W22s4MSLAglD0gReOHGVnbU”]Sustainable revenue growth in 2020

Supreme’s press release emphasized the sustainability of its business model following years of rapid growth. It expects continued revenue growth throughout 2020 thanks to higher output from its 7ACRES production facility in Kincardine, Ontario, in conjunction with the introduction of higher-margin products.

Net revenue for fiscal 2020 is forecast to be between $150 million and $180 million. Earnings are projected to be positive for the entire fiscal year.

Navdeep Dhaliwal, Supreme Cannabis’ CEO, said his company is taking a “measured approach” to expansion in an industry that favours hype over substance. OK, that’s a pretty loose interpretation of what Dhaliwal actually said. Here’s a direct quote:

“In a sector dominated by headlines, our measured approach to capital deployment and brand-building sets us apart. We believe our preliminary results demonstrate the strength of our business during an inflection point within the industry, path towards profitability and continued disciplined growth. Looking forward, we remain focused on building our portfolio of premium consumer experience driven brands.”

— Navdeep Dhaliwal

Supreme has its fingerprints all over Canada’s legal marijuana industry. The company was among the first to align its product strategy with Health Canada’s amended cannabis regulations for edibles, extracts and topicals.

I know I’ve bored you with the details before, but extracts probably account for half of the legal marijuana industry.

Supreme stock surges

Whether directly related or not, Supreme’s press release was followed by an immediate spike in share prices. FIRE.T stock opened 8.9% higher and would go on to rise by as much as 16.9% in early Toronto trading.

Supreme’s stock surges double digits before I finished my morning coffee. | Source: Yahoo Finance

At current values, Supreme has a total market capitalization of $455.6 million. That’s big enough to be one of 23 companies listed in the Canadian Marijuana Index. To the surprise of no one, Supreme was the index’s top performer on Tuesday.

Trading in FIRE.T also picked up sharply on Tuesday, a sign that investors were snatching up the stock after favourable guidance. The stock turned over more than 1.1 million shares, which is more than double the average trading volume.

With the gains, Supreme’s stock is approaching break-even for 2019. The company is still down more than 38% from its March peak of $2.43.

Like other marijuana investments, Supreme is still a highly volatile play. The stock plunged last week to mid-2017 lows after the ETFMG Alternative Harvest Fund (MJ.NYSE) unloaded FIRE.T in favour of dumpster fire CannTrust (TRST.T) following its quarterly robo-rebalancing.


—Sam Bourgi

Full disclosure: Supreme Cannabis is an marketing client.

Written By:

Sam Bourgi

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