Automation in Cannabis Could Lower Costs US MSOs

AUTOMATION IS COMING TO CANNABIS

LOWER COSTS COULD DRAMATICALLY
REDUCE COSTS / INCREASE CASH FLOWS

 

You and I have had an incredible year with the junior gold stocks that I have been bringing you on a regular basis. So many big winners……..

Now it is time to pivot to another sector that is getting red hot, especially in the US — cannabis stocks; especially MSOs—Multi-State Operators.

Two Investing Whisperer picks have done incredibly well–Trulieve Cannabis (TRUL:CNSX) and Jushi (JUSH:CNSX) –they have both more than doubled in 2020.
 


But if the Democrats win the White House next week, cannabis companies operating in the US should see another HUGE lift—across the board.  It could be a VERY big catalyst for all stocks in this sector.  And as you know, it’s happening within days.

I know the name of the next US focused cannabis stock that is ready move and I’m going to tell you WHY I believe that move is imminent.   This company – with its unique machine gun, rapid-fire pre-roll machine, is about to jump on the radar of every cannabis investor.

Key shareholders of my favourite US MSO are among the largest shareholders of a major success–—CloudMD (DOC-CSE); which I brought to you earlier this year at just 60 cents), run from 26 cents to $2.80 (that be a 10-bagger!) on hundreds of millions of shares in volume, get picked up by 4 analysts and complete two major financings totaling $70 million.

 

Now, their next play–a US focused multi-state cannabis company—is starting to see big increases in revenue and margin because of A) their scale and B) a proprietary manufacturing process that fills thousands of pre-rolls a day—perfectly.

This is the right stock, in the right sector, with the right team at the right time (especially if Democrats win in November)

Today I introduce you to it.  Tomorrow I give you the name and ticker.
 

Technology is DRAMATICALLY Reducing Costs

In the manufacturing business there is no substitute for speed.  My new US marijuana stock is growing top line and EBITDA with a new, fully-automated technology.  It is now revolutionizing the pre-roll cannabis business. This technology is able to pump out up to  1,000 perfectly pre-rolled cannabis sticks per hour.

Almost all pre-rolls are—to this day—rolled by hand. This is like bringing the looms to the Luddites in the 1800s in England. Faster, better, cheaper.

This machine dramatically reduces labour costs.  It makes a consistent, perfect product every time.  This is the Holy Grail for pre-rolls to become a much larger sector of the fast growing US market.

If it takes your company one hour to do what your competitor does in five……you can do it for 20% of his cost.
If you can make your product at 20% of your competitor’s cost YOU CAN EAT HIS LUNCH!!!

Against that kind of cost advantage–your competition has no hope.  You can underprice him and still make more money.  That pricing advantage is why Walmart went from one store in Arkansas to a $400 billion global juggernaut.

The cannabis industry is about to see an entire industry of lunches get eaten.

This technology—just fully operational since April—I think will revolutionize the cannabis business.

The technology is controlled by one publicly traded micro-cap cannabis company–my new favourite.

And this is not just a technology play—this company already has the leading pre-roll brand in California. 

Revenue is soaring at the company—their last quarterly showed 9-month revenue of $5.3 million vs. $265,000 for the same period in 2019.  That’s growth! And in the quarter ending April 30, EBITDA was POSITIVE–over $130,000!!!  This is what cannabis investors want–real cash flow!

And I think when they announce their year end financials before the end of November–it could be the inflection point for this company.
 
The technology is now cementing their market leadership, and it has the potential to quickly leapfrog their revenue and cash flow.

This company that now has a massive production cost advantage on every single one of its competitors. Control of the technology is like owning a royalty on the growth of cannabis across the country — because this manufacturing process will be the way the entire industry has to go to compete.

This technology is not a story……this manufacturing process is working NOW.  The impact of putting the machine into use on the profit margins of this company has been staggering.

You can see it with your own eyes through the quarterly numbers.  Pre-machine gross margins were around 15%.  Now gross margins are in the low forties! 

Competitors who don’t have this technology can’t compete.

And no competitor has the technology!

The machine means higher profits, faster growth and most importantly…by far the best quality product.
 

You Don’t See Cigarette Smokers Rolling Their Own!!


Here is a stat that I had to fact check several times….

During Q2 2020, in California pre-rolled cannabis products represented just 9 percent of the cannabis market. (1)

Just 9 percent!!  That means that the vast majority of cannabis smokers are buying raw cannabis flower and rolling their own joints.

That seems crazy to me. With our modern world that is entirely focused on making life as convenient as possible — rolling your own is a surprising way to go.

Especially for a product that is meant to relax you….not cause you extra work.

How many of your friends that smoke roll their own tobacco cigarettes?  For me the answer is zero…..yet with cannabis the answer would be almost all of them.

There is a reason for that—and it isn’t because cannabis users love the extra effort.

It is because there hasn’t been technology available that allowed for full automation of cannabis pre-rolling.  Who would build such a machine for an illegal industry?  But now….

The best rolling technologies today are not fully automated and are slow.  Worse, they don’t generate a consistent product.  The joints produced don’t burn evenly, a problem known as “canoeing”.

Cannabis users hate it.

With canoeing, one side of the joint burns much faster than the other.  The end result being a giant waste of cannabis and money……that means unsatisfied consumers.

Because this industry was (is) illegal for years, nobody bothered to do a deep engineering dive and create efficient automation.  Even today, pre-roll production facilities are not much more than little sweatshops churning out low volumes of inconsistent, poor quality products.

That’s why pre-rolls have a paltry 9 percent of the market, a tiny share.

The industry was begging for a better pre-roll mousetrap and now one company has provided one.  The result is going to be a massive move of consumers to pre-roll…..because pre-roll costs are going down and quality is going way up.
 

Exponentially Faster And A Better Quality Product


The pre-roll market share is small because of the poor quality and high cost; not low demand for pre-rolls.
This new technology—I liken it to a “machine gun” of pre-rolls—addresses that quality problem. With the speed that full automation brings, production costs will be a fraction of the existing products.

But it wasn’t easy!

This technology—which will be a massive overnight success–has actually been several years in the making.
The engineering house that is building these “machine guns” is a leading Silicon Valley engineering company.
 
Two years ago, some budding entrepreneurs (pun intended!) asked this high-tech group to use their deep expertise and automate the manufacturing of cannabis pre-rolls.

Creating a machine like this sounds simple enough, but cannabis creates a multitude of complications.  Twisting the cone properly and consistently packing the product were just two of many factors that ended up being VERY difficult.

Filling the cannabis cones within the strict California regulations for weight was a nightmare.  There are thousands of variations of strains that differ, sometimes within a harvest itself, on stickiness, moisture content, grind, volume, etc.

Before this machine, NO automated technology or process could lower costs like this.  It’s complicated, and expensive–but now it’s done!  And it’s proprietary.

With two years of painful work, and some big brains from Silicon Valley pre-roll automation has now arrived.

The important factor here:  this will take anybody an incredible amount of time and money to repeat or duplicate a competing machine.
 

This Is Like A Royalty On The Legalization Of Cannabis


It’s a great place to be—owning the technology that an entire industry needs.  A technology that is magnitudes faster…..and also produces a better quality product.

Management estimates that this pre-roll technology will allow a better pre-roll product to be manufactured with lower costs.

Happy consumers will flock to pre-roll.  Shareholders of the company behind it are going to be even happier!

The old pre-roll methods are like the horse drawn carriage…..this automated pre-roll technology is like a supersonic jet. 

For the company that is the only one using the technology, rapid monetization is happening NOW. 
You see, the company’s own pre-roll brand already has 52% of the infused pre-roll market in California before its revolutionary machine was rolled out.

This brand is already in more than 350 dispensaries, and is expected to be in 400 by the end of 2020.

With automated production now behind it the quality of this already dominant brand is going up…..and the cost to manufacture is dropping dramatically.

Think of what that means.  I’ll spell it out for you.

This company can now sell a high quality product, at a lower price than competitors — and still generate fatter profit margins while doing so.

In the near future, the white label market will be a MASSIVE opportunity—producing other companies’ products for a fee.

Many, many pre-roll producers in the country are now clamoring for the opportunity to leverage this technology for their own brand.  And with regulations that require cannabis sold in each state to be manufactured in that state……this is going to be a national opportunity with machines needed in each state.

When you own the step change in technology, everyone comes knocking at your door.  The white label opportunity is going to be massive.

I can already see what is going to happen to revenue, profits and cash flow to my favourite cannabis stock now.

As legalization spreads to different states, or even federally through a 2020 election result…..there is big upside to these estimates.

Do Not Miss My Next E-Mail………


This US cannabis company is already growing like a weed, with 9-month revenue of $5.3 million so far in 2020—vs. $265,000 in the same period of 2019. 

They’re operating in two states now, with plans for more.  They have a sales platform that can fill over 350 dispensaries with high-quality, low-cost product—now with incredibly low-cost product, thanks to their new automated, rapid-fire pre-roll machine.

There is no viable competing technology.  It will be a land grab for market share, and the field is wide open and clear. 

This company has had a three-year technology head start on an industry full of small and disorganized players.  They own this game.

They have the ability to mass produce a better product at a MUCH faster pace.  This is full automation versus manual processes.

This machine should greatly increase gross margin and cash flow for this company—and they will release their year-end numbers next month!

Between the US election and year end financials, there are two major catalysts for the stock coming in the next few weeks.

In my next e-mail I’m going to reveal everything you need to know about this company and the technology it controls.

This technology is going to change the entire industry as pre-roll becomes the choice of consumers……just as it did decades and decades ago in the tobacco business.

Now here is the kicker.

The company is ALREADY building a SECOND pre-roll machine.  They have to–because they can’t produce enough of their current California leading brand to meet customer demand.

When that second machine kicks in—growth for this company is going to be next level…and while growth does cost money, I am (very) hopeful EBITDA can scale with revenue..  Remember, no competitor has access to this technology.

In the five minutes it takes you to read my e-mail tomorrow you will learn the full details game changing cannabis automation technology it took this company three full years to develop — and why nobody else is even in the ballgame.

Be ready to open that e-mail the moment it arrives.

Sources:

  1. https://www.statista.com/statistics/1139553/california-marijuana-retail-sales-share-by-product/