Sunniva's (CSE: SNN) projected revenue for 2019
QUESTION: I'm a bit put off by the continued errors in the most recent Sunniva Press Release, suggesting that $50-$55m for revenue is Sunniva's projected revenue for 2019. My understanding is that they expect somewhere around $50M revenue from EXTRACTION revenues alone and….somehow the extraction alone revenue has morphed into $50-55m total revenue for the year. What that does not include is any revenue from any Canadian efforts, nor their house of brands launch nor their imminent flower sales.
M. H. from the United States
ANSWER: I noted the same thing so in Let’s Toke Business on February 22, 2019 I said, “Here is some additional information or clarification to Sunniva’s guidance on sales of branded products of $55 to $60 million in California this year….this does not include revenue from other sources such as Natural Health Services and Full-Scale Distributors that totalled $13.3 million in the first nine months of the current fiscal year.” So were on the same page.
I guess our message got through to Sunniva (CSE: SNN) (USOTC: SNNVF) as well because they issued an update to the original press release that gave revenue guidance of $55 to $60 million from sales of in-house branded products in California and third party agreements. The release provided the additional information that sales from Full-Scale Distributors and Natural Health Services were not included in the $55 to $60 million numbers. Full-Scale and NHS could add another $15 million to $20 million to the top line. So management’s guidance points to revenue of $70 million to $80 million in 2019.
Let me add a couple of additional thoughts.
First, the $55 to $60 million revenue estimate from sales of branded products includes revenue from extraction that is a step on the way to producing the products. Exactly which company books the revenue internally doesn’t matter because the extraction company is wholly owned by SNN so the gross revenue will reflect it all.
What is important is to remember the biomass that is being used to extract oils from are currently being purchased from other growers so the price SNN pays must include a profit margin for the grower. Starting mid-2019, SNN will begin processing its homegrown biomass so the profit they were paying to the external grower will accrue to SNN. This means over the second half of 2019 and well into 2020, SNN’s profit margin will increase as the Cathedral City grow facility comes up to full production. The company may continue to purchase biomass from other sources but as their own product becomes a larger part of the total, a margin improvement will continue.
The second thought is a reminder. SNN is still proceeding with its plan to spin out its Canadian assets in some fashion. So the revenue from Natural Health Services and Full-Scale Distributors may not be reflected as revenue to Sunniva ex-the Canadian assets. But one way or another, I believe the surviving SNN will realize some value for the Canadian assets.
Conclusion: Basically, your observation regarding revenue is correct. SNN should trade as if they are going to generate $70 million to $80 million in revenue this year. No matter how the Canadian assets are dealt with, today’s investor will receive stock market value in one way or another for these revenues.