The 1933 Industries (CSE: TGIF) story keeps getting better and better
QUESTION: “I saw 1933 Industries recently issued a Press Release that gave “guidance.” It didn’t make much sense to me. Some of it looked like normal quarterly report information but other parts were quite different. Was the company trying to give us clues as to what is coming up? Not all of the companies I have shares in issue such a report. What is the reason for this? How does it help investors?”
J.D. from New York
ANSWER: “Guidance” or “Earnings or Revenue Guidance” is a company’s attempt to channel investor expectations. Guidance is not a regulatory requirement so not all companies do it. Also, guidance is usually directed at revenues and earnings so companies that don’t have revenue don’t need to issue guidance.
A company’s stock price will often correlate closely to revenues and earnings so it is in management’s best interest to have realistic expectations in the investment community. You might refer to it as applying the “Goldilocks principle” to the stock price – “not too hot; not too cold; just right.”
When you read the summary of the guidance report and the explanation, you will see what a clearer picture we have of 1933 Industries’ (CSE: TGIF) (OTCQX: TGIFF) revenue picture for the next year and more. It also shows the careful management planning that went into setting this up. It will also give you a better idea of why I like TGIF as a cannabis growth investment over the next one to three years.
I had the opportunity to speak with Chris Rebentisch, President of 1933 following the guidance report and here is my summary. TGIF provided guidance to a record fourth quarter ended July 2019 with revenues of $5.2 million and annual revenue for the year ended July 2019 of $18 million. Cash should stand at $18.6 million, up $3.9 million from the previous quarter. These results are in line and perhaps a bit better than I expected. Everything appears to be pretty much as described in our July 18, 2019 interview that is reproduced toward the end of this newsletter.
Q1 FY2020 (August, September, October 2019): should be similar to the Q4 results. The plants have been moved over to the new facilities with no surprises. The initial harvest should be in late Q1 or early Q2. TGIF’s cannabis growing area has increased around fivefold. Preparation work on the California project has begun and should begin this quarter so there may be some Q1 revenue but the major impact will likely be in Q2 and Q3. AMA products continue to sell out everything 1933 can produce each week. Sales are expected to build nicely all year. Any marketing materials, Instagram posts, packaging and so on must be approved by the TGIF lawyers. Management also works with an FDA specific law firm in California. TGIF’s vaping products do not contain any agents like Vitamin E acetate. The company uses pure ingredients, lab tests everything for mold, mildew and bacteria. This is done for all products, so the company does not anticipate any problems.
Q2 FY2020 (November, December 2019, January 2020): the new cannabis facility should be producing a harvest every two weeks with the main sales impact seen in December and January. This should also benefit margins as TGIF’s own production replaces biomass purchased from third parties. The third quarter will likely reflect the full impact on sales and margins. The California project is essentially a management agreement and should produce revenue starting in Q2. The nature of the payment is such that it flows directly from the top line to the bottom line on 1933’s books. Finally, the new cannabis facility that 1933 has borne the costs of since occupancy in July 2019 will begin to generate meaningful revenue. A bottom line improvement should be evident starting in Q2.
Q3 FY2020 (February, March, April 2020): this will probably be the first full quarter of sales from the new cannabis facility and the California project. The new hemp facility should have completed construction around the end of the calendar year. There are a number of local licenses that need to be obtained so the start-up is a little uncertain but no major delays are anticipated. There may be some early revenue that falls into the previous quarter but the major impact should be felt here. By this time, TGIF anticipates seeing a more complete contribution from all the previous work done to establish the base for growth.
Q4 FY2020 (May, June, July 2020): the momentum from all of TGIF’s growth projects should still be felt. For example, when cannabis growing was moved from the old facility, it freed up space in the old location. TGIF’s extraction machines are currently running two, eight-hour shifts, six days a week. Application has been made to increase the extraction/manufacturing capacity at the old location to 10,000 sq. ft. that is a five times increase. That should be completed in late calendar 2019 so by this time, AMA product sales should be really taking shape. Also, new initiatives that management has been considering should be concluded by this time.
Conclusion: The 1933 Industries story keeps getting better and better. By following management plans on a quarter by quarter basis, I can easily detect if things are proceeding as expected. I can also see how well expansion and growth plans have been planned. All of this adds to my confidence in TGIF’s ability to achieve their goals. At recent prices, the market cap of the company is approximately one times sales for the year to end July 2020. In addition, here we have a clear timeline of events that are the basis for these expectations. I believe this is a significant undervaluation and offers substantial upside for existing and potential shareholders. Opportunities like this only arise once or twice in a market cycle. Don’t miss out.