California Cannabis Company Exceeds Sales Expectations, Boosts Production To Improve Margins And Enhance Brands

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California-based cannabis company Gold Flora GRAMF has reported significant developments in its first-quarter results for 2024. Exceeding sales projections, Gold Flora's retail revenue rose by 6%, while wholesale revenue jumped 72%. The company is ramping up production to address margin pressures and strengthen its proprietary brands.

In a recent equity report, Pablo Zuanic of Zuanic & Associates highlighted the strategic focus on allocating more production to company stores and enhancing the quality of its brands to offer a compelling value proposition to consumers.

Production And Expansion

Gold Flora has tripled its canopy footprint to 107,000 square feet, expected to yield 40,000 pounds of flower annually by September. Currently, the company is processing about 23,400 pounds per year.

New lease agreements will add another 53,000 square feet by next year, pushing total capacity to 160,000 square feet and production to 65,000 pounds annually.

“The rationale of the company’s strategy is based on allocating more own production to company stores, having enough supply to feed new owned stores, and the conviction that the company’s brands can offer a compelling value/quality proposition to consumers,” Zuanic noted.

Financial Performance

For the first quarter, Gold Flora's sales increased by 13% to $32.2 million, surpassing Zuanic & Associates' estimate of $29.4 million. Gross margins, however, fell to 31% due to timing gaps between capacity increases and actual sales.

EBITDA turned negative at -6%, down from breakeven in the previous quarter. Free cash flow was -$5 million, and the company's cash balance dropped by $8 million to $14.2 million.

In this regard, Zuanic explained, “Profit margins should improve given the added scale, and as increased production makes it to the sales line of the P&L.”

Outlook And Strategy

Gold Flora's management is optimistic about future growth. “With canopy up 3x, sales and margins should ramp in the back half of the year, with roughly half of the new production going to the company’s stores and the balance sold to third-party stores,” Zuanic said.

The company is also focusing on bringing gummy production in-house and manufacturing live rosin products using its indoor-grown cannabis.

Stock Performance And Valuation

Gold Flora’s stock performance has been challenging, with shares down 39% over the last 90 days.

However, Zuanic remains positive, stating, “We continue to believe GRAM’s valuation is compelling, on its own merits, but even more so when compared with GlassHouse GLASF. On a spot EV basis, the stock trades at 1x FactSet consensus 2024 sales, which may be low in the context of the capacity ramp.”

Zuanic said Gold Flora's stock is undervalued. The company's current enterprise value matches its projected 2024 sales according to FactSet consensus, indicating a potentially low valuation.

Gold Flora's strategic moves and increased production capacity position the company for potential growth despite market challenges.

“Management’s mantra is to grow high-quality, unique strains in-house at premier indoor cultivation facilities and manage the entire supply chain. This allows Gold Flora to offer products at an attractive price point for consumers while capturing significant margin,” Zuanic concluded.

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Photo: AI-Generated Image. 

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Posted In: Analyst ColorCannabisNewsGuidanceEmerging MarketsSmall Cap AnalysisRetail SalesSmall CapMarketsAnalyst RatingsTrading IdeasCalifornia cannabiscannabis stockscannabis stocks ratingsGold Flora LLCPablo Zuanic
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