With $34 Million in Tow at the End of Q2, Plus Products Unrattled by Cannabis Market Tumult

November 21, 2019 - Baystreet.ca

Early in 2018, so-called pot stocks were essentially halved. After a rebound, a 50% pullback happened again late in the year. This latest drop, which started in March 2019 and has already erased more than half of the valuations of most cannabis-related companies, is not surprising to those that have watched evolving markets before.

In short: This too, shall pass.

It is with good reason that Merida Merger Corp. (NASDAQ: MCMJU)(NEO: MMK.UN), a blank check company run by Mitch Baruchowitz and Peter Lee, was able to raise $120 million this month for opportunities in the cannabis space and billionaire money manager Jim Simons’ Renaissance Technologies hedge fund added or opened positions in six of the biggest names in cannabis during the third quarter.

“Market tumult is part of any business. While it certainly can be uneasy, it keeps management at the top of their game to move efficiently forward,” said Jake Heimark, co-founder and CEO of hemp and cannabis food company Plus Products (CSE: PLUS)(OTCQX: PLPRF), in a recent phone conversation on market volatility with Baystreet.ca. “We’re still really early in the evolution of legal cannabis and valuations will take care of themselves over time. Our team remains focused on holding our leadership position in California and building similar top-selling positions in new markets and with new products,” he added.

Clearing the Cash Hurdle

One of the single biggest obstacles for cannabis companies today is capital. The sharp decline in stock prices – along with companies hemorrhaging cash – has many institutions, funds and family offices trepidatious and moving cautiously with investments amid the market downswing.

To that end, Plus hasn’t gotten too far out over its skis. After raising CAD$25 million from selling convertible debentures and from the exercise of warrants during the first half of the year, the San Mateo, California-based company ended the second quarter with $34.1 million in cash and net working capital of $38 million. Management says this is enough capital to continue executing on its current growth trajectory for at least the next year.

#1 in California Heads to Nevada

In its home state of California, Plus Products gummies are available at more than 360 licensed retailers where they controlled a 21% share of the entire gummies market.

With this strong presence, the brand has established a substantial foothold amongst the sales leaderboard. Plus Uplift, which contains THC (tetrahydrocannabinol, the cannabis compound responsible for the psychoactive high associated with marijuana), is the #1 selling gummy in California across the last 12 months, outselling the closest competitor by 2x. Even more broadly, Plus Uplift is the top-selling consumable cannabis product across every market tracked by industry.

On the CBD (cannabidiol, a non-intoxicated cannabis compound touted for a swath of health benefits) front, Plus is again dominant in California. Plus Unwind, which contains both THC and CBD, is the #2 selling cannabis product in the state, trailing only Plus Uplift. When it comes to products containing CBD, Uplift takes the top spot for sales over the last year.

All numbers according to BDS Analytics GreenEdge Platform at the end of Q2.

Now that a commanding position is in place in one of the world’s largest cannabis markets, Plus management has moved east into the large Nevada markets. Because federal prohibition makes interstate commerce of cannabis goods strictly illegal, Plus maintained compliance with all regulations by partnering with Nevada-licensed integrated company TapRoot Holdings. Per the pact, TapRoot is producing Plus gummies under oversight of Plus management to ensure brand consistency across states.

Plus cannabis-infused gummies are now available in 10 Las Vegas dispensaries, including those of the upscale multi-state operator MedMen (CSE: MMEN)(OTCQX: MMNFF) and Planet 13 (CSE: PLTH)(OTCQX: PLNHF).

…And Nationwide…and Globally

Leveraging its popular brand name and the legalization of hemp-based CBD through the passage of the 2018 Farm Bill last December, Plus Products recently rolled-out a line of 100% hemp-based CBD-infused gummies. Hemp, by definition, contains no THC (or negligible amounts of less than 0.3%). It does, however, contain CBD.

Investors will be looking up the road to see how a nationwide marketing campaign for the new hemp-CBD gummies positively affect revenue, which improved 125% year-over-year to $3.6 million during the second quarter.

Future sales might also be fanned by partnership between Plus Products and music icon John Legend, as well as the launch partnership with award-winning mattress maker Casper.

Thriving During a Down Cycle

Not long ago, Plus Products was cash-strapped and limited only to sales in California, albeit a large market. During a dramatic cannabis market downturn this year, the company has manage to thrive on a corporate development level. The coffers are full with over $34 million at the end of June; Plus gummies remain top sellers in California and have moved into Nevada including some of the most recognizable dispensaries; new products have been launched nationwide; and two global household names are now brand ambassadors and partners.

It’s this type of commitment to bring new products to market and dedication to proving the therapeutic benefits of cannabinoids beyond anecdotal evidence that has some singing the praises of Plus Products, including Legend, who has commented publicly that he loves and respects the values of the company.

It’s also set a nice background for when the markets head into their next upswing.

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