1933 Industries Releases Q2 Financial Results

1933 Industries (CSE: TGIF) released 2020 Q2 financial results and while underlying results were disappointing, the company continued to execute on its long-term growth plans in the quarter.

Operational Review

Starting from the top, revenues decreased 19% quarter over quarter to $3.14 million. Gross profits also decreased, dropping to -$0.28 million compared to $1.48 million in the previous quarter.

While sales and profitability are moving in the wrong direction, the results were due to a number of factors, some of which were out of their control.

Some of the major contributors were lingering effects from the vape crisis (and the cost of maintaining shelf space) and increased overhead from the transition and ramp-up associated with their new facility.

Investors will need to watch margins closely over the subsequent quarters to ensure 1933 Industries is realizing the margin benefits from the ramp-up of their cultivation facilities in Nevada and California.

Looking at operating expenses, they remained largely flat quarter over quarter. Moving forward, management has indicated they will decrease substantially with cost-savings measures being implemented across their operations.

While it’s unclear if these benefits will be fully realized in Q3, the measures are expected to remove approximately $1 million from operating expenses.

As expected with decreasing gross margins and revenues, EBITDA and net loss also dropped on the quarter and their cash balance decreased from $14.8 million to $9.1 million.

Our Take

Listening to management, it’s clear 1933 Industries is focused on driving longer-term value.

They have acknowledged that fiscal year 2020 will not show substantial revenue growth given the significant economic uncertainty. We believe this openness speaks to management’s transparency and accountability.

The company has a healthy cash balance at $9.1 million, and according to CEO Chris Rebentisch, this will carry them through the current challenging environment to improved revenue growth and profitability in 2021.

In order to further conserve their cash balance, management has decided to postpone two major capital projects (Hemp and THC processing and extraction facilities). Instead, they will modestly increase operating expenses as needed to handle any necessary increased processing throughput.

Since Chris Rebentisch took over as the CEO of 1933 Industries, the company has continued to refocus on driving long-term shareholder value. This includes initiatives to reduce operational overhead as well as key expansions to control strategic aspects of their supply chain.

While market uncertainty will certainly persist for the coming quarters, we believe 1933 Industries has continually improved its positioning even if the topline results have weakened. With a portfolio of award-winning brands, they are prepared to capitalize on this CPG-based industry.

As they execute on their updated 2020 plan, we believe they will be able to capitalize on the growth of the marijuana industry across the U.S.

Although it’s unclear when the larger market selloff and associated volatility will lift, 1933 Industries’ stock has been oversold due to their recent revenue struggles. With the operational fundamentals improving monthly, the topline numbers will improve in short order.

Notable Operational Highlights

Other notable highlights during the quarter include:

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1933 Industries is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Evan Veryard
Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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