GTEC Holdings Releases 2019 Guidance


After having a chance to sit down and interview Founder and CEO Norton Singhavon, GTEC Holdings [stock_market_widget type="inline" template="generic" color="default" assets="GTEC.V" markup="(TSX.V: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been on our radar. Based in Kelowna, BC, they are a vertically integrated cannabis producer that’s focused on growing “ultra-premium” indoor flower. They’re currently building out their growing capacity (14,000 kg) and are looking to reach full stride by the end of 2019.

The main unknown that remained after the interview was what their execution plan looks like and how that would translate into profitability. Their most recent press release has helped clarify what the coming year looks like for GTEC Holdings.

Understanding GTEC’s Ultra-Premium Cannabis Product

For their sales to date, GTEC has achieved an average selling price of $5.86 per gram to wholesale buyers with an estimated production cash cost of only $1.11 per gram. This is good for 81% gross margin.

GTEC’s flagship medical brand, GreenTec, has been the number one selling product on CannMart for the year to date.

These margins put them significantly above some of the top Canadian producers. While they are operating at a much smaller scale, this is still a positive step for a developing company, especially if GTEC can maintain these margins as it scales.

Additionally, their claims of producing an “ultra-premium” product seem to hold some weight. Their flagship medical brand, GreenTec, has been the number one selling product on CannMart for the year to date. This early popularity suggests they may be successful at differentiating their product as “ultra-premium”, a goal all producers, big and small, are hoping to achieve.

2019 – The Year of Execution

Based on existing relationships and the rollout of their own recreational brands, GTEC anticipates it will fully utilize 2019 production output, estimated at 2,500 kg. According to their estimates, this would be good for $12.5 million in revenue, or an average sale price of $5 per gram.

If they maintain similar gross margins of 80%, this would be good for $10 million in gross profit. However, as a company that has not yet reached full capacity, we don’t expect to see this growth reflected in their bottom line.

While they have only recently started producing flower at scale, by the end of 2019 they expect to increase annual capacity to 14,000 kg from 4,000 kg — good for a 250% increase. That increase is driven by two new facilities coming online, in addition to the three they currently operate.

These new facilities have been funded by the proceeds of a $12.5 million financing. The financing, a private placement offering led by Sprott Capital, was offered at a price of $0.55 per unit. With this cash on hand, GTEC is fully funded to execute on their new production capacity and expects a full year of production for 2020. Based on current plans, there doesn’t appear to be a concern for further dilution.

If they can protect their margins, even maintaining gross margins of 60% (a 25% reduction from their current levels), that would yield a gross profit of $42 million in 2020 for a $5 per gram sale price. This would be good for a 400% year-over-year increase in gross profit assuming they achieve their 2019 goals.

Looking Forward – The Investment Potential

After gaining a better understanding of GTEC’s 2019/2020 operational plans, it’s clear there are some potential positive catalysts to come in 2019.

While goals do not always translate into reality, the company has shown they are taking positive steps, with strong margins and early demand for their product. It’s also clear they have a thorough, fully-funded plan and are focused on execution.

As GTEC progresses through 2019, investors should watch closely. If everything goes according to plan, GTEC will be a profitable operator before the year is out.

GTEC is an investor awareness client of Capital 10x.

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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 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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May 3, 2019 5:28 pm

I have been watching everyday GTEC HOLDINGS for 1 year. Now that I have finally seen something on them I will now buy some. I wasn’t sure about them being real. But now I know.