GTEC Reports 2019 Q4 Results and Series of Updates


GTEC Holdings [stock_market_widget type="inline" template="generic" color="default" assets="GTEC.V" markup="(TSXV: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] reported Q4 financial results, a new $4.5 million senior secured loan, and an update to milestone payments associated with its three facilities.

Our Take


Financial results for Q4 were disappointing, however, guidance on Q1 sales more than compensated for any shortcomings.

Sales increased only 9% quarter over quarter to $1.1 million. However, guidance on Q1 sales indicates revenues of $2.4 million, which would be greater than all of FY2019 sales. Although delayed, GTEC is now starting to see the benefits of its production ramp.

One positive point for GTEC is its increasing realized price per gram. Most LPs are seeing realized prices plummet due to oversupply, leading to decreasing revenues even as kilograms sold increases.

As GTEC continues transitioning sales from B2B to retail, they should be able to maintain its average realized price given its strong realized retail pricing. Clearly, GTEC’s position in the “premium” vertical is providing them with solid pricing power.

Q4 FY2019 Q1 FY2020
Retail Sales 24 kg 123 kg
Retail Sale Price $9.25/g $9.42/g
B2B Sales 256 kg 267 kg
B2B Sale Price $5.25/g $4.77/g
Average Realized Price $4.03 $6.24/g


As with every cannabis investment, liquidity presents the biggest risk at this time. As of the end of Q4, GTEC’s operations were not cash flow positive, however, revenues and operating expenses are trending in the right direction.

As operations stabilize, we believe GTEC will be able to maintain gross margins of ~60%.

Quarter over quarter, GTEC decreased cash operating expenses 36% to $0.94 million. We expect cash expenses to increase slightly with the transition to retail sales, however, its operations are currently right-sized.

As operations stabilize, we believe GTEC will be able to maintain gross margins of ~60%. This leaves the company with ample cash flow from operations as production ramps to 4,000 kg (annualized).

In the shorter term, GTEC has substantially improved its financial position with the announcement of a $4.5 million senior secured loan from Trichome Financial. The loan does not require full repayment for 24 months from the closing date.

The following table summarizes GTEC’s obligations due over FY2020.

Obligation  Amount 
Convertible Debentures $6.2 million
3PL CapEx $1 million

Based on these commitments, GTEC will need to generate $2.7 million in free cash flow to cover its 2020 obligations, excluding its existing cash balance of $0.8 million and the $4.5 million from Trichome. The 3PL CapEx may also be delayed amid recent Canada-wide measures to reduce the impact of the coronavirus.

The following table breaks down one potential scenario to provide context for what is required.

2020 Assumptions
Avg Selling Price $6/g
Sales 2,500 kg
Revenue $15M
Gross Margin 50%
Cash OpEx $5M

To be clear, we believe there are still meaningful risks associated with successfully meeting cash flow needs over 2020. However, for a small-cap cannabis producer, we believe GTEC has positioned themselves to significantly outperform their current valuation, creating a favourable risk-reward opportunity.

While significant production and sales growth is required to meet these assumptions, based on the results announced within the Q4 financial release, we believe the company is demonstrating they can execute. The above assumptions also allow for increased operating expenses, a gross margin below historical levels and sales of ~60% of their annualized capacity.


GTEC has always been a “show me” story, and they are now starting to generate meaningful results. With a production capacity of 4,000 kg and a market cap of $12.5 million, if they can sell through their capacity, they become a very undervalued producer. Even looking at 2020 Q1 revenues annualized, they trade at a Price-to-Sales of 1.3X.

While there are unknown challenges ahead due to the impact of the coronavirus, it’s difficult to determine their duration and scope. At a minimum, the recent $4.5 million term loan should provide a short-term reprieve. Beyond that, GTEC can only control the controllables and seek additional financial support as needed. It is a challenge facing every business.

Further, while it’s difficult to predict future sales, GTEC has room to grow. They are generating current results based on retail sales in only British Columbia and Saskatchewan. This represents a small fraction of exposure to the Canadian cannabis market. If GTEC’s sell-through in these provinces saturates, they can turn to new provinces to find additional demand.

The company is also working towards completing a fourth facility, 3PL, which would increase annual production capacity by ~3,000 kg. While the production ramp-up isn’t slated until 2021, it provides a longer-term catalyst for the stock price.

Finally, when investing in small-cap companies, it’s important to find a management team whose best interest is aligned with shareholders. In the case of GTEC, they have a CEO who has consistently demonstrated a commitment to shareholders and the company’s success.

With the release of the financial results, GTEC also announced a series of reductions to milestone payments associated with successful operations at its three facilities. This includes waiving select payments as well as increasing the floor price of the issued shares.

In total, Norton Singhavon, CEO, waived approximately $6.75 million of current and future share-based compensation and raised the share price floor for remaining compensation. While he could have chosen to receive payments as originally agreed, he has instead elected not to dilute current shareholders. With this decision, he continues to demonstrate his belief in the company’s long-term success.

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GTEC Holdings 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 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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