CordovaCann Nearing Profitability And Looking To Expand To Gain Scale

After filing its interim financial report with the Canadian Securities Administrators earlier this month, CordovaCann Corp. LVRLF looks well-positioned to increase profitability in the year ahead. CordovaCann is an Ontario-based cannabis company with operations in retail, processing, and production in Canada and the United States. The Company is currently focused on ramping up retail expansion, increasing production, and forging new partnerships, all of which are aimed at driving profitability for the emerging cannabis company. 

CordovaCann Is Nearing The Inflection Point Of Profitability

CordovaCann is already operating a network of retail stores, manufacturing facilities and cultivation sites across three U.S. states and four Canadian provinces, and the company has its sights set on expanding into new jurisdictions through a mix of building new stores and acquiring existing businesses across North America.

Its most recent expansion efforts yielded 30% year-over-year revenue growth from 2021 to 2022, with its new stores averaging a short payback period of just 8-12 months. It plans on materially adding to its current store network, targeting profitability later this year. The company estimates that it needs another 3-5 Canadian stores to achieve corporate profitability, adding to the 4-wall profitability of the current retail platform. Some of these additional stores will likely be brought under the CordovaCann umbrella via acquisitions.

The Canadian cannabis retail stores operate under the brand name of Star Buds Cannabis Co. and generate some of the best margins in the industry. The company has focused on small footprint stores, diverse inventory, knowledgeable staff, and low overhead costs to drive these strong margins. These margins can be further increased with data services agreements with licensed producers and manufacturers, and the company is just starting to leverage this opportunity. Given that data revenues are responsible for a large part of the income of other comparable cannabis retailers in Canada, this move is expected to be a significant tailwind as the company moves toward profitability.

It’s also hoping to establish a retail presence in the U.S. before the end of the year. Management believes it can take advantage of distressed acquisition opportunities in both Canada and the United States. CordovaCann is currently eyeing undervalued businesses and believes it can pay 2x-5x trailing annual EBITDA (earnings before interest, taxes, depreciation, and amortization) for very attractive acquisitions.  These acquisitions would be accretive and should complement the company’s existing expansion and growth strategy. 

Another growth opportunity is the recent partnership with DoorDash DASH. Last Summer, Star Buds Cannabis Co, operating under CordovaCann, partnered with the major local delivery app to make its cannabis products available through the app. A limited launch in Ontario has already yielded some success but full-scale implementation of the partnership is still on hold, likely until U.S. cannabis banking laws are better defined. Still, the potential of this partnership to increase brand recognition and sales at the same time makes it an exciting growth opportunity for the cannabis stock.

A similar move to grow sales and brand recognition is underway via partnerships with major convenience store chains. While the compliance challenges are still a key hurdle to overcome, many convenience store brands are eager to add products to their inventory that get consumers to stop, and cannabis fits this bill. CordovaCann has the potential to participate in convenience store sales of cannabis products and also has an opportunity to become their preferred supplier. 

The near-term opportunities for CordovaCann present an optimistic outlook on CordovaCann’s ability to generate better profitability and gain a stronger financial position in the coming year, which could help bolster the cannabis company’s stock. 

Featured photo by Budding on Unsplash

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