Gold Flora's Q2: A Mixed Bag For Cannabis With EBITDA Down $2M, Margins Up To 57%

Gold Flora GRAM reported Q2 2024 sales of $31.6 million, marking a 2% sequential decline and falling short of the estimated $34.2 million. According to a report by Zuanic & Associates, the performance of the Californian cannabis company raised concerns despite a generally positive medium-term outlook.

Q2 2024 Financial Performance

The company also reported an adjusted EBITDA of -$2 million, significantly below the anticipated +$1.1 million. Management attributed the decline in sales to increased discounting by leading brands and seasonal factors. 

On a positive note, production output increased by 14% quarter-over-quarter, although inventories dropped by $1.3 million.

Margins And Expenses

Despite heightened price competition, Gold Flora managed to increase its adjusted cash gross margins from 54% to 57% quarter-over-quarter, partly due to a higher allocation of its production to the company’s 16 dispensaries. 

However, reported all-in gross margins dropped from 31% to 23%. The company’s recurring operating expenses rose to $17.2 million in Q2, compared to $15.6 million in Q1, while cash holdings decreased by $3.5 million quarter-over-quarter, showing an improvement from prior quarters.

Debt And Strategic Outlook

Gold Flora’s total net debt increased to $37 million, with $16 million due within 12 months. 

The company is expected to refinance part of its debt, particularly the $22.6 million in convertible debt due by the end of 2025. Despite the disappointing quarterly results, the company’s strategic approach remains intact, with plans to expand its production capacity and increase its retail footprint.

Valuation And Stock Performance

Gold Flora’s stock has been underperforming, with shares down 57% over the last 90 days, compared to a 23% decline for the MSOS ETF. However, Zuanic & Associates maintains an overweight rating on Gold Flora, citing the company’s long-term growth potential and attractive valuation relative to peers like GlassHouse. The stock trades at 0.7x projected 2024 sales, below the 1.9x MSO average.

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