The legal cannabis trend is a long-term phenomenon driven by expanding demand as the inevitable broad legalization of recreational pot marches forward.
New York and New Jersey were the most recent states to join the trend in the US. But California is still the biggest market, and it likely will be for the long run.
That’s why we turn here to a very interesting developing story in the space: Sugarmade Inc (OTCMKTS:SGMD), a small-cap pot stock with designs on uplisting to a major exchange to join companies like Greenlane Holdings Inc (NASDAQ:GNLN), Cresco Labs Inc (OTCMKTS:CRLBF), and Sundial Growers Inc (NASDAQ:SNDL).
Once Upon a Farm
The Sugarmade story is particularly interesting given news out from the company this morning.
It appears SGMD is positioned to make good on the strategic objectives it has outlined in recent updates: to become a fully vertically integrated farm-to-door cannabis company with an expanding supply base and an expanding end market footprint.
SGMD has already become one of the fastest growing cannabis delivery dispensary plays in the booming California cannabis marketplace. It has a thriving hub in Sacramento and just entered the LA metro area with a secondary hub. It also plans additional expansion steps with new hubs, according to an update put out late last year.
This model has been highly successful over the trailing twelve-month period. However, the company wants to widen its margins, which demands an in-house supply infrastructure.
Accordingly, Sugarmade Inc (OTCMKTS:SGMD) has recently talked up the idea of acquiring a major cannabis production facility or farm to supply itself and cut out the supplier burden, widening margins and driving more of its growing revenues to the bottom line for shareholders.
This morning’s news would appear to represent just such a move. To wit: the company announced the signing of a binding LOI for the acquisition of Lemon Glow Company, Inc., a California corporation, including all of Lemon Glow’s assets, interests, property, and rights, which includes Six Hundred Forty (640) acres of real estate located in Lake County, California, outside of the Commercial Cannabis Cultivation Exclusion Zones.
According to the release, as stipulated in the LOI, thirty-two (32) acres of the Property have been designated for outdoor cannabis cultivation. Sugarmade and Lemon Glow management have agreed that the annual potential cultivation yield at the Property is approximately four thousand (4,000) pounds of dry trimmed cannabis flower per acre, or approximately 128,000 pounds of dry trimmed cannabis flower per year.
In other words, according to the company, the cultivation property at its apparently soon-to-be-acquired farm has the capacity to produce as much as 64 tons of dried, trimmed cannabis flower, which would make it one of the most prolific outdoor cannabis cultivation farms in California.
From the Ground Up
With the ability to produce massive quantities of dried flower at cost of basic production, Sugarmade Inc (OTCMKTS:SGMD) stands to book enormous gains in profitability on its rapidly growing delivery distribution system.
But will it actually happen? And will it be run effectively if so? Those questions were also addressed in the company’s release.
In the latter case, according to the release, Lemon Glow executive team members Sam Luu and Ryan Santiago will, according to the LOI, become the core management team at Sugarmade’s cannabis cultivation site at the Property, with both continuing on with the business operation under three-year management contracts. The core management team has more than 30 years of combined experience in cultivation.
And in the former case, Sugarmade has apparently already deposited $400K in earnest money towards the acquisition. The Company has thirty (30) days to close the acquisition from the effective date of the LOI, which has been established as March 28, 2021.
In other words, there’s a ticking clock already in action. And one would certainly assume that the company wouldn’t have already put down nearly half a million dollars in earnest money on a deal it plans to walk away from. “As discussed in our recent corporate update, we are taking aggressive steps toward the establishment of full farm-to-door cannabis operations at scale in the California cannabis marketplace, and this acquisition represents a major part of that strategy,” commented Jimmy Chan, CEO of Sugarmade.
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