As we have been noting, the big winner this election is Cannabis.
Voters moved to legalize weed in Arizona, Montana, New Jersey, and South Dakota. Arizona, Montana, and South Dakota will now permit adults to possess and cultivate marijuana for personal use and establish a regulated retail market.
We also saw voters move to legalize medical marijuana in Mississippi and South Dakota.
The big key here is to note that these are mostly conservative states, and they moved to shove off the yoke of federal criminalization by instantiating state policies running the other direction. If you extrapolate this based on cultural grounds, you can make a pretty good case for an outlook that includes national legalization in the US for pot before too much longer.
In other words, this movement now unequivocally crosses party lines and dominates the mainstream in American culture. The foundation has been laid. This election was the signal flare to make that abundantly clear. It’s most likely now just a matter of time, according to our analysis.
One stock that could come to benefit from this movement is a small-cap still trading on the OTC: Sugarmade Inc (OTCMKTS:SGMD), which has become a rapidly growing force in the vertically integrated cannabis delivery space in the California market.
Movin’ On Up
We see Sugarmade Inc (OTCMKTS:SGMD) as a clear opportunity because the company recently announced plans to start geographically expanding into new markets. While we haven’t seen management for SGMD explicitly discuss interstate expansion, the idea is far from unrealistic over the course of time given its model, which is mediated through its major and operational stake in BudCars, a leading cannabis delivery brand.
BudCars has been killing it so far this year on a second derivative basis, recently preannouncing performance for the three months ended Sept. 30, 2020, which featured steadily strong gross margins, nearly $2 million in gross receipts, and more than 60% growth in net sales, customer orders and gross profits on a sequential quarterly basis.
Drilling down, the growth is clear, with the company doing gross receipts over $1.9 million ($1.55 million, net of sales taxes), representing 66% quarter over quarter sales growth and gross profits of $903,667, representing 64% quarter over quarter gross profit growth on steady 47% gross profit margins.
In addition, average daily gross sales increased 68% Q/Q to $21,246 and total customer tickets increased 62% Q/Q on 3% growth in average ticket size.
“BudCars continues to perform, setting records in basically every key metric we track,” stated Jimmy Chan, CEO of Sugarmade. “It was a tremendous quarter, with a big jump in customers and regional market share and robust margins on every sale. That paints a very motivating picture as we gear up to significantly expand our service territory, with upcoming expansion into the North Bay and Wine Country areas, as well as our upcoming grand opening of BudCars LA.”
Simple Extrapolation
This performance for Sugarmade Inc (OTCMKTS:SGMD) has to be appreciated in the context of two important recent announcements.
First off, the company recently stated that it believes the next leg of its accelerating growth will be fueled by geographic expansion initially into the North San Francisco Bay Area and the Wine Country counties followed by the grand opening of BudCars Los Angeles, which is anticipated to take place later this month.
That pairs up with its other big move: cultivation and full verticalization.
Specifically, SGMD recently secured rights to a property zoned for cannabis cultivation where it intends to establish a licensed cannabis cultivation facility, which presents the potential to widen profit margins further through vertical supply chain integration and the establishment of a branded line of cannabis products.
Taken together, these two catalysts paint a picture that could fuel a strong trajectory ahead, as margins widen and the company’s target reach expands through exposure to new markets.
Given the growth rate seen so far in its currently served regional footprint, it’s not a big leap to imagine a massive expansion in top and bottom line performance through the establishment of hubs across California and eventually into other states, pushed by the tailwind building towards potential nationwide legalization.
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