• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Plus Cannabis Gummies Get a 'Speculative Buy' Rating With a Delicious Outlook

If Plus cannabis gummies are a big hit, just think how consumers will respond to hemp-derived CBD gummies.
By DEBRA BORCHARDT
Mar 21, 2019 | 10:35 AM EDT
Stocks quotes in this article: PLPRF

Canaccord Genuity initiated covered on Plus Products Inc. (PLUS.CN) (PLPRF) with a 'Speculative Buy' rating and a price target of C$8.00. The stock was recently trading at C$5.86. This California-based company is known for its gummies that are sold in round tins.

Plus had the two top-selling products in the edibles category in California accounting for nearly 8% of that category's retail sales. Canaccord disclosed that "one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from PLUS Products in the next three months."

The analyst Bobby Burleson believes the company will gain from its plan to expand its products beyond gummies into baked goods and mints. That being said, the report did note that gummy sales represent 36% of the edibles market in California, so it is already a popular form factor. Gummies account for 50% of the edibles sales in Oregon and Nevada. So if Plus were able to expand beyond the California state lines, consumers have already signaled they like cannabis gummies.

Reasons Why Gummy Sales Could Expand

California is cracking down on unlicensed dispensaries and that could spell share gain for Plus. Dispensary owners will need to play by the rules and only sell products that have met all the rules and requirements.

Consumers have already begun to trend away from buying traditional flower at the dispensaries and edibles have gained from this shift. Gummies as a percentage of California sales rose from 28% in January of 2018 to almost 45% in January 2019.

If Plus cannabis gummies are a big hit, just think how consumers will respond to hemp-derived CBD gummies. "We see significant long-term growth opportunities for hemp-based CBD," wrote Burleson.

Plus has plans to move beyond its home state of California. Nevada and Massachusetts look like they will be the first states for expansion. Those could be followed by Florida, Michigan and New York. "We estimate the expansion states and Canada could represent a combined market of more than $10 billion by 2022," wrote the analyst. Burleson said he thinks these expansion markets had the potential to add an incremental $72 million to his 2020 estimate.

Beyond Gummies

Plus acquired Good Co-op Inc. for $2 million in an all-stock deal this past December. It is another California-based edible maker, but one that specializes in baked goods and in particular, brownies. Plus intends to use this acquisition to create baked goods like brownies and cookies, mints and hard candies. Baked goods command roughly 10% of the edibles sales in California.

Good lost its manufacturing license as it was building out its Sacramento plant at the time of the acquisition. Plus has actually expanded the site's production capacity.

Risks

The risks that the analyst listed seemed to be pretty standard ones, except for the cash flow. Burleson noted, "Plus remains cash flow negative in our model and requires significant capex to fund California growth and expansion initiatives in the near term, so the company may need to raise further capital to fund expansion initiatives." That is probably why in the disclosure Canaccord says it may be making money from the company within the next three months. At this time though Plus has $38 million in cash and $19 million in debt on the books.

Plus had estimated sales of $8.4 million in 2018, but a EBITDA loss of $6.5 million and negative free cash flow of $8.1 million. In the third quarter Plus reported revenue of $2.5 million, but the cost of sales was $2.1 million.

Canaccord thinks that Plus' sales will increase from an estimated 1.4 million packages sold in 2018 to 3.7 million in 2019. They also believe that the market share will double from 8% in 2018 to 15% this year, and 28% in 2020. That's a third of the market, which seems very ambitious with the amount of competition hitting the market.

Without a doubt the Plus gummies are a consumer favorite. Full disclosure, this reporter has purchased them and enjoyed the product. However, it seems that the analyst glosses over the expense of producing the risks, negative cash flow and focuses instead on very ambitious sales estimates.

Consumers in Nevada may be familiar with Plus, but most consumers in Massachusetts probably have never heard of the company. Yes, they are tasty treats, but there's no way to know whether a product that sells well in California will sell well in Massachusetts. Then there's the other big gummy company Wana Brands which is also available in Nevada and Michigan. Wana is the number one gummy in Colorado and it wasn't even mentioned in the Canaccord report.

Plus gummies are great products and the sales will surely rise, but they may not rise as much as this analyst thinks.

Will You Have Enough Money to Retire?

Want to learn about retirement planning from some of the nation's top experts? Join TheStreet's Robert "Mr. Retirement" Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Debra Borchardt had no position in the securities mentioned.

TAGS: Investing | Markets | Stocks | Trading | Analyst Actions | Cannabis

More from Investing

The 10 Personality Traits of Successful Traders and Investors

James "Rev Shark" DePorre
Jun 25, 2022 10:00 AM EDT

Superior market players share these characteristics in their emotional makeup.

Does the Big Bounce Mean More to Come? Let's See What Drove the Move

James "Rev Shark" DePorre
Jun 24, 2022 4:42 PM EDT

Much of the rally can be attributed to structural reasons, not fundamentals, technicals, or even macro ones.

MongoDB Is Poised for a Rally

Bruce Kamich
Jun 24, 2022 2:15 PM EDT

Here's our initial upside price target for MDB which provides a general purpose database platform.

See That Down the Road? It's the Big 'Green' Bubble, Ready to Pop

Jim Collins
Jun 24, 2022 1:30 PM EDT

Environmental, social, and corporate governance has created a monster and gullible investors should hit the brakes on their EVs and run from the Washington technocrats while they have the chance.

Treat Becton, Dickinson and Company With Care

Bruce Kamich
Jun 24, 2022 1:25 PM EDT

BDX gets an upgrade, but are the charts healthy enough to recommend?

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • 10:44 AM EDT PAUL PRICE

    My Very Best Pick for the Next 12 Months

    American Woodmark . It rarely gets better than th...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login