Last week Canaccord Genuity dropped its estimates on a cannabis company called DionyMed Brands (CSE: DYME) (HMDEF) , blaming the company's decision to no longer use the Eaze delivery service software. Analyst Bobby Burleson said, "Deliveries made through Eaze in San Francisco and Oakland were providing approximately $2.9 million in revenues per month to DYME at an approximate 8% EBITDA margin."
The company said it decided to no longer work with Eaze because, "Based on review by outside counsel, DYME could not confirm that the processing procedure meets California regulatory requirements." The company said it was going to invest in its own delivery service called "Chill."
What's odd about this statement regarding Eaze is that Eaze does not process payments. Eaze is a software company that facilitates delivery. It doesn't actually do the delivery themselves or handle the financial transaction. Eaze works with consumers and helps them find dispensaries to purchase products that the dispensary will deliver to them. There is nothing in California's regulations that Eaze is violating.
An Eaze spokesperson said, "As a technology platform that enables licensed cannabis retailers to fulfill on-demand delivery to consumers, Eaze does not process payments. We believe we and our licensed retail partners are complaint with all CA regulations."
Burleson didn't respond to questions as to why DionyMed would make these claims. It could be that its own delivery service Chill will be a direct competitor of Eaze. The platform was launched last November and the analyst said that early adoption has been positive and they expect continued strong growth for the Chill platform that would replace the Eaze contributions.
At this time the service is cash only and also includes a membership function as well. The Chill service is available in San Francisco and Oakland, and is planned to expand to Los Angeles, Oregon and Massachusetts.
The analyst reiterated his price target of C$6.00 and DionyMed was recently trading at C$3.22. Revenues for 2019 are estimated to be C$162 million, down from the previous estimate of C$178.6 million. The EBITDA was dropped from C$20.6 million to C$17.2 million. Revenue estimates for 2020 remain unchanged at C$280.4 million and EBITDA is estimated at C$56.1 million.
The net loss for 2018 is estimated to be C$9.6 million. The analyst has reiterated his "Speculative Buy" rating and disclosed that DionyMed is a client of Canaccord Genuity.
Earlier this week, DionyMed said it was signing an option to acquire Waterside Warehousing in Oakland. Waterside is a manufacturing and indoor craft cultivator located next to DionyMed's existing Oakland campus. The company agreed to pay $1 million upfront through its credit facility with the option to acquire Waterside for an additional $5 million.
Edward Fields, CEO of DionyMed, said, "Waterside Warehousing brings critical manufacturing, R&D capacity and indoor cultivation to our existing operational infrastructure. As we continue to build our market position in California by delivering today's most in-demand cannabis brands, the team at Waterside accelerates our production capacity, margins and product portfolio."
The company said that if it chooses to go forward with the acquisition of Waterside that it may draw upon its credit facility, issue stock or raise new equity. That would explain why its banker Canaccord felt the need to explain the loss of the Eaze revenue and chose to do so by throwing Eaze under the delivery car. With so many positive attributes for this company, like its solid revenue stream, it seemed to be an unnecessary move.
DionyMed also has a strong lineup of brands including the award-winning cannabis vape from Winberry Farms out of Oregon, valued-priced Gardeners flower and the well-priced CBD line called Aja. Other portfolio brands include the limited edition Afterglow, Herbology, Headwaters, Reveur, Higherveda Medicinals and the Gio G-pen.
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