National Access Cannabis Corp (TSXV:META) announced its quarterly results earlier this week. The Company plans to be a big player in the retail landscape and the early results are a good indication that things are on the right track. Sales for the three months ending November 30 totaled $3.8 million, which is a huge improvement from the $437k that The Company generated just a year ago. However, it should be noted that it didn’t have any cannabis sales back then either.
Nonetheless, it was definitely a strong start with the recreational pot market now underway. Only about half of the quarter included post-legalization sales and investors will have to wait until the next earnings report to see what a full quarter looks like. However, that doesn’t stop us from being able to analyze where The Company is today.
One area that definitely stood out for me in reviewing the quarter’s results was the astronomical increase in general and administrative expenses. From $1.4 million a year ago, National Access Cannabis incurred costs totaling just under $6 million during the quarter. It’s understandable that we’ll see some significant increases in this section of the financials given the growth The Company has undertaken, but it’s something that investors will want to keep an eye out in future quarters.
One of the biggest drivers behind the increase in costs was salaries, which at $1.9 million was nearly four times the amount that was recorded a year ago. Professional fees of $1.4 million were also well up from 2017’s tally of $186k. Rental fees also totaled more than a million dollars, although that’s not as big a surprise given the locations that are now in The Company’s portfolio.
Generally, I look to see whether costs are outpacing revenues, and the good news is we aren’t seeing that this quarter.
Key takeaways for investors
In its segmented results, National Access Cannabis posted a gross margin of 32% from its retail stores and 79% from its education clinics. That’s a good sign and as we see more locations open up that will help get The Company closer to breaking even. However, that’s still a long way to go as supply issues will create obstacles for new stores. After all, it would be pointless to open up shop if there is nothing to sell. And it may take years for supply to catch up to demand.
Another area of concern is the rate of cash that National Access Cannabis burned through during just the quarter. The Company used up more than $13 million in cash relating to its operating activities. And after repaying debt and acquisitions, that number soared to $35 million – in just three months time. As a result, The Company had to issue more than $40 million in shares and debentures. New stock issues dilute existing shareholders and that’s definitely going to keep many potential investors on the fence.
Overall, in the past year, the stock has lost around one-third of its value. While it did get a boost from these results, it’s nowhere near the highs it reached in 2018 when the stock was trading as high as $1.32.
Image via National Access Cannabis