So far this year, Next Green Wave Holdings Inc. (NGW.CN) (NXGWF) has been quietly outperforming the cannabis sector and the stock has rallied more than 350% during this time.
Next Green Wave has been nothing short of an execution story that has visible catalysts for growth. The company is levered to the California cannabis market and has been reporting substantial advancements. We are bullish on the growth prospects that are associated with Next Green Wave’s strategy to capitalize on the California market and will continue to closely follow the opportunity.
In the Middle of a Major Transformation
The company has been executing on a business transformation and has been transitioning the business into a consumer product goods (CPG) business from being a cannabis flower producer.
Next Green Wave’s focus on the development and sale of cannabis CPG products represents a key pillar of growth. The vertical provides the company with the ability to generate more revenue, cash flow and profit that go beyond the current constraints of its cannabis flower production limits. By executing on this strategy, Next Green Wave can take market share in segments that do not require additional production infrastructure, labor, or resources.
We are impressed with how the business has pivoted from being strictly a California cannabis producer. Under the new growth strategy, Next Green Wave is currently selling premium indoor flower, pre-rolls, cannabis concentrates, and sauce cartridges. We are favorable on the diversity of the product line and would not be surprised to see the business launch new types of cannabis products in the near future.
Launches New Product that is Already Raking in Cash
Last week, Next Green Wave reported to have generated more than $100,000 of revenue from sauce cartridges in the first 30 days. One of the reasons we are favorable on this vertical is related to the margins that are associated with the product line. Next Green Wave records a gross margin of approximately 60% on the products and we are favorable on the economics of the opportunity from a profitability standpoint.
Due to the higher-than-expected demand from the soft launch of the product line, Next Green Wave plans to rapidly expand distribution to all current retail partners, and we are favorable on the amount of revenue that can be generated by this.
From July to September, Next Green Wave recorded positive cash flow, adjusted EBITDA, and net income. The company has achieved this level of success for the seventh consecutive month and this is a trend that we expect to continue as the management team brings additional premium cannabis products to market.
Making Itself More Attractive to Dispensaries
To capitalize on the growing popularity of Next Green Wave’s brands, it has launched several new artisanal grade products that are being sold in dispensaries in cities across California. Although the company’s branded products are available across California, it has focused on San Diego, LA, Modesto, Sacramento and Oakland. We are favorable on these jurisdictions in California and consider this to be an attractive aspect of the story.
In the coming week, Next Green Wave expects to launch a line of gum drops and we will monitor how the product gains traction with consumers. The continued focus on diversifying the types of products it sells will play an important role in the success of the brand from a distribution standpoint.
We have spoken with hundreds of dispensary owners over the years and have noticed a common theme among them. The vast majority of these operators prefer to work with brands that have a diverse product line that includes vape pens and edibles. From a dispensary standpoint, cannabis derivative products like edibles and vape pens have higher margins and we can understand why dispensaries want to feature brands that offers a wide variety of products.
An Execution Story to be Aware Of
Typically, when we see a cannabis stock that has rallied more than 300% in less than one year, we consider the opportunity to be overvalued and overhyped. When it comes to Next Green Wave, this could not be further from the truth and we are bullish on how the business has advanced and believe that it has substantial potential catalysts for growth.