Over the past few days, the shares of the Wayland Group (MRRCF) has shined during a mixed market for cannabis stocks. That measures out to a 20 percent move. Compare this to an index or ETF of cannabis that has been pretty much unchanged, and you get the point.
For those who haven’t looked at Wayland before now, you haven’t missed much. Frankly, the stock has been a dog, losing about half its value over the past twelve months. So what’s going on with the $175 million market cap Canadian-based company?
Here are some of the puzzle parts. In the latest financial statements filed with Canadian regulators up to Q3 2018, the company lost over C$33 million. This has not stopped them from raising over $50 million within the last eight months.
The company has a super aggressive growth plan that, by their own calculations, will result in a cash burn in 2019 of $115 million. This means Wayland will have to tap into the market for perhaps as much as $50-$75 million in equity this year. Want to go along for the ride? Here’s a glimpse into what it’ll be like to take this journey with Wayland.
Who is Wayland anyway?
To appreciate managements aggressive vision, one need only to read the company’s self-description.
“Wayland is a vertically integrated cultivator and processor of cannabis. The Company was founded in 2013 and is based in Burlington, Ontario, Canada and Munich, Germany, with production facilities in Langton, Ontario where it operates cannabis cultivation, extraction, formulation, and distribution business under federal licenses from the Government of Canada.
The Company also has production operations in Dresden, Saxony, Germany, Regensdorf, Switzerland, and Alessandria, Piedmont, Italy. Wayland will continue to pursue new opportunities globally, including the consummation of its previously announced transactions in the United Kingdom, Australia, Colombia, and Argentina, in its effort to enhance lives through cannabis.”
If building a global supply chain was not enough of a challenge, Wayland management has its sights set on branding and retail dispensaries as well. Here is their list: KIWI: designed for light THC users, NORTHERN HARVEST: for light / medium THC users, HIGH TIDE: for medium to heavy users, LOST AT SEED: a premium brand for medium to heavy users, and RARE DANKNESS: for THC users that consume and have plenty of time on their hands.
Wayland’s present core is in the medical area with SOLARA C: Designed for the consumer who is looking to find solutions to help them live healthier/better lives without using stronger pharmaceutical alternatives.
According to MarketWatch, Wayland is not covered by anyone in either the Canadian community or by Wall Street. That is not the fault of Wayland management who has issued no fewer than 32 press releases in the past six months.
The most recent on April 4 may account for the rapid run-up in the stock price. The company revealed it had been selected by the German version of the FDA to be one of three groups selected, subject to a review period, to begin production of medical cannabis.
A final decision will be announced at a time yet to be determined, after April 17, 2019. It is unclear if German regulators will issue one or multiple licenses and how long before a final decision is reached.
Germany is a key part of Wayland’s growth strategy because of its size and the fact that 60 percent of prescriptions are covered by insurance. So winning a government license would justify the recent 20 percent stock price rise, whereas not achieving a license would likely have adverse stock price consequences.
Predicting the direction of Wayland’s stock in the short term is like rolling the dice. The answer appears to hinge on expectations for German regulators. After that comes the companies heavy spending corporate infrastructure. For example, in the most recently reported results (Q3, 2018) the company spent C$13+ million on operations with only C$225,000 in revenues to show for it.
In addition, records show the company with a gross loss of C$2.1 million. In other words, the company’s cost of cannabis is higher than its selling price. This is never a good sign.
So even if Wayland gets the approval of German regulators, there will be questions about if management’s plan for global dominance is realistic. Risk-oriented cannabis investors will look back to last September when the stock hit an all-time high of $1.87.
That is well over twice the current price hovering around $0.75 per share. The list of billionaires is filled with risk-oriented investors, but then so is the list of bankruptcy petitioners.