Gold Flora GRAM, a Californian cannabis company, reported a disappointing second quarter of 2024, with sales falling short of expectations. The company’s revenue reached $31.6 million, marking a 2% sequential decline compared to the previous quarter and missing the estimated $34.2 million. This performance raised concerns, despite a generally positive outlook for the company in the medium term, according to a report by Zuanic & Associates.
The company also reported an adjusted EBITDA of -$2 million, significantly lower than the anticipated +$1.1 million. Management attributed the decline in sales to increased discounting by leading brands and seasonal factors. On a positive note, production output increased by 14% quarter-over-quarter, although inventories dropped by $1.3 million.
Despite heightened price competition, Gold Flora managed to increase its adjusted cash gross margins from 54% to 57% quarter-over-quarter. This was partly due to a higher allocation of its production to the company’s 16 dispensaries. However, reported all-in gross margins dropped from 31% to 23%. The company’s recurring operating expenses rose to $17.2 million in Q2, compared to $15.6 million in Q1, while cash holdings decreased by $3.5 million quarter-over-quarter, showing an improvement from prior quarters.
Gold Flora’s total net debt increased to $37 million, with $16 million due within 12 months. The company is expected to refinance part of its debt, particularly the $22.6 million in convertible debt due by the end of 2025.
Despite the disappointing quarterly results, the company’s strategic approach remains intact, with plans to expand its production capacity and increase its retail footprint. This long-term strategy has led analysts at Zuanic & Associates to maintain an overweight rating on Gold Flora, citing the company’s growth potential and attractive valuation compared to peers like GlassHouse. The stock currently trades at 0.7x projected 2024 sales, below the 1.9x MSO average.
Gold Flora’s stock has been underperforming, with shares down 57% over the last 90 days, compared to a 23% decline for the MSOS ETF. However, the company’s focus on strategic growth and its relatively low valuation compared to peers suggest potential for future success.
