Terra Tech: Can Your Portfolio Actually Get High From TRTC?

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Like it or not, marijuana legalization, whether for medical or recreational purposes, is growing quickly throughout the United States. As of today, 25 states have legalized marijuana for medical use, with four of those states legalizing the plant for recreational consumption.

Terra Tech is a company that has quickly diversified itself from a seller of mostly organic and hydroponic food and herb products to a company focused on exploiting the early opportunities that the legalization trend has created.

Terra Tech originally concentrated on the production of hydroponic food, offering consistent, high quality, non-gmo greens and herbs. However, after recognizing the public shift in sentiment toward the medical and recreational use of marijuana, TRTC seized on an opportunity to maximize its ownership in Edible Garden’s and to pursue an aggressive plan to grow and distribute marijuana bud and plant-based products.

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Yeah, Non-GMO Plants Are Cool, But Won’t Non-GMO Marijuana Be More Profitable?

In 2013, Terra Tech began to shift its focus toward becoming an early participant and potential dominating player in the marijuana market, working to exploit a predicted $8 billion dollar industry by 2018. TRTC is utilizing multiple subsidiaries to offer a full service, high quality, medical grade cannabis product, which they package and deliver to licensed and qualified medical marijuana dispensaries, inclusive of their own Blum subsidiary.

Taking advantage of their hydroponic expertise through its ownership of Edible Garden’s, TRTC is one of only a small handful of companies that has secured a seed-to-market capability. With Edible Garden’s infrastructure already in place, TRTC can navigate through each and every aspect of the production and distribution chain, representing a significant advantage over emerging competitors who will rely on potentially inconsistent wholesale purchases from third parties. By actually growing and distributing their own cannabis, TRTC has become a fully integrated company, with the ability to efficiently control its entire sales cycle, from seed to consumer.

I Thought Pot Was Only Legal In Colorado, Is TRTC Actually Selling Marijuana Elsewhere?

Yes, Terra Tech is actively selling medical grade marijuana through it subsidiary, Blum, a company that TRTC purchased in 2015. Since the acquisition, TRTC has opened three marijuana dispensaries and is in the final stages to launch an additional two locations in the Oakland and Las Vegas markets prior to year end.

The Blum outlets offer a variety of products that range in both quality and form. They offer product for customers to smoke, products to eat, and topical creams and oil’s, with customers having the ability to choose from an assortment of top shelf or budget friendly options.

On the smoke side, the company has high-grade products and markets them similar to fine wine. For instance, TRTC lists one of its products, Cadillac Purple, as a “chrome-plated indica classic. Large, frosty nugs and a deep purple effect.”

Making the buying experience even more mainstream, customers can take advantage of the diversified menu of products when shopping during one of the daily specials, like the “buy one, get one for half price” sale during its Munchie Monday sales promotion.

TRTC has been relatively tight lipped about the daily sales generated through the dispensary unit, potentially due to the security and early competitive aspect of the business. Currently, major banking institutions are restricted from accepting any money or deposits that have been earned or generated through commerce that violates federal law. In most instances, the sales might also preclude the use of some credit and debit cards. So, with that much cash on hand at a given location, being somewhat discreet is tolerable for the time being.

Regardless of their reasons to be tight lipped on daily sales, TRTC will be required to be more specific regarding its Blum sales figures in its next quarterly filing, allowing investors to generate an opinion as to whether the dispensary business model will be a predictable net profit generator.

You Said Smoking Or Eating The Marijuana, Did You Make A Mistake?

No, I certainly did not. Through TRTC’s “IVXX” (twenty four) subsidiary, the company offers a vast array of products including oils, shatters, waxes, and clears. Consumers can also indulge in purchasing custom rolled joints, brownies, muffins, or suckers from the prolific and well-designed menu. Each item is meticulously measured and gauged for potency, strength, and quality.

So, How High Can My Portfolio Get With TRTC?

That’s the tough question. As I said, TRTC has been what I would consider semi-transparent during its recent conference calls and press releases. I can’t blame management entirely for these lapses, as they do need to tread lightly when providing guidance and specific dispensary grand opening dates. Keep in mind that only about half of the population supports the legalization trend, with most votes being decided by just a few percentage points beyond the 50% threshold. During the early stages of this industry’s development, TRTC would be wise to under-promise and over-deliver. The legal and technical wrangles associated with any managerial error could be costly in a licensing, public opinion, and financial sense.

Talk about getting high, TRTC has itself pretty tightly rolled. As of June 30, 2016, the company has 349,981,822 shares issued and outstanding. With only 350 million shares authorized, the opportunity to use stock as a currency is practically nonexistent. Further, the company has issued several series of preferred shares, complicating the common shareholders ability to understand exactly how much equity has been diluted from them and how much voting power has been lost to the preferred holders.

As of June 30, 2016, TRTC listed current assets at slightly over $4.5 million dollars, with approximately $1.5 million dollars of that in cash or cash equivalents. Terra Tech listed current liabilities at $11.2 million dollars and line-itemed long-term liabilities and debt at $3.2 million dollars.

TRTC CEO Derek Peterson highlighted that shareholder equity has blossomed to over $66 million dollars in comparison to the prior quarter, however, it must be noted that approximately $54 million dollars of that gain is attributable to goodwill and intangible assets.

Easing shareholder worry, TRTC has indicated to shareholders that the company will not initiate a reverse split, which can consequently keep the company cash-strapped and limit their pursuit of additional acquisitions or the construction of new dispensaries. Investors are anxiously awaiting the next quarterly report to get a full quarter’s glimpse into the Blum dispensary revenue stream and determine whether the business model will be able to generate the net cash required to allow TRTC to continue its aggressive growth plan without the need for additional and potentially dilutive capital.

The Stock Does Get High, Then It Comes Down Hard

Shareholders have been rolled every which way but loose, with the stock trading erratically during the past few weeks. With 349 million shares outstanding, investors would think that the liquidity would help to stabilize the share price. That has not necessarily been the case. TRTC stock has been trading in a range of between 33 cents and 44 cents during the past couple of weeks, with trading volume slightly above average during that same period.

What should worry shareholders about investing in TRTC at this stage of growth is that the company was liberal in using treasury shares to build most of the infrastructure, and many of those shares were valued in the 20 cent or less range at the time of distribution. Ultimately, any meaningful rally in the stock will likely be met with an abundance of sellers, eager to cash out their original investment to reduce their overall exposure and future risk to capital.

Although shareholders have successfully rallied against a reverse split, TRTC may not have a choice. Management has stated during conference calls that a reverse split would only be used to advance the opportunity to uplist to a larger exchange. Importantly, TRTC management must be in a position to ensure that the company can support the move by solidifying its Blum retail and Edible Garden’s revenue streams. Additionally, with uplisting requiring certain financial qualifications, the company should expect to substantiate on what merit they recorded a $53 million dollar asset in goodwill and intangibles.

Overall, I like the stock and believe that they are in the right place at the right time. Having the footprint imbedded so deeply into the early stages of the legalization trend is a clear benefit. Add to that the seed-to-market strategy and the recipe for success is staring management in the face. Investors, though, would be naive to think that a reverse split won’t be required in the future. It will be.

Without a reverse split, assuming that Blum net income cannot support the TRTC growth strategy, the only other option would be for shareholders to approve an increase in the authorized shares, which would be quite dilutive and potentially detrimental to current common shareholders.

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Don’t Get High On Your Own Supply

Shareholders might be wise to take advantage of the next rally in the stock, taking some profit and looking to enter the stock at more appealing prices. Although I prefer a long-term strategy over trading stocks, with the authorized shares all but spent, the company will be forced to react to their slim wallet with some form of liquidity compromise. If a shareholder has a share supply, sell them while they’re high.

TRTC might be a good long-term investment, but for the short term there is a tremendous amount of house cleaning to be done on the accounting side of the equation.

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[Image Courtesy of Pixabay]

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