Terra Tech Corp (OTCMKTS: TRTC)
When investors first bought into the Terra Tech story, the company was growing, executing on their aggressive growth strategy, and framing a multi-level opportunistic business intent on building an infrastructure in both Edible Garden products, and, for the cultivation and sales of marijuana products, speculating on the continued relaxation of marijuana laws throughout the country.
What investors did not expect at this point in TRTC’s life cycle,was that they would be holding a bag of schwag instead of shares in a company that is truly intent on delivering shareholder value instead of insider enrichment.
TRTC’s Latest Conference Call Was Ridiculous
If investors needed the final reason to sell their shares, TRTC provided it during their November 9th conference call.
This was the quarter that investors were waiting on – the quarter that finally included retail sales from its Blum dispensaries and supporting revenue from additional branded products in Las Vegas. Failing to live up to the guidance provided by Derek Peterson during prior calls, the sales figures fell flat into a warm puddle of mud. But, to add insult to the disappointing revenue of just $7 million dollars, the margins were a pitiful 19% of sales. This from a company that has told investors that the TRTC benefit was that they controlled the seed-to-sale lifecycle of the transaction.
It’s a good thing that TRTC retained that much cost savings power, because if they didn’t, the $1.3 million dollar of gross profit would have been in the negative column. But, after hearing a multitude of excuses during previous calls, I would not have necessarily been surprised by a negative gross margin. As for that $1.3 million gross profit, don’t get too excited just yet.
Yes, by now you must have surmised that I sold my shares. Maybe I am one of the lucky ones that escaped with a profit. And, while many other investors still may enjoy owning shares purchased at the 20¢ level, be careful of the future.
Gee, Another Investor Turned Basher!
The question begs, is Soulstring another one of those long term investors that has now turned basher? Absolutely not. In fact, since I actually made a small profit on the long-term holding, I have no reason to bash. But, I do feel that the TRTC story should be presented in greater detail so that investors do not assume that TRTC is cheap at these levels, because the stock is not cheap.
Forget the share price – it’s at $0.3972. Yes, that sounds cheap. But, factor in that TRTC has over 521 million shares of common stock outstanding as of November 9th, compared to the 349 million shares outstanding on August 12th, 2016, and the picture begins to get blurry.
But if that increase in share count does not twist your joint, perhaps the additional and ambiguous Series B stock that can be converted into an additional 202 million shares at the request of the holder will do the job. Then, investors should add to that mix the options and warrants available to insiders that allow them to purchase an additional 16 million shares of stock. But, don’t worry, TRTC was keen to increase the number of authorized shares upwards of 950 million in its most recent regulatory filing. Even pushing through the threshold as a billion share company, it may not be enough.
But management had little choice but to raise the authorized shares, since the company was well under water in having the ability to convert shares. For instance, management told investors straight up that that if all the shares were converted, they will issue in excess of 439 million shares of common stock. This is in addition to the 349 million that are already outstanding. Thus, even with the rise in a/s, TRTC is still weak with a very limited cushion for future cash raises since they would have roughly 100 million shares, at best, to use as currency.
For those that argue that the warrants will provide cash, well, I’m sure that they will. However, when those shrewd insiders buy the shares for 12¢ to 13¢ and eagerly sell them into a market at anything higher than that level, their payday is sweet, but I guarantee you that it will be at the expense of the retail holder.
And who gets rich off of these shares, despite the share price? Well, TRTC insiders do, and these insiders have had good practice over the previous twelve months with 30 sell orders without a single insider purchase. I wonder if the husband and wife team of Peterson and Almeister, the CEO and Secretary- Treasurer, respectively, file their tax returns jointly and show their holdings of over 100 million shares. Or, perhaps Kaufman and Ibrahamim file together, another husband and wife team of TRTC insiders who own just under 200 million shares. It’s ironic that these insiders don’t share last names. Are they trying to hide something? And, what did they actually do to gain control of almost 40% of the company?
So, remember when TRTC had 350 million shares authorized? Well, even a second grade student studying to be a rocket scientist can figure out that this small group of insiders already owned most of the available float, when accounting for the convertible shares that they owned. And, the scraps were left for enthusiastic retail investors who were oblivious to the massive level of dilution that was pending.
But Soulstring, They Had To Grow
I’ll grant you the one wish. I’ll let you believe that all the shares were properly valued and wisely spent. Yes, I’ll grant you the wish and even allow you to believe it, but, in actuality, many retail investors may get toasted very soon.
Okay, so the Vandevredes and the Blum cartel got hefty share distributions, but at least they had a viable business to sell in order for them to earn that stake. But, beyond those two, most of the insiders probably never worked beyond an eight hour day to earn those multi-million share holdings.
And Amy Almeister – well, if investors take her share-selling lead, the dumps will be so heavy that even a twelve ton truck couldn’t hold the paper transferred into fresh retail hands. Oh, and Derek is selling too. If you ask them why they sell, you will most likely get the “tax reasons” response.
But, shareholders did not get to ask those questions during the most recent call. Instead of legitimate shareholder questions, which are typically accommodated by Peterson, the call on November 9th had staged questions and responses. Perhaps the CEO is smarter than many believe. Even he knows when to hide. And, its a good thing that he did hide.
Hiding From The Truth
If Peterson would have been willing to take questions, he could have explained how a record quarter led to even steeper losses. He could have explained how a seed-to-sales distribution program provided a 1% difference in gross margin. He could have explained how the Blum outlets only booked a total of $7 million dollars for the quarter when daily sales estimates were ranging in the $65K dollar per day level, per location.
He also hid from the fact that the company went from being virtually debt free to having $2 million in debt at the end of the third quarter. Investors would be safe to wager that the $2 million in debt is tied to some convertible notes that can return 20X that amount instead of the going rate for a junk company of 17% annual interest. But, why go mainstream when insiders can enrich themselves?
With all of the tailwinds finally at the back of TRTC and with the dispensaries finally contributing to the revenue stream, TRTC posted a net loss of $5.2 million dollars for the quarter, compared to a net loss of $2 million dollars in the comparable quarter. Thus, even with every positive thing that could have happened to bring TRTC into the black having happened, those accomplishments did absolutely nothing. Well, it did do something, it helped to increase the net loss by over 180% from a quarter that did not include dispensary sales.
Here’s The Final Bong Hit
TRTC has been nothing but a huge disappointment to retail shareholders since this company started. The red flags were all over the place, especially in relation to the CEO and his wife. But that is just the tip of the iceberg. Investors can do their own Google search on those two.
Insiders are dumping shares by the millions and are most likely laughing all the way to the bank. They have bloated this company to a virtual billion-share entity, and the next action will be the reverse split. Oh, you don’t think so? Well, don’t hang around to learn the hard way. A 10K share holding will likely become a 1K share holding within twelve months. From there, expect a second r/s and watch your shares become 100 shares with a 99.9% loss.
If TRTC can’t make it without direct competition, they are going to be hard pressed to survive when it does arrive. And believe me, competition is on the way. Big tobacco will become Big Kush before you know it, and little guys like TRTC won’t get bought out, they will be snuffed out.
The latest 10Q from TRTC needs to be read by all investors, and for those that are not willing to spend one hour to see what your company has done with your investment trust, you may regret the decision. For those that expect TRTC to go to a buck a share because they opened a few dispensaries, well, think again. TRTC is not worthy of its current market cap, so putting it at a billion dollar market cap is a pipe dream. In fact, that pipe better be stuffed with some of your dispensary favorites so that the pain will be eased when reality sets in.
I rarely write negative pieces on a stock. However, when I received a few questions about my thoughts on TRTC today, I felt it was the opportunity to be brutally honest.
I was warm on TRTC last month, and I provided the benefit of the doubt to management, expecting a legitimate report to be filed for the third quarter. What investors got, however, was more hype, garbage and excuses. Oh, yeah, and a couple hundred million more shares added to the o/s count. As for that huge spike in shareholder equity, well, $32 million of it was gained from and recorded by a goodwill accounting entry. C’mon, man!
For investors looking to find a niche play in the marijuana sector, look to the companies that are going to feed the frenzy. Equipment manufacturers, paraphernalia makers, and ancillary items needed by users to enjoy their lifestyle will be the winners in the early growth stages of the industry.
Saving 80¢ on a TRTC owned IVXX-branded package won’t get TRTC any closer to profitability than what we have just witnessed. And that was a conference call pat on the back.
TRTC threw the best they could at investors in November, and all they have to show for it is a huge increase in share count and almost triple the loss.
If I need to more blunt, I will be. TRTC should be dismantled, the insiders should be stripped of their shares, and the class actions should soon feast on their carcasses. Read the filings and read the staged Q&A from November. After you do that, decide whether or not hanging around the TRTC joint is a good decision for your financial future.
[Image Courtesy of Pixabay]