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A Close Look At Terra Tech Corp (OTCMKTS:TRTC) Q3 Numbers

A Close Look At Terra Tech Corp (OTCMKTS:TRTC) Q3 Numbers
Written by
Alex Carlson
Published on
November 11, 2016
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Terra Tech Corp (OTCMKTS:TRTC) is suffering from a case of "buy the rumor, sell the news" after reporting Q3 numbers and marijuana initiatives passing in several states. California, Massachusetts, Maine, and Nevada all voted to legalize marijuana for recreational use, while North Dakota, Arkansas, Montana, and Florida voted for medical use.TRTC also ran into heavy resistance above the $.50 level and technical selling set in as traders booked profits and the shorts came in. The stock has developed a strong pattern over the past several months. As we said at the beginning of October:

"Terra Tech Corp has been moving up the charts after selling off in August. We are seeing a similar pattern with TRTC that we saw in June and July. The stock established support at the $.30 level, hit resistance at $.40, and then broke through that resistance and ran to $.50. With the November ballot initiatives around the corner and an upcoming Q3 earnings report, TRTC looks to be heating up again."

Investors are now asking what's next?First up, a look at Q3 numbers. Total revenues generated for the quarter ended September 30, 2016 were approximately $7.0 million, compared to $2.0 million in the same period in 2015. This is an increase of 244% from the quarter ended September 30, 2015. The increase in third quarter revenues was primarily attributable to sales from the acquisition of the Blüm dispensary in Oakland, California, which closed on April 1, 2016, sales of IVXX cannabis products and Edible Garden sales of its produce, herbs and floral products. Third quarter revenues also benefited from sales from the Western, Las Vegas Blum dispensary which opened during the second fiscal quarter of 2016.Gross margin for the third quarter of 2016 was approximately $1.3 million or 19% of sales, compared to a gross margin of approximately $370,000 or 18% of sales for the third quarter of 2015. Stockholders' equity for the third quarter of 2016 amounted to approximately $39.3 million, compared with approximately $6.3 million as of December 31, 2015. The increase is attributable to the Blum Oakland acquisition reduced by the current quarters' loss. The net loss for the quarter ended September 30, 2016 was approximately $5.9 million or $0.01 per share compared with a loss of approximately $2.0 million or $0.01 per share for the third quarter of 2015. The primary reason for the increase in net loss is the increase in general and administrative expenses.As we've said before, we believe there's no better company positioned to benefit in California and Nevada than Terra Tech. California is the seventh largest economy in the world and the recreational marijuana market will be largest market in the world. In Las Vegas, the city will become the "Amsterdam of the U.S." While it will take 18 to 24 months for all the specifics to be worked out, Terra Tech will have three dispensaries to sell cannabis to Las Vegas' more than 40 million yearly visitors.Terra Tech sees itself as the "Starbucks of Cannabis" with its Blum and IVXX brands. A customer will receive the same experience and same quality products at all Blum locations. CEO Derek Peterson said on the earnings call:

"We want that homogenized kind of franchise experience at the retail level that exists in every other industry in the country. Any other industry in the world. If you walk into Starbucks in Northern California and order a Mocha and do the same thing in Massachusetts and you get a different product, you're not going to stand for that. And in the cannabis industry you shouldn’t either. You should be able to have the same replicable experience from a product standpoint, a consistency standpoint and just an overall general experience standpoint. And that is something that's so fragmented right now that we're trying to be the disrupter in that space. So, branding of our Blum retail dispensaries is a core focus for us in multiple marketplaces. Expansion of the IVXX brand and getting that branding momentum on a wholesale basis is our other primary focus. If we can win those two games and not be pushed into the corner as a commodity provider, we think we walk out of this having a significant advantage over our competitors."

But diving deeper, here's what he said that got us excited.

"Now, we've created such energy and such demand for our produce division, it stands on its own, we're going to able to, we're going to begin to migrate out of the flower business. And what that's going to mean is a little bit of loss in the revenue but that revenue loss will be more than made up by the accretive activities out of Nevada, the expansion of the IVXX brand, M&A activity and that type of thing."

There's certainly a big opportunity for M&A. We can see Terra Tech embarking on an aggressive roll-up strategy of other dispensaries, primarily in California where the market is highly fragmented. This will really grow the top and bottom lines and make Terra Tech the premier cannabis company in the U.S. Already, it is the only US-based, publicly-traded company that touches every aspect of the cannabis life cycle—from cultivation, to extraction, to branding, and finally, to retail sale.

In the short run, we expect to see weakness as investors book profits and shorts try to take the stock lower. Longer term, this weakness will benefit investors that want to get exposure to the best run cannabis company in the U.S. We will be updating our subscribers as soon as we know more. For the latest updates on TRTC, sign up below!

Disclosure: We have no position in TRTC and have not been compensated for this article.

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