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Acology Inc (OTCMKTS:ACOL) Is About To Hit An Inflection Point

Acology Inc (OTCMKTS:ACOL) Is About To Hit An Inflection Point
Written by
Chris Sandburg
Published on
November 21, 2017
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When we last looked at Acology Inc (OTCMKTS:ACOL), the company was trading in and around $0.02 a share.This was back on March 31, 2017.We put forward what we thought was a pretty solid argument for long-term appreciation in the stock, based on its focus on the recreational cannabis market in Canada – a market that analysts expect will be worth more than $18 billion annually within the next five years and that – right now – is basically wide open for fresh entrants like this one.During the months subsequent to our initial highlighting of Acology, the company has had its ups and downs and bottomed out in and around $0.006 a share at the start of November. ACOL Daily ChartThis week, however, Acology has seen a large influx of volume hit the tape and the company gained just shy of 40% on its market capitalization during the session on Monday. There wasn't really any specific event that caused the upside run, suggesting that this could be a wider push in the recreational cannabis space as opposed to being driven by any operational development from Acology.A look at the major marijuana indexes confirms this statement.With that said, however, when we get these sort of industrywide pushes, markets will generally pick the most legitimate entities from the selection of main players and it is these picks that will appreciate to the highest degree in line with the overarching upside industrywide momentum.As such, while we've not seen Acology put out any important press releases or anything like that, the fact that it has run circa 40% against the backdrop of some industry strength suggests that this is a stock that markets view as credible and favorable and – intern – suggests that wider market sentiment is finally coming around to our line of thinking on the company.So what's next?This one is all about timing. During 2017 to date, Acology has essentially spent its time laying down a framework and a platform from which it can expand into the Canadian legal cannabis market once policymakers in the nation sign off on a legalization bill. This is expected to happen during the second quarter of next year, meaning Acology is perfectly positioned to absorb a large portion of the increased demand that is going to come about when any such bill is passed.We got some communication from management a couple of weeks ago in the form of this letter to shareholders and the letter reinforced our thesis. More specifically, management outlined an increased gross profit against a backdrop of reduced product costs and the relieving of more than $1 million in debt from its balance sheet during the three months prior to the 10Q release date.We also saw the company ink a number of fresh partnership deals, the latest example of which came as part of a collaboration with EZ Health Solutions, serving to expand Acology's footprint in the sector and, in turn, allowing it to command an even larger share of what is going to be a dramatically increased market size over the coming six months.This isn't a risk-free allocation and a look at the balance sheet, even with the reduced debt load, illustrates that fact. The company had just $3.5 thousand cash on hand as of September 30, meaning we are almost certainly going to see some kind of equity raise ahead of a ramped-up commercialization effort during the first half of next year. With that said, however, and when including accounts receivable, inventories and notes receivable in the total current assets figure, the number rises to $329,000, which is little more palatable.Any equity raise, of course, will be carried out with the goal of being able to use the money to expand into a rapidly growing market so, as long as management can allocate capital efficiently, dilution shouldn’t be too much of a problem.Check out our previous coverage of this one here. We will be updating our subscribers as soon as we know more. For the latest updates on ACOL, sign up below!Image courtesy of M a n u e l via FlickrDisclosure: We have no position in ACOL and have not been compensated for this article.

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