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Arcturus Growthstar Technologies Inc (OTCMKTS:AGSTF) Has Potential For High Growth, But Dilution Is A Sure Thing

Arcturus Growthstar Technologies Inc (OTCMKTS:AGSTF) Has Potential For High Growth, But Dilution Is A Sure Thing
Written by
Chris Sandburg
Published on
November 16, 2016
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Arcturus Growthstar Technologies Inc (OTCMKTS:AGSTF) has been one of the week's big runners in the cannabis space so far, and while there's no question what's helping the run, there's some questions as to whether it's valid, and – in turn – whether there's any potential for further growth.Let's have a look at the company in an attempt to answer these questions.The company bills itself as developing and acquiring technologies that will position it as a leader in the evolution of Controlled Environment Agriculture (CEA) for the global production of various types of plants. Additionally, and perhaps a little unusually, it also specializes in the development of LED lights, and retails these LEDs online through various online platforms. There may be some synergy between the lighting technology and the agriculture, rooted in the necessity to maintain a controlled lighting system throughout the growth phase of leafy plants (especially hydroponics), but right now that's speculation on our part.What we are looking at as the primary driver is a recent letter of intent (LOI). This LOI detailed the the acquisition of a Florida based greenhouse, and it looks to be a nice pickup for Arcturus.It's LOI phase right now, so we don’t want to go jumping to any conclusions. This said, if the company can close on the acquisition, and do so in a way that's not too detrimental to shareholders (there's no cash on hand, so the acquisition is almost certainly going to have to come through equity issue), it could be a game changer.As a bit of background, Florida just approved Amendment 2, which supported legalizing medical marijuana for individuals with specific debilitating diseases or comparable debilitating conditions as determined by a licensed state physician. There's a difference between Florida and some of its peers, however, and it's rooted in the legal framework that underpins the opportunity.In Florida, to get a permit for cannabis growth, applicants had to have been in business in Florida for at least 30 years and grow a minimum of 400,000 plants at the time they applied.The greenhouse that the company is set to acquire meets these criteria, and should make for a smooth transition as and when Arcturus transfers it from its current growth focus to cannabis.And when it does that, there's plenty to look forward to from a financial perspective. In the last twelve months alone, the facility has $2.6 million revenues, with EBITDA of $400,000. And that's growing and selling ornamental plants. It's a ten-acre site, and with the value of cannabis running at anywhere between $1200-$2000 per pound, the transition of this site to a marijuana strain operation is going to dramatically increase its revenue potential.So far, management has been pretty closed book on exactly what it expects the site to produce, but a seven figures monthly estimate is what we have to go off right now, and with the site already fully functional, it's reasonable to assume that these revenues should start generating cash relatively quickly.Arcturis is currently valued at $11 million market cap, and the new facility should bring in a minimum of $12 million top line (based on the above estimate), so we see this as an undervaluation, assuming everything runs smoothly between now and harvest. That's a big assumption of course, but there are more far fetched assumptions being relied on for capital allocation in this space right now.Our biggest concern is the above mentioned acquisition strategy.There's going to be a lot of new shares hitting the books near term if Arcturus is going to make good on this acquisition, and others, and so we're essentially relying on heavy dilution to serve up opportunity for growth. That's not unusual at this end of the OTC, but it's far from ideal.We will be updating our subscribers as soon as we know more. For the latest updates on AGSTF, sign up below!Disclosure: We have no position in AGSTF and have not been compensated for this article.

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