Sugarmade Inc (OTCMKTS:SGMD) Seeking The New High In The Cannabis Industry

Sugarmade Inc (OTCMKTS:SGMD) has been a major player in the packaging, marketing and distribution scene with major contracts within this space, well, until now.Their bids which have paid off quite well seem not to have done enough to cover their need for value addition for their shareholders, a factor which has necessitated their most recent announcement.The company’s management has made a strategic move to venture into the ever-growing cannabis space.This comes in the wake of a bearish run on their stock price which is currently trading at $0.053, down from $0.2 in March of this year as seen in the chart below: SGMD Daily ChartThis article seeks to get down to the root cause of such a share price dip and give some way forward for investors who would like to invest in it based on our opinion which will come at the end of the piece.However, for the sake of first time readers, let’s introduce the company and bring everyone at par.Sugarmade IncSugarmade, Inc. is a product and brand marketing company investing in products and brands with disruptive potential. Their main activities entail packaging, marketing and distribution of material to different industries which they have reached agreements with.Their main business operation, CarryOutSupplies, is a producer and wholesaler of custom printed and generic supplies servicing more than 3,000 quick service restaurants with the beverage, ice-cream and frozen yoghurt sector being among their largest clients.The Company is currently in development of several other innovative product lines with some lines including Sriracha Hot Chili Sauce which they are currently marketing through Sriracha Seasoning Stixs. Such developments coupled with aggressive marketing campaigns have been at the forefront of their success to date with their brand being a key driver of its sales in the markets within which the company operates.News Affecting SGMDThree main stories have rocked the headlines and turned investors’ attention towards SGMD.First, in September 2016, the company signed a license agreement with HUY FONG FOODS, INC. (“HFFI”), the maker of Sriracha Hot Chili Sauce. Based on this agreement, and a separate license agreement signed during 2015 with Seasoning Stixs International, LLC, the Company plans to introduce a new culinary seasoning product named Sriracha Seasoning Stixs.This patented seasoning is a solid at room temperature but when heat is applied while the stick is immersed in food, it liquefies therefore allowing the food to act like a sponge absorbing the seasonings and flavors that had previously been encapsulated in the stick.With this backdrop, they have partnered with the E-commerce marketing company Sound Decisions to kickstart an aggressive marketing campaign for this product which was described by their CEO, Daniel Parker as ‘unique patented product that is due for success’.Source:According to senior management within SGMD, the company sees demand growing significantly over the coming period especially during the holidays and have been stocking up in a bid to ensure they can meet the demand that will be generated upon this new breakthrough hitting the market.Second, SGMD is in partnership with Plantation Corp announced the launch of Budlife, a unique patent protected device for the long-term storage of cannabis.The device which has been seen to have a significant influence on the life of cannabis plants will hit shops in the fourth quarter of 2017 at a time when cannabis production and sales have gone up at record rates in the US.The move which is meant to increase the company’s product lines therefore diversify their revenue streams has been welcomed by company’s management with their CEO, Jimmy Chan stating:

“The addition to the patented BudLife product line in time for the start of recreational cannabis sales in California will be a welcome addition to our growing product portfolio."

Source:Finally, in a bid to exemplify the latter, let’s get to the best news yet.As at November 1, the company announced that they are in negotiation with two companies regarding possible acquisition and mergers that would enable them get into the cannabis sector. Moreover, they are also discussing with financing facilities who would run point on the finance deal that would ensure these plans come to fruition.This strategic overhaul has come at a period when the company is moving towards e-commerce and creating an online presence as has been the case with their main operation, CarryOutSupplies.As such, their plans to acquire a distributor within the cannabis space who makes over $30 million annually will not only be beneficial to them financially but also in terms of logistics. Such a move will have a great impact on their synergies as the company would benefit from the logistical aspect of the acquired while bringing a strong brand and marketing campaign to the table.Management are more than hopeful that this deal with pull through as they work towards venturing into this growing space and work towards industry dominance.With this being said, the question on whether they can finance such moves given their current book position still lingers. Let’s try to answer it.The FinancesThe $13 million company with over 25 employees has had some significant problems in their financial position over the past which seem to have been dealt with over time.Their revenue position improved from $728,000 in 1Q2017 to $903,950 in 2Q2017, a 24% jump. This great performance was exemplified by their reduced operating expenses which fell from $1.1 million to $693,000 over the same period.Despite this, a change in derivative instruments fair value as well as loss on debt conversion negatively impacted their profits over this period to the tune of $1.3 million and $884,561 respectively causing the company to post a loss of $2.6 million as compared to the loss of $31,828 in 1Q2017.However, management still maintains that their stronger financial management position as shown by their cost reduction is a sign of their commitment towards ensuring their shareholders benefit the most from investing with them.ConclusionIn conclusion, the company is one to watch. Such strategic shifts usually have a cost attached to them, however, end up having a payoff them supersedes this cost significantly. The move by SGMD is one that is bound to payoff quite soon for their shareholders and future investors.SGMD has made a play into a new and growing market, making it a stock to watch looking forward. The company is making moves looking to reward its shareholders. If all works out according to plan, investors will soon be smiling to the bank.We will be updating our subscribers as soon as we know more. For the latest updates on SGMD, sign up below!Disclosure: We have no position in SGMD and have not been compensated for this article.