For a small company that's only been public for less than two years, Bucha, Inc. (OTCPK:ABRW) has spent that time trying to figure out who they are. What started out as a micro-brewer of several award winning craft beers, formerly known as American Brewing Company, Inc. until a couple of days ago per Friday's PRE 14C, is now the maker of Kombucha, ditching the stagnant and highly competitive craft beer category for the opportunity to focus on the hyper-growth Kombucha space, a healthy, fermented tea-based beverage, which is the fastest growing functional beverage, with sales expected to soar from $600 million in 2015 to $1.8 billion by 2020.
The company raised slightly over $1 million in a non-traditional self-IPO priced at .50 cents, thus initially going public in a clean manner, without baggage that usually plagues companies on the OTC thanks to the typical reverse merger that involves a former failed company, accompanied by plenty of shenanigans along the way.
IPO proceeds were used to expand capacity with the idea of also acquiring other small micro-brewers, but their plans quickly changed when an opportunity arose that the company couldn't pass up. ABRW was approached by Chuck Santry and told that a Kombucha maker might be for sale, with a fabulous product to boot, as it was likely selling itself due to problems the previous management was having like many small entrepreneurial companies. After executing due diligence, American Brewing acquired the assets from B&R Liquid Adventures, LLC, previous messes involving production were cleaned up and the purchase price was a serious bargain considering the transaction resulted in just 26% dilution for an almost instant increase of 300% in revenues. Stock was issued at .33, but with a shareholder friendly 18-month leak-out provision along with $240K in cash and a $140K note. The company also sold its micro-brewery operations to pay down most of the debt and focus solely on Kombucha.
Who is Chuck Santry, the man that led American Brewing to the acquisition of distressed Kombucha assets ? He's a food and beverage pro that took Santa Barbara Salsa Company from $800K in annual sales up to the point where it eventually was sold to a Pepsico joint venture for $44 million. As part of the B&R Liquid Adventure acquisition, Santry also agreed to become American Brewing's COO. You might think that Santry is the beverage whale I'm referring to in the title, but he's not.
With absolutely no news put out by the company in 6 months that resulted in a stock slide and deteriorating confidence in management, an 8-K was filed last Friday that not many people noticed, especially since ABRW is a stock that's followed by few to begin with in its early stages. The content seemed to explain the company's silence. The headline of the 8-K referred to unregistered sales of securities, but it was interesting that only $200K was raised with very shareholder friendly terms, indicating the company certainly wasn't desperate for cash and matching their September 8th statement about operations. It's the next piece of information that was eye-opening. American Brewing had moved their CEO to the Executive Chairman seat on the Board and hired Brent Willis, a former President of Coca-Cola (NYSE:KO) in Latin America and the former Number Two at Anheuser-Busch InBev (NYSE:BUD), who is known as the guy who architected the entire creation of InBev, to serve as ABRW's Interim CEO, as well as appointing him to the Board of Directors. The company followed up the 8-K with a PR on Tuesday.
I was more than curious as to why a man with Willis' credentials and personal wealth would want to get involved with such a small company, so I phoned him. He told me that he felt the product was the best on the market and that the company had competitive advantages in production and supply chain that would be very attractive for major beverage partners, many of which he knows personally. While that's about all I could get from Willis, he seemed very confident about the prospects of rapid growth.
I found out several interesting things about Willis through my research, including his impressive success at Kraft Heinz, Coca-Cola and InBev, but it was his hiring and departure as CEO of Cott Corporation (NYSE:COT) that impacted me the most. Cott was the largest producer in the nation of private-label soft drinks. He was brought in several years ago to turn around a flailing 13% gross margin business that was losing customers and relied heavily on carbonated soft drinks, so Willis immediately made many drastic changes, attempting to diversify and get away from a stagnant business by introducing new, non-soda drinks, cutting costs and changing the corporate culture. He stirred the pot more than a stodgy board was ready for and they decided to part ways. What's notable is that Cott is a $1.5 billion company today that eventually got to where it is because of the controversial changes that Willis made. I found a more detailed article about Willis' arrival and departure that's definitely worth a read.
Bucha, Inc. has a market cap of $6.1 million here at .40 cents, with 15.4 million outstanding shares. The company reported back on September 8th that they had just turned cash-flow positive thanks to the Kombucha acquisition and their last quarterly report was their first 10Q that included the acquired Kombucha assets, posting $611K in sales and a slight loss of -.02 that included one-time integration costs. They since have an additional $750K in their bank account since they sold the micro-brewery.
If you had asked me a year ago what "Kombucha" was, I would have said I have no idea, but the product is spreading rapidly, as my local coffee shop and tiny grocery store (I live in the middle of nowhere up in the mountains of New Mexico) now carry an assortment of Kombucha drinks as of about 4 months ago. Most people associate these drinks with somewhat of a vinegar taste, which I would definitely not like, but I've tasted eight different Kombucha flavors made by Bucha, Inc. and they're very good, much better than the other brands I've tried, not to mention the company was right on when they said they use a proprietary process that eliminates the vinegar taste.
I like the stock where it's now trading, ten cents lower than its IPO price of .50 cents and obviously it's speculative right now since we don't yet have an idea of what the new CEO has in store for the company. He's not a guy that's used to doing small things ever, and I would anticipate more details forthcoming. It's not a perpetual dilution machine as you'll so commonly find on the OTC, but nevertheless, I wouldn't invest more than I could afford to lose. I can only speculate positively as to why Brent Willis is now calling the shots as of last week and with his massive distribution network and industry knowledge, he might put American Brewing on the map.
Disclosure: I am/we are long ABRW.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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