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Attorney and Professor of American and World History in Orlando, Florida, I have authored books and composed scholarly journal articles in the fields of history, law, and finance. A penny stock investor for over a decade, an avid follower of the market, a devoted father to two beautiful... More
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  • Buying The ‘Pharm - Why There Should Be Room For FSPM In Your Portfolio 6 comments
    Apr 7, 2014 9:30 AM | about stocks: FSPM

    Who says you can't grow vegetables in a warehouse? FusionPharm (OTC:FSPM), Inc. manufactures and sells a line of vertical farming cultivation containers under the PharmPod brand name. PharmPods are hydroponics commercial container systems used in the indoor plant cultivation, marketing them to businesses, universities, and individuals alike. So, back to that warehouse idea and a plan that is likely very different from your expectations.

    The company states that a 'single 40-foot PharmPod container is capable of growing more produce than a one full acre of traditional farm agriculture,' and the 'Ikea-esque' design utilizes stacking pods one upon the other to maximize growing space. In fact, an area smaller than that needed to park a single motor home or recreational vehicle can produce more than three acres worth of traditionally grown produce. Maximizing the farming process to create hyper-efficient growth is accompanied by a faster cultivation process and shorter distribution time.

    Cobranding w/PHOT (Stealth Grow) with 'green' results

    FusionPharm has recently expanded an existing relationship with GrowLife (OTC:PHOT) to use GrowLife's advanced Stealth Grow LED advanced lighting technology. Under the collaboration agreement, GrowLife will provide the necessary grow equipment and consulting services to FusionPharm and co-market the PharmPods. The result? This technology purports to utilize less than 20% of the water required for traditional agriculture. Additionally, the PharmPods require no harmful pesticides and produce no environmentally damaging wastewater runoff. In the green industry of marijuana growth and cultivation, this technology is a 'green friendly' self-contained farming ecosystem.

    Financials - Is the Current $11M market cap supportable?

    A look at revenue and profit trends over the last 3 years shows growth in key areas. FSPM issued a press release on January 15, 2014 reporting a 38% revenue growth, quarter to quarter, in 2013 Q3. The company also anticipated posting end of year results by the end of February. Unfortunately that deadline was not met, and the company filed a 'Notification of Late Filing' with the OTC on March 18, citing staffing limitations which were addressed by the company in March. However, with the 38% growth in Q3 states above, there is reason to be optimistic regarding the upcoming annual financials. FusionPharm reported $227,000 in revenue and $69,000 profit on 2011. 2012 saw revenue spike to $808,000 and profit multiply nearly tenfold over a years' time, rising to $676,000. While there was a spike in total liabilities from $332,000 to $438,000, long term debt dropped from $265,000 to $264,000.

    Despite this, investors may not believe these fundamentals and revenue equate to the $11M market cap. However, the market price of FusionPharm should not be weighted heavily by the past data. Should investors begin to speculate in the medical or recreational marijuana sector, forward looking analysis may be more pertinent than hindsight. As in any emerging sector and company, investors will need to decide whether or not FusionPharm is poised to continue year over year revenue growth in a nascent industry offering a chance at large-scale growth. More importantly, the question becomes whether or not this company is going to be able to capture a large enough share of what is expected to be an ever-growing pie.

    How big will the marijuana market be? Very large by recent estimations. With domestic businesses emerging as additional states cross the green line, the marijuana business should continue to expand domestically. Colorado's reported $2M in revenue from the first month of recreational marijuana taxes will not go unnoticed by other states facing budget deficits. Additional revenue growth can be captured north of the border, where the Canadian government has legalized medical marijuana on a nationwide scale and Health Canada is projecting between 300,000 to 400,000 patients within the next decade, carrying a projected annual revenue of a massive $1.3 billion by 2024. This data projects large growth both in the US and particularly in Canada, and on both sides of the border, FusionPharm is implementing large, revenue accretive growth.

    2014 growth: Equipment sales in Canada

    FusionPharm announced on March 27 that they are shipping their second Canadian order, supplying approximately $270,000 worth of PharmPod containers is the first installment of an anticipated $2.3million, 12 month build-out of the Canadian facility. CEO Scott Dittman, states that 'the Canadian market has become our largest customer base so far in 2014 and we are excited to build the PharmPod brand in Canada and elsewhere." Dittman, a Certified Public Accountant with a business degree from the University of Colorado and former member of the Small Business Consulting Group of Arthur Andersen's San Francisco office, must like what he sees when he looks north, as FusionPharm is currently exploring sales and distribution partnership opportunities in Canada, even intending to open a sales center in Canada in 2014.

    2014 growth: Planned US Expansion

    FusionPharm is growing domestically as well, recently doubling the production capacity of their Denver facility. The company announced on February 25 that it had received $1M in equity funding, money which management intends to use to complete outfitting of its recently expanded manufacturing facilities and construct new sales centers in key markets. Management followed through just four weeks later.

    On March 24 FusionPharm announced they had leased space in Seattle, Washington in anticipation of opening its first Washington state sales and design center. Construction on the facility is expected to be completed by approximately May 15. FusionPharm also completed their first sale and financing agreement in Massachusetts on February 11, providing Greenway Wellness Foundation, a recipient of 3 of the 35 available licenses to grow medical marijuana in Massachusetts. The company has stated that it anticipates additional facilities being constructed on the east coast of the US in 2014.

    Note on risk and a prediction

    FusionPharm offers great expansion potential, appears well connected, and is poised to continue expansion into the budding marijuana industry. However, there is risk here, and perhaps more than with most other investments one could make. Currently trading on the OTC pink, FusionPharm is a non-reporting company who recently filed a 'Notice of Late Financials' with the OTC, although as described above, the information that has been released for Q3 2013 is promising. Appearing on ICannabis Radio in January, CEO Dittman stated FusionPharm is focused on becoming current and SEC reporting this spring, which would give a large boost to investors' confidence in this stock.

    With only 8.02M shares outstanding, large orders shipping, manufacturing, design and sales centers being built in Canada and both US coasts, it is easy to project FusionPharm with a large footprint and ever-increasing revenue in the marijuana industry. I do not feel an EOY price target of $10-$12, up from the current $4.70 at the closing bell Friday, April 6, is unattainable. Things will have to go right for that to happen. That starts with the 2013 financials.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FSPM over the next 72 hours. 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.

    Themes: long-ideas Stocks: FSPM
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Comments (6)
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  • Econ Student
    , contributor
    Comments (226) | Send Message
     
    This was a good write up. According to Alan brochstein (OTCPK:FSPM) has convertible preferred stock that would put the market cap in the hundreds of millions.
    7 Apr 2014, 08:12 PM Reply Like
  • Canna Insights
    , contributor
    Comments (79) | Send Message
     
    An acquaintance of both Chris Dittman, FSPM CEO, and AB, told AB Chris was going to address the preferred, financials next week, so we may get confirmation then.

     

    Regardless, fully converted, the o/s is still much smaller than most of popular mj stocks we hold dear today.
    I believe fully converted would be around 150M.
    7 Apr 2014, 08:35 PM Reply Like
  • Econ Student
    , contributor
    Comments (226) | Send Message
     
    Almost $700 million. That's up there. I'm not sure it matters much most retail investors won't look into that anyway.
    10 Apr 2014, 12:49 AM Reply Like
  • mu5k
    , contributor
    Comments (39) | Send Message
     
    i once read that the fusion pharm pods are not approved as medical grade, but rather commercial grade, and as a result, they would not be used for growing unless they get that certification. is this true?
    8 Apr 2014, 04:13 AM Reply Like
  • Clarkjam
    , contributor
    Comments (3) | Send Message
     
    Great article. In my opinion, FusionPharm is in a good position in a lucrative market. I like that they aren't focused solely on the marijuana market but also on "food revolution" as a whole. I bought in at 5.35 hoping for another jump but I'm tempted to buy more at today's price.

     

    In FusionPharm's 'Notice of Late Financials' did it happen to say when it would finally be released?

     

    mu5k, I don't believe this is true. Why would a highly efficient enclosed grow room not be allowed to grow medical marijuana? And if there was a "certification" I'm sure it would not carry over to different countries. As the article above shows, FusionPharm does a lot of its business in Canada but also domestically.
    8 Apr 2014, 10:08 PM Reply Like
  • Canna Insights
    , contributor
    Comments (79) | Send Message
     
    " The Greeneway received 3 of the 35 available licenses in Massachusetts.

     

    Total anticipated order size will be in excess of $4million and FusionPharm will finance 50% of the project costs over a two-year period. "

     

    That may answer that question on growing Medical Marijuana.

     

    http://bit.ly/1g7A3nM
    9 Apr 2014, 01:38 PM Reply Like
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