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The Future Of Healthier Choices Looks Grim Following The Latest Developments

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Value, Deep Value, Growth At A Reasonable Price

Seeking Alpha Analyst Since 2015

I have been investing in stocks since 2007. I have no preference for sectors or countries - I'm as comfortable owning a part of a cement miner in Peru as holding shares in a wheat farming firm in Bulgaria. If it's a value stock - great. If the dividend or share buyback yield is high - even better.

- Disclosure: I am not a financial adviser. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.


  • Healthier Choices posted weak results for Q4 2020 and had negative working capital of $2.6 million as of December.
  • The patent infringement lawsuit against international tobacco giant Philip Morris isn’t going smoothly and the latter has filed a motion to dismiss.
  • However, Healthier Choices is still very popular among retail investors and its official twitter page attracted over 17,000 followers in its first day after launch.
  • I continue to think the business is nearly worthless and that the chances of the company to win or settle the lawsuit against Philip Morris are slim.

Healthier Choices Management Corp (Source: Healthier Choices)


Today, I’m taking a look at grocery and vape shop company Healthier Choices Management Corp (OTCPK:OTCPK:HCMC). I already covered this one in the middle of February, but there have been some significant developments, including the release of Q4 2020 financials; a motion to dismiss the company’s major lawsuit against international tobacco giant Philip Morris (PM); and a significantly increased presence on social media.

Healthier Choices is valued at $526.1 million as of time of writing and I think the bear case remains strong despite a significant decrease in the share price. I continue to think this one is a sell.

Financials and valuation

The company finished 2020 with sales of $13.9 million and a net loss of $3.7 million. This means that Q4 sales came in at $3.2 million and were slightly lower than Q3. The net loss booked during the quarter was $0.9 million, which means there wasn’t much change in the fortunes of the business in Q4 2020.

(Source: SEC)

Looking at the balance sheet, assets decreased by $2.5 million to $11.9 million during Q4. The main reason for this was a slump in the restricted cash position, which went down to $2 million from $4.4 million.

(Source: SEC)

The working capital situation improved a little and Healthier Choices had negative working capital of $2.6 million as of December, compared to $4.2 million as of September.

As of March 5, Healthier Choices had 309,496,867,856 shares outstanding. This means its valuation stands at $526.1 million as of time of writing. Like I said in my previous article, the company’s business is worth little, but it’s valuation is high due to high retail investor interest stemming from a patent infringement lawsuit filed against international tobacco giant Philip Morris in relation with its popular IQOS heat not burn products.

Lawsuit progress

It appears Philip Morris isn’t interested in settling as it filed a motion to dismiss the lawsuit with prejudice in the United States District Court for the northern district of the Georgia Atlantic division at end of February.

Philip Morris claims that Healthier Choices doesn’t have grounds for its patent infringement lawsuit since its IQOS devices function in a different way. Its devices don't burn tobacco, they only heat it.

The tobacco giant also points out that in order to allege indirect infringement, the law required Healthier Choices to plausibly allege that it had pre-suit knowledge of the asserted patents.

On March 9, HCMC and Phillip Morris filed a joint motion to extend response and reply to the motion to dismiss.

I don’t have a law degree, but my wife has and here’s roughly where the lawsuit stands today. The two companies are still in the early stages of the whole process.If the court decides to grant the motion filed by Philip Morris, the whole case will be thrown out. HCMC was supposed to file a document that responds to the motion this week, but instead both companies filed this motion to extend response and reply. The two companies ask for the deadline for HCMC’s response to be extended to March 22. Philip Morris would then be able to reply to this response by April 16. These types of motions to extend are not unusual and the reason behind this one is unclear. What’s interesting in this case is that the motion was filed by both parties.

Overall, I continue to think the chances of Healthier Choices to win the lawsuit are slim at best.

Social media presence

Like I said I my previous article, the company is attracting a lot of attention on social media platforms. On March 9, Healthier Choices launched its official twitter page and it has attracted more than 17,000 followers in a single day.

Almost a month ago, I also mentioned that retail investors on reddit created a subreddit for the company which had attracted more than 22,000 members. The subreddit’s membership base has grown to almost 31,000 as of time of writing.

I think Healthier Choices is doing an amazing job of promoting its business and shares among retail investors on social media. According to the Q4 financials, the company had around 1,600 stockholders. It claims that the number of beneficial holders could be significantly higher than that and I'm ready to agree with this statement considering the significant social media following.

As of March 5, 2021, there were approximately 1,600 stockholders of record for our common stock. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

(Source: SEC)

Investor takeaway

Healthier Choices is a small retailer of organic groceries and vaping products that has an unprofitable business and negative working capital.

The company has attracted significant interest from retail investors due to its patent infringement lawsuit against Philip Morris and the bullish case seems to rest on the idea that it has good chance to walk away with a large settlement.

The chances of Healthier Choices to win the case are slim in my view and Philip Morris is trying to have the case thrown out.

I continue to think that Healthier Choices is a sell and investors can take advantage of this by shorting the shares. However, but keep in mind this could be challenging due to the high share price volatility. According to data from Fintel, the short borrow fee rate currently stands at 0.25%.

There are two major risks I see for the bear thesis. The first one involves Healthier Choices winning the lawsuit or reaching a settlement that’s worth over $500 million. The second one involves continuing strong retail investor interest, which could lead to the share price soaring. Keep in mind that the bull case seems to be narrative-driven and not based on fundamentals.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

I am not a financial adviser. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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