The cannabis industry could reach $35 billion in size by 2020, according to GreenWave Advisors, while pet spending reached nearly $60 billion last year, according to the American Pet Products Association.
Given these statistics, it shouldn’t be surprising that Peak Pharmaceuticals Inc.’s (OTCQB: PKPH) Canna-Pet® sales have been climbing. The company’s most recent quarterly report showed revenue of $220,932 at an attractive 68% gross margin, representing robust 36% quarter over quarter growth.
While the 68% gross margins are down slightly from last quarter’s 72% gross margins, they are still much higher than virtually every player in the industry including PetMed Express, Inc.’s (NASDAQ: PETS) 35% gross margins, VCA Inc.’s (NASDAQ: WOOF) 23% gross margins, Heska Inc.’s (NASDAQ: HSKA) 41% gross margins, and IDEXX Laboratories, Inc.’s (NASDAQ: IDXX) 49% gross margins.
The company is also on track to becoming cash flow positive. While their recent financials show a net loss of $590,070, most of the contributions to the net loss were non-cash items including $474,753 in option expense. The net change on a cash flow level amounted to just $75,915 – a gap that could continue to work towards break even as top-line sales continue to flow down to bottom-line results. If Peak Pharmaceuticals is able to reach that key tipping point, profitability on a net income level will be within reach.
“We are delighted by our quarterly results and are working hard to sustain the aggressive growth rate in the pet supplement market,” said Peak Pharmaceuticals Inc. CEO Dr. Soren Mogelsvang in the press release announcing the earnings report. “The Canna-Pet® product line has opened a number of doors for the company and we are actively exploring new collaborations and additional marketing channels. We plan to boost our marketing efforts in order to continue on the current trajectory, while exceeding our internally projected goals for the year.”
During the quarter, the company has been undertaking a number of initiatives to test consumer interest in new products, while continuing to work on bringing new pet products to market. The team is also focused on the development of its first human products that are expected to launch later this year, after gaining experience, insights, and valuable data from the veterinary market. Over time, these new products could unlock significantly greater revenue potential.
New Products & Distribution Accelerate Growth
Peak Pharmaceuticals plans to continue driving near-term growth through the launch of new products and cultivation of distribution channels for both new and existing product lines over the coming quarters.
In the early part of May, the company announced the addition of its MaxCBD Maple Bacon Biscuits for dogs to its permanent product line-up following successful test marketing. The April trial launch generated strong enthusiasm and sales for the new product type – MaxCBD – which features a higher CBD content that’s up to six times more potent than its existing biscuit products. The Maple Bacon flavor also resonated well with the target market of canines.
“Canna-Pet is one of the very few pet products that contain CBD from hemp, and the product line-up differs from its competitors through the use of proprietary ratios of hemp-derived cannabinoids and terpenes,” explained Dr. Mogelsvang in a May 1st press release announcing the addition of MaxCBD biscuits to its permanent product line-up. He also noted that the use of CBD is far different than the use of THC, which has been associated with toxicity problems in many pets.
Moving forward, the company anticipates launching additional flavors of its MaxCBD biscuits for dogs, while opening up the product line to other animals ranging from household cats to horses and other large animals. The firm has also been working to expand distribution with the recent announcement of availability on Amazon.com in addition to its existing online distribution via www.cannapet.com and both selected retail and veterinarian distribution channels throughout the country.
Exciting Opportunities in the Cannabis Space
Investors with an appetite for the Cannabis industry have a number of options when investing in the space, ranging from research stocks like Cannabis Science Inc. (OTC: CBIS) to growing technology stocks like AlumiFuel Power Corp. (OTC: AFPW). Peak Pharmaceuticals differentiates itself from these companies with its expanding revenue stream and focus on development, manufacturing and sales of hemp-based supplements and foods.
In addition to its revenue, the company’s balance sheet remains healthy with total assets of $351,105 and total liabilities of $187,179 and no long-term debt. These dynamics come in sharp contrast to many other companies that entered into the cannabis space via reverse mergers and ended up taking on toxic financing that makes it difficult to build long-term shareholder value. The stock’s listing on the OTCQB and regular reporting with the SEC helps add to the differentiation.
Cannabis Science is the only publicly traded competitor within the emerging pet cannabinoid space through its recent acquisition of Equi-Pharm LLC. However, the company still has to develop its first CBD product, and Equi-Pharm has primarily focused on large animal stock and working animals versus the companion pet market that Canna-Pet® is geared towards.
With its existing revenue and proprietary formulations, Peak Pharmaceuticals may represent one of the most advanced plays within the burgeoning CBD industry. The company’s impressive revenue growth, combined with attractive gross margins, has put the company on track to become cash flow positive in the coming quarters.
For more information, visit the company’s website at www.peakpharma.com.
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