Lifestyle Delivery Systems (CSE: LDS) has had an excellent three days of trading now. From a low of $0.41 on Friday, November 17th, to a high of $0.87 only three trading sessions later, investors have certainly been rewarded for their faith in the company. What has driven this rapid increase in share price? And why now?
The reasoning behind this increase is likely two fold. First, is the fact that Lifestyle Delivery Systems (LDS) has placed significant funding towards promotion over the last several months. Since February, LDS has paid several investor relations companies a total of $733,000. This figure is as per the MD&A filed on Sedar for the quarter ended June 30, 2017. The release was dated August 29, 2017 and included subsequent events. It is likely that some of the price action seen as of late is due to recent promotion of the organization.
The second potential reason for the price increase pertains to its Adelanto, California facility. Recent news has been positive for this facility, creating a promising future for the organization. Lets take a quick review of this facility and understand its significance.
Lifestyle Delivery Systems Adelanto, CA Facility
The Origins of the Facility
The story of Lifestyle Delivery Systems’ Adelanto, California facility begins a little over a year ago, on October 6, 2016. On this date, it was announced that LDS had signed a memorandum of understanding with that of CSPA Group. Within this MOU were details related to a potential joint venture between the two companies to produce LDS’ CannaStrips.
To understand what a CannaStrip is, think of Listerine breath strips. Essentially, that’s what CannaStrips are. The major difference between the two products however, is that the LDS product contains CBD within it, which then dissolves in your mouth. This is used in place of medical cannabis as it reportedly poses the same benefits in a smoke-free platform.
The terms of the MOU outlined that the facility was already existing. Furthermore, it had been previously approved for the use of manufacturing medical CBD products. This was specifically the extraction and production of related products. It is believed that there was no license to cultivate cannabis at the facility at the time of this signing. As a result of the MOU, LDS was to outfit the 20,000 square foot facility with the required tools for the extraction of CBD as well as the infusion of it into products.
It was estimated that production would be in process by the end of the year. Production figures were quoted by CEO Brad Eckenweiler as being in the neighbourhood of approximately 400,000 individually packaged CannaStrips each day.
One month later it was announced that an application for cultivation of cannabis at the facility was submitted as well. This would then make the facility vertically integrated and give LDS better control on quality. This would also reportedly increase the potential production figures for the product. Lastly, the current MOU was updated to a binding letter of intent.
The Binding Agreement
Within the original memorandum of understanding, it was clearly indicated that the joint venture between Lifestyle Delivery Systems and CSPA Group would be in full production by December 19, 2016. However, this date failed to materialize. Instead, investors were finally filled in on a binding agreement on May 4, 2017. The details of this agreement are slightly complex. We’ll break it down for you quickly.
- The agreement is between LDS and CSPA Group / NHMC, Inc. These companies are related nonprofits with the same set of shareholders.
- LDS is responsible for the management of cultivation, extraction and production of cannabis products at the facility.
- CSPA Group has the local licensing requirements for that of the cannabis extraction and manufacturing facility.
- NHMC, Inc has the local licensing requirements for that of the cannabis cultivation facility.
- LDS Agrotech will manage the cultivation of cannabis plants for NHMC, Inc.
- LDS Scientific will manage the extraction and production of cannabis products for CSPA Group.
With respect to the revenues generated, the Lifestyle Delivery Systems subsidiaries will receive 75% of the revenues. The remaining 25% will go to CSPA Group and NHMC, Inc. Additionally, CSPA Group and NHMC, Inc were to be acquired by LDS. The cost of this was 3,000,000 shares per entity, as well as $1,400,000 in cash per entity.
Furthermore, it was also announced that all construction at the facilities was expected to be completed by the end of July 2017. This date was re-enforced in a release dated two weeks later, with operations expected to begin in September of 2017. Lastly, it was announced that the facilities were expected to produce three lines of products: vape cartridges, cannabis oils, and CannaStrips.
The Final Details of the Facility
Ultimately, completion of the facility was delayed yet again. However, this time it was related to regulatory changes in the municipality within which the facility resides. Then, on September 5 it was announced that there were further delays as a result of equipment that was damaged through shipping. This pushed back the inspection date for the facility by a handful of days. The license was finally granted on the 15th of the month.
Commencement of operations began on October 19, 2017. The reason for the delay after receiving licensing was related to some equipment that had not yet been received. Upon its calibration, operations could begin. In a ribbon cutting ceremony put on for the small town, operations officially begun.
The first official date of extraction was October 26, as announced on the 31st of the month. This news release may be part of the reason for the latest run up in the stock price, as a result of the comments made by the CEO as seen below.
After approximately a month of production for the facility, it is anticipated that financials will be released. After such a long time coming, its doubtful that management will keep estimates or current production figures away from investors. From these figures, shareholders will be able to place a degree of value on the facility and the company as a whole.
With less than a week left in the month, those figures are due any day.
What about Lifestyle Delivery Systems’ current revenues?
Some of you may be asking the question of where their current revenues come from if they had not been producing CannaStrips until the end of last month. As per their news release dated May 15, 2017, the company has been generating revenues largely through consultation work. This includes consultations for all aspects of new facilities, including everything from design to equipment sourcing.
As such, the value for which the market places on this company will be slightly out of whack. Once these sales and production figures are released, proper estimates can be made on yearly revenues. Furthermore, it will make it easier to calculate the value of the facility itself, as well as that of future facilities for which Lifestyle Delivery Systems has already acquired the land for. All these figures can then be sufficiently combined and used for a proper stock analysis and valuation.
Read the numbers. Consider the source. Dive Deep.
Information for this analysis was found via Sedar, CannaStrips, and Lifestyle Delivery Systems. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.