Terra Tech's Lucky Bet

In its most recently reported financial report for the quarter ending March 2021, cannabis grower Terra Tech Corporation (TRTC:  OTC) reported a cash balance of $1.2 million.  That is a fairly good purse for a company that reported only $5.1 million in revenue in the same quarter.  However, the loss for the quarter was $11.7 million and the company had to dip into cash to the tune of $2.8 million to keep operations going during those three months.  Putting even more pressure on the financial situation, Terra Tech has $23.8 million in debt, of which $12.7 is due within the next twelve months.

While most management teams with a negative cash flow situation might jump at every call from the bank, Terra Tech’s team probably has been cool and collected.  The ace up the corporate sleeve is a bet on Hydrofarm Holdings (HYFM:  Nasdaq), a manufacturer of controlled environment agriculture equipment  After investing $5 million in 2018, Terra Tech has owned over a half million shares in the agricultural innovator. 

Hydrofarm staged a successful initial public offering in December 2020. The stock more than doubled in two months, but Terra Tech’s shares were subject to a strict lock up agreement.  The stake was tucked away on Terra Farm's balance sheet.  The sale restriction expired on June 9^th, paving the way for a Terra Tech to sell its HYFM stake for $40 million.

The conversion of the equity investment in Hydrofarm to cash signals the potential for a shift in strategy at Terra Tech.  Management can afford to be more aggressive in its growth initiatives.  Just a week before the Hydrofarm share sale, Terra Tech announced the acquisition of SilverStreak Solutions, a provider of direct-to-consumer cannabis delivery services.  When completed the deal will take Terra Tech out of its dispensaries and closer to consumers in their homes and businesses.

Some investors may have stumbled upon Terra Tech due to its technology for growing lettuce and herbs using hydroponic farming methods, an approach that is widely thought to provide strong resource conservation benefits.  While the current management appears to have focused on cultivation and sale of a ‘different kind of lettuce’, i.e. cannabis, the knowledge base is likely still being put to good use.  

A stake in the company is very much driven by the market for cannabis and not edible vegetables.  For long-term shareholders there is comfort in the knowledge that current management appears to have some strategic skills that are valuable for any kind of business.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.