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Independent Reviews for Venture Investors

CUB - Worth a look.


CubicFarm Systems Corp. (CUB.TO) is a local chain agricultural technology company developing and deploying technology to feed a changing world. Revenues come mostly from two major divisions: i) HydroGreen Nutrition Technology: a proprietary ag-tech solutions that enable growers to produce high quality,produce and fresh livestock feed. ii) The CubicFarms™system: a patented technology for growing leafy greens and other crops onsite, indoors, all year round providing an efficient, localized food supply solution that benefits the people, the planet, and our economy.


The value proposition for each divisions can be summarize as such:


CubicFarms system: i) Up to 95% less water, ii) Up to 80% less waste, iii) Crop Motion Tech uses one row of light (simulate outside daylight) and iv) 52X more land efficient. One Module equals 1 football field.


Hydrogreen: i) Harvest Daily; 365 harvest annually, ii) 12 Modules can grow 25M lbs of fresh livestock feed/year, iii) Use 95% less water than conventional irrigated crops, iv) 12 Modules replaces 500 acres of farmland (380 Football Fields)


News Releases


Nov. 24 - Announces Closing of $20 Million Bought Deal Public Offering of Common Shares: Issued a total of 16M Common Shares at a price of C$1.25 per Common Share for gross proceeds to the Company of C$20M.


Proceeds from the Offering will be used for continued organic growth, technology development, and working capital.


Jan. 12 - Wins Real Leaders 2022 Top Impact Companies Award.


Jan. 12 - Welcomes G. David Cole to the Company's Board of Directors


Jan. 20 - Announces $1.26M HydroGreen Sales in North and South Dakota: HydroGreen Certified Dealer Grohs International initially committed to selling 12 HydroGreen Grow System indoor growing technologies to its customers in 2022. In the first month of the year, Grohs International has placed orders for nine of the 12 and signed the contract to purchase the modules from CubicFarms, which represents equipment sales valued at about CAD$1.26M.


Feb. 7 - Appoints Tom Wiltrout to HydroGreen Advisory Board: He provides business consulting services for input agriculture and the global seeds industry in his role as President of Thirty Thirty, LLC. He is a senior executive at Ospraie Ag Science, LLC, a strategic shareholder in the Company with approximately 16.6% ownership of CubicFarms.


Feb. 15 - Announces HydroGreen Certified Dealer in Nebraska: Central Confinement Service LLC ("CCS"), with initial sales commitments for 12 HydroGreen indoor growing systems in 2022 valued at CAD$2.25M. Total sales commitments to date from members of the HydroGreen Certified Dealer Network include more than 100 modules in 2022, valued at over CAD$23M. CCS is a leading designer and builder of turn-key livestock and agriculture facilities with more than 35 years of experience providing quality construction and custom-built equipment to livestock producers.


Mar. 7 - Announces $5.13M Sale to Greenhouse Growers in Winnipeg, Manitoba: 27 CubicFarm System of CAD$5.13M.


Mar. 10 - Appoints Daniel Burns as Interim Chief Financial Officer


Mar. 11 - HydroGreen Named Global Finalist for SXSW Innovation Awards in “New Economy” Category


Mar. 25 - Appoints Edoardo De Martin as President: Adding to his role as Chief Technology Officer (CTO).


Mar. 31 - Announces Fourth-Quarter and Full-Year 2021 Financial Results: i) Currently has a total of 203 modules pending installation. System sales pending manufacturing and installation are valued at approximately USD $27.4M. ii) In addition, CUB.TO received its first deposit and signed FreshHub customer contract, valued at approximately $20M. iii) HydroGreen Certified Dealer commitments represents more than 100 machines for 2022.


iv) Revenue for the three months ended December 31, 2021, was $819,195. Revenue was $5,273,166 for the 12 months ended December 31, 2021. v) The Company increased its workforce to 159 full-time employees and contractors as of December 31, 2021. vi) Net loss for the three months ended December 31, 2021, was $11,243,309 a 77% increase from the same period ending December 31, 2020. For the 12 months ended December 31, 2021, the net loss was $29,357,383.


Apr. 1 - CubicFarms Announces HydroGreen Certified Dealer in Utah: Mountainland Supply Company ("Mountainland") as a new member of the HydroGreen Certified Dealer Network.


Apr. 27 - Appoints Carlos Yam as Chief Financial Officer.


May 3 - HydroGreen Recognized in Fast Company’s 2022 World Changing Ideas Awards


May 12 - CubicFarm Data Shows its Systems Use 54% to 62% Less Energy Than Typical Vertical Farms: i) 17.6 kilowatt hours ("kWh") per pound in typical vertical farms² ii) 8 kWh/pound in a CubicFarm System module (54% less than typical vertical farms) iii) 6.67 kWh/pound in a CubicFarms FreshHub System (62% less than typical vertical farms)


May 16 - Reports First Quarter FY 2022 Results: i)The Company currently has a total of 204 modules pending installation. System sales pending manufacturing and installation are valued at approximately USD $27.6M. ii) HydroGreen Certified Dealer commitments representing more than 100 machines for 2022 are valued at over $23M.


iii) Revenue for the three months ended March 31, 2022, was $243,912. iv) Net loss for the three months ended March 31, 2022, was $8,760,249, a 138% increase from the same period ending March 31, 2021.


May 17 - CubicFarms and Deloitte Join Forces on New Carbon Commercialization Program: HydroGreen division has entered into an agreement with Deloitte LLP to develop a carbon commercialization program designed to provide high-quality carbon credits to a fast-growing global market.


May 26 - Announces Overnight Marketed Offering


May 27 - Announces Pricing of $10 Million Overnight Marketed Offering: The offering will be conducted on an agency basis for the issuance of unsecured convertible debenture units at a price of $1,000 per Debenture Unit, and common shares of the Company at a price of $0.55 per Common Share for total gross proceeds of $10M.


June 2 - Announces Closing of $10.6 Million Overnight Marketed Offering: Overnight marketed public offering of 6,540 unsecured convertible debenture units (the “Debenture Units”) of the company at a price of $1,000 per Debenture Unit for total gross proceeds of $6,540,000 and 7,361,000 common shares of the Company at a price of $0.55 per Common Share for total gross proceeds of $4,048,550. In aggregate, total gross proceeds were $10,588,550.


Each Offered Debenture Unit consisted of: (i) a $1,000 principal amount 8% convertible unsecured debenture (the "Convertible Debentures") maturing five years from the closing of the Offering (the "Maturity Date"); and (ii) 400 common share purchase warrants (the "Warrants"), with each Warrant entitling the holder thereof to acquire one common share of the Company at $0.71 per share for a period of 36 months ending June 2, 2025.


A total of 6,540 Convertible Debentures and 2,616,000 Warrants were issued.


June 14 - Announces $3.8M HydroGreen Sale in West Texas: Announced a 10-machine Automated Vertical Pastures™ sale valued at CAD$3.8 million. Owned and operated by Jim Cnossen, the Cnossen Dairy located in Hereford, West Texas, currently milks 11,000 cows over 7,500 acres of farmland.


The Company's HydroGreen division will install a 10-machine Automated Vertical Pastures™ commercial scale system to grow year-round, consistent nutritious fresh forage for the Cnossen Dairy, providing a reliable source of fresh forage during the drought conditions across the western United States.


Three New HydroGreen Certified Dealers: In addition to Dairy Specialists, Advanced Dairy Systems and Penner Farm Services have also joined the HydroGreen Certified Dealer Network, with another sale of one HydroGreen machine.


Summary

In the last eight months CubicFarm went from a valuation high of $1.33 to a 52 week low of $0.35 cents.

The decline in the stock price is directly related to the earnings performance.


Earnings

During the six months ended December 31, 2020, the Company changed its financial year-end to December 31, from June

30. The comparative periods are the six months ended December 31, 2020 and the twelve months ended June 30, 2020.


Q1 2022 Revenues ($0.24M) were a fraction of Q1 2021 ($3.90M). Furthermore, Net Losses went from $3.88M in Q1 2021 to $8.97M to Q1 2022. These poor results followed a relatively tepid Year over Year performance in revenue in FY2021 ($5M) but yet again a significant rise in Net Losses in FY2022 ($29.4M) vs. FY2021 ($10.4M).













At the time of Q1 2022 CubicFarm reported having $12.8M in cash which is down from Q4 2022; $21.3M.

However, a $10M (June 2022) financing was completed since.


Financing

Two financing over the last period. November 2021, A bought deal for $20M. A total of 16M Common Shares at a price of C$1.25 were isssued. Recently (June 2022), an Overnight marketed public offering of 6,540 convertible debenture at a price of $1,000 per units for $6.54M and 7.36M common shares at $0.55 cents for $4,04M totaling $10,5M.


Warrants

The number of outstanding warrants at March 31st 2022 were 6.5M at 0.19 cents.

However. the recent overnight public offering adds to this (the debenture conversion price; $0.68 cents) but additional warrants were issued at $0.71 cents; roughly 2.61M for a total closer to 9M outstanding warrants.


Each Debenture Unit will consist of one 8.0% unsecured convertible debenture with a maturity date of 5 years from the date of Closing (as defined herein) and 400 common share purchase warrants of the Company (the “Warrants”).


Appointments

David Cole to CubicFarms Board of Directors, Tom Wiltrout to Hydrogreen Advisory Board, Edoardo De Martin as President in addition to his role as Chief Technology Officer (CTO), and Carlos Yam as Chief Financial Officer (CFO).


Awards/Recognition

CubicFarms was recognized by three entities Real Leaders 2022 and Fast Company's 2022 World Changing ideas. The company was also listed as a Global Finalist for SXSW Innovation Awards in “New Economy” Category.


Deals

Three deals were announced in the past eight months totalling roughly $10M.


1. $1.26M Hydrogreen Sales in North and South Dakota via Grohs International (Jan. 2022).

2. $5.13M to Greenhouse Growers in Manitoba; 27 CubicFarm System modules (March 2022).

3. $3.8M Hydrogreen Sales in West Texas 10-machine Automated Vertical Pastures™ sale to Cnossen Dairy (June 2022).


Hydrogreen Certified Dealers Network

Five new dealers were added: Central Confinement Service LLC (February 2022), Mountainland Supply (April 2022) and Dairy Specialists, Advanced Dairy Systems and Penner Farm Services (June 2022).


Alliances

Deloitte (May 2022) on New Commercialization Program for carbon credits with Hydrogreen.


In short

CubicFarm has award winning products but historically revenues have been very weak and seem lumpy to date. In addition, the business is very capital intensive and the net losses need to be contained.


Per Q1 2022 Earnings release:

1. The Company currently has a total of 204 modules pending installation. System sales pending manufacturing and installation are valued at approximately USD $27.6 million.

2. HydroGreen Certified Dealer commitments representing more than 100 machines for 2022 are valued at over $23 million.


A "backlog" appears to be present for CubicFarm with a large portion of "commitment" ($23M) being due in FY2022. While this is impressive it still cannot be interpreted as a guidance as it is not referred to as such.


Also in the Audited Consolidate Financial Statement:

During the twelve months ended December 31, 2021, The Company earned significant sales revenue from two customers in the amount of $3,022,821 (December 31, 2020-$Nil, June 30, 2020-$Nil) and $1,501,866 (December 31, 2020-$Nil, June 30, 2020-$Nil). The two customers were located in Canada and United States, with each having their entire revenue reported in Fresh and Feed reportable segments, respectively.


Hence, it is early days but there has been three deals announced in the past six months for roughly $10M.


Per CubicFarm Investor Presentation (April 2022), Competition is present in the space and backed with deep pockets.


Brokerage have issued price targets (Raymond James: $1.00, Cannacord $2.00, Stifel Nicolaus $0.95 cents) but since the recent financing ($0.55 cents), valuation has been trending down but recent insider activities are noted of late.


Despite the weak revenue and large net losses, CubicFarm can possibly turn things around in FY2022. It also appears to be one of the few public entities in vertical farming with a likelihood of future consolidation in the space.


At this juncture, CubicFarm is definitely is worth a look.

DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.

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