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CO2 Gro Q3 2020 Financials

On November 16th CO2 Gro Q3 2020 financials were released.

There isn’t a ton of information that can be learned from the financial statements. Cash on the balance sheet increased due to the non-brokered private placement that was completed in Q3.

Expenses are down from 2019 as a result of expense cutting measures the company put into place.

There are some significant news releases in Q3 and Q4. I’ll try and provide some insight or opinion on these releases and what I think they mean for the company.

For my previous posts on CO2 Gro Inc. you can find them here: Q2, Q1.

Disclosure: I own shares of CO2 Gro Inc (GROW.V)

CO2 Gro Q3 Financials

Similar to last quarter I’m not sure there is a ton of analysis to do on GROW’s financial statements. I’ll make a couple of points and move on to the news releases that were made this past quarter and more recently.

CO2 Gro Q3 2020 Balance Sheet
CO2 Gro Q3 2020 Balance Sheet

The cash on the balance sheet is a result of the non-brokered private placement completed in Q3 for $1.38 million. I shared my thoughts on the private placement in my Q2 post. While the raise at such a low share price was frustrating Ospraie Ag Science appears to be a great partner for GROW.

GROW continues to have a decent amount of inventory on hand to be ready for big orders. If I recall correctly they have enough inventory for 5 million square feet of installations.

CO2 Gro Q3 2020 Income Statement
CO2 Gro Inc. Q3 2020 Income Statement

As we will see in the news releases below GROW completed the sale to the Missouri hemp growers for 15 units. The growers are financing the units so payments will come in over an undisclosed amount of time. It’s nice to see some income coming in and the financed sales will level out some of the lumpiness that is going to be common in GROW’s sales.

Total expenses in 2020 have been significantly less than in 2019. This is due to the cash preservation strategies that GROW initiated earlier in the year. It’s good to see this type of cost discipline and I hope it continues but I understand the company is investing in itself to fund growth and sales.

CO2 Gro Q3 2020 Cash Flow Statement
CO2 Gro Inc. Q3 2020 Cash Flow Statement

In the cash flow statement, we again see the results of the cost-cutting measures instituted earlier in the year. For a company that is generating interest globally only using $415,000 in cash so far in 2020 is commendable.

Capitalization Table

CO2 Gro Inc. Capitalization Table

After the completion of the non-brokered private placement with Ospraie here is the updated cap table. The level of dilution is not pretty when you look at a year over year comparison. I’m sure GROW hoped they would have had enough sales by now to support the business and not have to raise money. It’s difficult to predict how fast customers will be willing to adopt a product that is a game-changer like GROW’s co2 delivery technology.

CO2 Gro Q3 2020: Business Developments

There was lots of important news develops for GROW in the quarter. It was the busiest quarter I think the company has had. The pace of development by GROW in 2020 has clearly accelerated compared to 2019.

CO2 GRO Inc. Announces a Commercial Feasibility at an
Iowa based Strawberry Greenhouse

This is an interesting announcement because it is one of the first fruit grower signing up for a study. The study is for a portion of an 11,260 square feet greenhouse. The big potential is for the grower’s additional acres. Dan and Jerry’s Greenhouses has millions of square feet of greenhouse. On their website, they have 60 acres or 2.6 million square feet. Dan and Jerry’s are an example of the size of opportunities GROW are pursuing.

CO2 GRO Inc. Signs Exclusive Marketing Agreement
with UK based Rika BioFuel Developments Limited to
service the UK, Netherlands and Belgium Greenhouse
Markets

Rika Biofuels seems like an odd fit. Rika is a developer of agri-waste products. Similar to a more well-known name, Xebec Absorption. Based on what I can find on Rika Biofuels they have no greenhouse experience. They service and install anaerobic digesters that turn waste into useable fuel. My concern is that Rika does not have experience in greenhouses. Sales staff will need to understand how GROW’s CO2 technology affects numerous different plant types. No easy task.

The details of the Rike partnership are interesting. Rika has a “one-year rolling exclusivity in the UK, Netherlands and Belgium based on minimum sales targets achieved.” It feels like GROW has an easy “out” built in to this partnership should Rika fail to generate sales. Additionally “Rika will purchase CO2 Delivery Solutions™ system components from GROW with pricing on a project-by-project basis for resale to Rika customers.”

The gold standard of partnerships is still the Gulf Cryo deal. Gulf Cryo does not take any portion of the revenue or profit from sales, instead, they get the rights to sell CO2 gas to the customer.

CO2 GRO Inc. Continues to expand its International Marketing Partners engaging South Africa’s Pharmacrop Pty Ltd. In an Exclusive Marketing Agreement

There is even less info Pharmacrop than Rika Biofuels. All I could find on Pharmacrop is a newly created Facebook page with very little info on it. The nice thing about this partnership is Pharmacrop appears solely focus on aqueous co2 application and claims to be “Africa’s first CO2 enriched water solutions provider.” It almost looks like Pharmacrop was started to sell CO2 delivery solutions.

CO2 GRO Inc. is pleased Announce the Sale of a Third CO2
Delivery Solutions™ Commercial System to an Ontario
Licensed Cultivator

Recently GROW has sold 3 systems to small cannabis growers, 2 in British Columbia and 1 in Ontario. These little sales are promising and are a good grassroots way to spread the word about CO2 Gro’s technology.

The important detail from the news release is this quote from the customer. GROW’s customer commented, “According to my return-on-investment criteria of a one-year payback, a mere 7% increase in yield justified purchasing the system.”

This grower required a one-year payback on their investment in the CO2 delivery system. Testing has shown that GROW’s technology provides a 30%+ increase in cannabis yields, so the customer will recoup their investment multiple times over in the first year.

This is consistent with the information I was provided by Levi Swanson. Swanson is the owner of Linn County Seed and Flower and one of the Missouri growers that purchased a system. Swanson said his system paid for itself multiple times over on the first grow.

The statements from the most recent grower and Levi Swanson tell me that GROW is underpricing its technology to try and get it in the hands of growers. Once GROW becomes more established they should have the ability to significantly increase prices.

CO2 GRO Inc. Selected by Sente Foundry LLC to
Participate in its Indoor AgTech Program

The industry recognition of GROW’s technology continues. GROW was selected to participate in Sente’s Indoor Ag Tech program. Sente is a startup investment company that focuses on mentoring startups to help them achieve success.

Sente partnered with GrowRay Lighting Technologies and Nobo and selected 8 companies to participate in the Indoor Ag Tech program. The end result of the program is at least 3 companies are selected to pilot their technologies in a state of the art growing facility. If successful GROW could also be a candidate for investment from Sente.

GROW’s CO2 delivery technology is significantly different than the other 7 companies selected to participate. From a quick look at the other participants, they appear to be mostly software companies with AI integration while GROW is a much simpler, easily quantifiable, technology. The results from the CO2 delivery technology can be observed with the naked eye as plant growth accelerates when CO2 foliar spray is applied.

The “winners” are selected in the second week of January so we should get an idea of how GROW did around then. It is hard to quantify how important this is to GROW but the additional exposure certainly can’t hurt.

CO2 Gro 2020 Buisness Goals

Since 2020 is coming to a close I wanted to review the goals set out by the company earlier in the year. The problem was that CO2 Gro was no longer referencing the goals they identified earlier in the year. I had to email the company to get access to the following slide:

CO2 Gro Q2 2020 Corporate Presentation Slide 31
CO2 Gro Inc. Q2 2020 Corporate Presentation

My first comment is why isn’t this slide included in more recent presentations? I’ll go through each point but overall I think it was a successful year for the company. By not including the slides in more recent presentations it appears the company is distancing itself from goals it set for itself.

2020 Goals

  1. Generate sufficient revenue to reach EBITDA positive: This is the most important goal for GROW and one they did not achieve. Michael O’Connor (Investor Relations for CO2 Gro) said that sales cycles for larger facilities were longer than expected. There is clearly interest from big growers based on the feasibility studies that have been signed or are underway. He said that completion dates are now into Q1 or Q2 2021;
  2. Have at least one Flagship Commercial installation in each target crop vertical: Michael said this goal was achieved with the exception of cannabis and hemp. GROW did achieve 15 installations in Missouri for hemp growers and cannabis grow in California with Strong Agronomy which has been delayed. I’d say this goal was mostly achieved;
  3. Have at least one Flagship installation in the UAE and Israel: The UAE lettuce grow satisfies half of this goal. Israel has been more difficult and COVID restrictions have not helped. Michael said their partner in Israel, Dotz Nano continued to work in Israel. Based on comments made by VP Aaron Archibald in one of his interviews an installation in Israel is being worked on so hopefully that goal is satisfied in early 2021;
  4. Add a European partner for EU sales: Grow signed an agreement with Rika Biofuels which I’ve commented on above;
  5. Expand Patent Portfolio with IP that enhances technology value: Michael felt this goal was achieved as patent applications are in process.

CO2 Gro Q3: Delays, Delays, Delays

The long duration of sales cycles is continuing to hold the company back. COVID travel restrictions and overall issues the pandemic have caused I’m sure explain some of the delays.

  1. Canadian Cannabis producer (Cannabco): This study was announced in December 2019 and scheduled to conclude in June 2020. The project was delayed due to COVID related concerns but is now underway;
  2. UAE lettuce study: This study was announced on April 22nd and by that time the system was installed and one harvest of lettuce was completed. The completion of the study was delayed by Ramadan and COVID-related staffing issues. I’m skeptical of the Ramadan excuse since Ramadan is roughly the same time every year. It shouldn’t have been a surprise that Ramadan would occur within the study;
  3. Strong Agronomy: This study was announced on July 29th. There was no timeline for this study but it has yet to commence. The study will start in 2021 and was delayed by the California wildfires;
  4. Columbian Rose Greenhouse: This study was announced on June 24th but has yet to start. The study will start at the end of 2020 or January 2021. The delays in this study are due to Columbian customs clearance issues.

The consistent delay is a trend I’m not too keen on watching continue. It is only fair to remind myself that the world is in a pandemic that no one could have prepared for. It has certainly hampered GROW’s ability to get key executives in front of large growers. Even with the world in turmoil, the company has made great strides in 2020 but I’ll be keeping a close eye on execution. The $1.3 million raised in the private placement won’t last forever.

CO2 Gro Q3 2020: Conclusion

CO2 Gro Inc. Q4 Corporate Presentation

It is pretty clear that business development for GROW has picked up in the 2nd half of 2020. GROW has signed up some serious growers for commercial feasibility studies. While the sales to the 2,000 square foot growers are important the study with Dan and Jerry’s, Strong Agronomy and Hidroexpo are opportunities that can really put C02 Gro on the map.

The pressure on lawmakers in the U.S. to legalize cannabis could provide a boost to GROW. In the most recent election, numerous states voted to legalize recreational cannabis. 15 states have legalized recreational cannabis. Legalized cannabis in the U.S. could provide a boost in opportunities. It is important to remember that cannabis isn’t the only crop vertical GROW is active in. CO2 Gro now has studies active in numerous plant types and countries and I hope to see more studies and deals announced early in 2021.


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This Post Has 3 Comments

  1. Spencer

    Blair, you continue to impress with your due diligence on this company and your ability to emotionally distance yourself from your investments. This was evident in your write up of the Q3 financial report.

    More importantly, as someone who has been following this company closely for some time now (and perhaps too closely at times), I continue to generate new insights from your content despite my initial thoughts prior to the read-through.

    As a shareholder, like you, I am quite pleased with the progress to date. To maintain my current holdings management will have to execute 2-3 of these larger feasibility studies. That said, the pandemic has curbed my expectations.

    Keep up the great work!

    Spencer

    1. Blair

      Thanks, Spencer. I have benefitted from the work you have put in as well. Thanks again.

  2. James Stroehlein

    Thks again for your insights. With these small, new cos I try to keep in mind this is a learning process 4 them and that much of the value of what is happening now is the knowledge and experience management gains. Management seems to be improving.
    ?s is equipment used in demo projects still carrier as inventory? Smaller projects should produce higher % returns, correct? I expect in future to see a retail hand held gizmo for home garden res in next yr. Am I crazy?

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