Agrify Really Is a Terrible Cannabis Stock

I wrote here about Agrify (AGFY) in late May, saying it was a horrible cannabis stock. It has rallied, but they have updated financials recently. Today, I review these financials and update the current valuation. Before I get to these, let's look at the chart.

AGFY Is Up a Lot but Down a Lot Too

When I wrote that piece less than three months ago, the price was about $24, and now it is trading at $33, up 37.5%. Of course, all cannabis stocks are up since then! The Global Cannabis Stock Index, up about 2.7% today, is at 6.83, down about 0.7% year-to-date from 6.88. AGRY is up 13.8%, so it is doing better. It peaked on 11/25 with a close of 45.81, so it is down 28%. The GCSI closed that day at 7.54, so it is down 9.4%.

Here is the chart of AGFY over the past year:

The stock has run up a lot this past week, and it left a gap in trading today that I expect to get filled.

The Financials Are Scary for Agrify

The company filed its 10-Q on Friday with no press release at all and no conference call. The filing indicated that there are 2.0 million shares outstanding, but that significantly understates the size of the company, as I explained in late May. I said then that there were effectively 12.45 million shares compared to the then-outstanding 1.95 million shares. Now, I get million when I add in warrants that are in-the-money, a convertible note and some RSUs.

The income statement showed strong revenue growth sequentially but it was low at just $$2.04 million. The company spent $7.48 million on operating expenses and thus increased the operating loss sequentially from $3.7 million to $6.8 million. You gotta love that! More sales, more losses. Net income per share on continuing operations was -$3.66. dpwm frp, Q1 and from a year earlier. The company burned $15.1 million in H1 through its operations and spent $5.1 million on capital expenditures.

The balance sheet looks good, with cash of $40.96 million at quarter-end and total liabilities of $48.5 million. Current assets, which includes cash, was 2.6X the level of current liabilities. The company reported $20.96 million in equity, but it has $9.7 million in goodwill and $13.3 million in intangible assets. This leaves tangible equity of -$2.0 million. This is not good for a money-burning company!

The company reported $37 million of convertible debt as of 6/30. It quantified the repayment as a total of $40.6 million, with $10.6 million in 2025 and the remaining $30 million in 2026. Green Thumb Industries (GTBIF) holds the convertible debt. The conversion prices for this debt are $23.53 for what was borrowed in May ($30 million) and just $3.158 for what was borrowed in November.

The Valuation of AGFY Is Even Worse

If all of the warrants are converted, it will wipe out the debt but add 4.44 million shares. There are warrants outstanding that total 7.6 million at an average exercise price of $7.33. There are also 80K RSUs.. If this all gets converted into stock, the share-count would rise to 14.12 million shares, giving it a market cap of $466 million. The enterprise value would be a bit lower due to cash and no debt plus the additional cash from the warrant exercise of $55.7 million. This works out at $33 per share for the stock to be $466 million market cap less $96.7 million in cash, or $369 million. Seems sky-high to me!

Of course, if the stock price falls, the market cap will go down, and if it goes below the conversion price for the convertible notes ($23.53), it could head towards bankruptcy or need to sell stock.

Conclusion

Cannabis stocks have flow this week on the potential rescheduling news. Agrify has no benefit at all from this! Their business is almost exclusively through regular stores due to hemp being federally legal. There is a licensing agreement with Green Thumb Industries, and perhaps this is for dispensaries.

I like the idea of THC beverages, but I do not like this stock at all. I also don't like what GTBIF is doing here.