SCS: What's Happening on November 9, 2021
AMC Theatres put out earnings. Adam Aron knows his audience: a bunch of self-proclaimed Apes who love crypto. Jay Lutz criticizes the antics at Cronos Group.
After the bell last night AMC Theatres (NYSE: AMC) put out earnings. At a high level the earnings looked pretty good:
They had revenue of $763.2M, with $435.1M based on admissions, beating average estimates of $417.6M.
At the end of the quarter, they had 100% of their US theatres up and running with 99% of their international theatres running as well.
The company talked at length about how they will begin to accept all the major cryptocurrencies including Bitcoin, Etheruem, Litecoin, Bitcoin Cash, Dogecoin, and eventually Shiba Inu.
But the best part, the company is exploring its very own cryptocurrency.
The company is also looking at partnering with movie studios to get into NFTs.
Seemed like a good quarter right? Back up and running and beating estimates.
For whatever reason, the stock had a rough day trading down 11.38% to $39.93 at the close.
Something of note is that Adam Aron is apparently making strategic decisions for the company based on Twitter polls. Something we saw Elon do earlier this week. Adam told us during the conference call:
We announced with some bravado that we're going to accept Bitcoin by year-end for online payments either on our website or a mobile app. It was very well received. So we figured out a way to increase the currencies that we would take growing it to include Ethereum, Litecoin and Bitcoin cash. We then received so many messages about Dogecoin, we took a quick look, I did a Twitter poll. A lot of you voted. A lot of you voted yes. So we are in the process of figuring out how to take Dogecoin.
In the small-cap world, I’ve come to begin calling this “managing your cost of capital.” See Adam understands an important thing, his shareholders are self-proclaimed apes. They want the company to feed them with MEME stonk and crypto-related newsflow. After accounting for fees, cryptocurrencies probably make zero sense to accept as tender. But who cares? This isn’t about selling movie tickets, it’s about selling stock. And god forbid, they could end up controlling a cryptocurrency that develops a market cap worth more than the equity of the parent company.
As I always like to say, when I’m in Philadelphia, I eat nothing but cheesesteaks. Adam knows what game he is playing.
Macro: The Macro Themes Surrounding Equities
Sodium batteries might become a thing again. (Wired)
Meat packers are having a hard time finding workers, offering $3,000 signing bonuses. (BBG)
Even With a 50% Correction, Toronto Housing Prices Would Only Return to 2014 Levels (Storeys)
Biden Wants to Tackle High Gas Prices. He Has Few Options (Barrons)
Fed says China’s real estate troubles could spill over to the U.S. (CNBC)
Large-Cap News We Can’t Ignore
Cronos Group Delays Financials Due To At Least $220 Million In Goodwill, Intangible Asset Impairments (TDD)
Motional and Lyft to launch driverless commercial robotaxi service in Las Vegas in 2023 (TC)
AMC Explores Addition of Shiba Inu to Crypto Payments Lineup (FXEmpire)
Small Cap News
Uranium Energy Corp To Acquire Uranium One Americas In $112 Million Deal (TDD)
Village Farms Reports Q3 Sales Of US$72.4 Million (TDD)
Canadian Small Caps With Jay Lutz
At the risk of talking about the cannabis sector yet again within this substack, something needs to be said about the recent events of Cronos Group (TSX: CRON), whom has managed to create more bagholders over the course of the last three trading sessions.
Last week, one cannabis-focused blog posted a story that pushed the theory that Cronos Group may be gearing up for a full-on takeover by Altria (NYSE: MO). Recall that Altria already owns a 41% stake in the flailing firm from years back, making the theory somewhat convincing that at the bare minimum, it would be possible.
The theory largely was based on the fact that Cronos had yet to publish an earnings date for their third-quarter financial results, which are due imminently. The blog argued that “it’s possible that the lack of notification [of the earnings] is because a deal is brewing.”
While outlandish, it was convincing enough for retail investors, who yesterday drove the equity up 26% on the rumour.
And today, they got entirely bagged.
The firm this morning, rather than revealing a big merger or acquisition, instead announced that it is instead reworking its second-quarter financial results to impair at least $220 million in goodwill and intangibles, with its third-quarter results also expected to see further impairments.
And this brings us to the firm’s Lord Jones acquisition that occurred several years ago, which is the focal point for the write-downs. Let’s face it, it was an egregious self-dealing transaction, with the only beneficiaries of the deal being insiders at Cronos.
Back in 2019, Lord Jones, whom corporately was referred to as Redwood, was acquired by the company for US$283.3 million, of which US$227.2 million was paid for in cash, and the remainder paid in shares. In terms of allocations, US$213.4 million of the price paid was labeled as goodwill, while US$64.0 million was labeled as intangibles, equating to a total of US$277.5 million, or roughly 97.9% of the price paid.
A US-based hemp-derived cosmetics and supplements producer, the company was effectively a dud. For 2020, the firm generated $6.1 million in revenues, meaning the firm paid 46.4x 2020 revenues.
However, the deal was somehow justified by the management over at Cronos, some of which had a stake in the firm via an investment vehicle. Director Jason Adler as well as CEO and Chairman Mike Gorenstein held indirect interests in the firm via Gotham Green Partners, whom they are both co-founders of. To put the icing on the cake, the insider interest was not disclosed in the original news release announcing the acquisition but was placed just in the material change report subsequently filed by the company.
Today, it was revealed that much of that deal will be written off on the basis that revenues have failed to materialize from the deal. Meaning a few select investors made a healthy return, while the majority were bagged by it.
And that, folks, is what is largely wrong with the cannabis sector.