Today we are talking about a popular penny stock, listed for less than 1 cent, Healthier Choices Management Corp., OTC Ticker Symbol, HCMC. Yes, HCMC does have two major catalysts that could have big impacts on their stock price in late 2021, or in 2022. I’ll share the details today, whether HCMC could be a big winner.
OTC stocks are highly volatile and risky, so today we are going to dive into the details of HCMC, to determine if this would be a good bet to build a portfolio.
I did spend hours poring through articles and HCMC’s financials, to aid in a decision whether it made sense to buy shares of this stock. Especially, to hold for the long-term, and that potential big run-up in price.
In the past I worked for years with Fortune 500 CFOs and financial consulting teams, to help companies determine where they were making money. Now I use this expertise to dig into HCMC’s details. But this is not financial advice, and for entertainment only.
In looking back at 72 tickers I day-traded in 2018, if I had done the type of analysis I’m sharing with you today, I would have held on to more of these stocks. 77% of them would mean big profits today. I spent just $37,000 on seven of these trades, that would now be worth $441,598! The purpose of this series is to help uncover these stock gems that have better odds of make big profits.
Hi investing friends, this is Lynn, and welcome back to Sixty Perfect Wealth! So Let’s go and review today’s hot stock!
Healthier Choices Management Corp, based in Hollywood, CA, provides e-liquids, vaporizers, and related products. The company operates through two segments, Vapor and Grocery. Its vaporizers are battery-powered products that enable users to inhale nicotine vapor. The company operates eight retail vape stores in the Southeastern U.S, including Ada’s Natural Market organic grocery store. HCMC also sells vitamins and supplements on its website, thevitaminstore.com and on Amazon.
HCMC has just released an exciting new product, a Q-Cup technology for consumers who prefer to vape concentrates. The company was formerly known as Vapor Corp. and changed its name to Healthier Choices Management Corp. in 2017. Lately, I’ve seen several articles about HCMC’s Q-CUP, and a new Canadian distribution agreement which could provide a compelling catalyst and potential tick up in revenues for the stock price over the next twelve months.
This first catalyst could provide a significant impact to HCMC’s stock price and growth in late 2021, through 2022 and beyond. A June 24th announcement revealed this new distribution agreement which could mean significant revenues for HCMC.
HCMC has entered into an Exclusive Filling Agreement for its Q-Cup® technology in Canada, with 6PAK Solutions Inc. 6Pak, is the sister company and distribution arm of ATG Pharma Inc., that manufactures filling machines in Canada and the U.S,
The goal of this arrangement is for 6PAK Solutions to offer access to the innovative Q-Cups® to its clients. This will be huge, for expanding HCMC’s Q-Cups in North America, as 6PAK’s services provide an easy way, for companies to launch and scale the growth of new products.
Jeff Holman, CEO of HCMC, said “We are very excited to be expanding our relationship with ATG Pharma through 6PAK Solutions.
“There are projections that Canada’s cannabis sales will be $4B this year and will grow to $5B next year. Getting our products before a number of extractors, quickly, in the Canadian market, which is relatively new to concentrates, gives HCMC a potential major advantage in terms of capturing early market share.”
6PAK has allowed companies to free up cash flow through their custom turn-key filling and packaging services. With access to ATG’s client base of over 65 licensed producers across Canada, they offer co-packing support to clients for products such as vapes, topicals, tinctures, and capsules.
It’s important to note that this is a fast-growing market! Canadian cannabis sales are expected to reach $4B in 2021. By 2022, total annual cannabis sales are projected to reach $28 billion in the US and $5 billion in Canada. And, the Canadian market is estimated to double the growth rate of the US in 2021.
On June 22nd, HCMC announced the launching of their patented quartz Q-Cups®, that will be pre-fill with their NUHI brand concentrates, then make available in their Colorado dispensaries.
The soft launch will occur in the coming weeks to be followed by a full-scale launch scheduled for July 10, 2021. This will be the potential for another big bump in HCMC’s revenues during the second half of 2021.
HCMC’s patented quartz Q-Cups® p, provide improved technology via a convenient, mini dosing system.”
Now let’s talk about the all-important financials. One of the biggest risks of OTC stocks, is their lack of financial stability. So, I did a deep dive into HCMC’s financial report from their May, 2021, Quarterly SEC Filing, and also took a look at their annual financial statements. If you are invested in HCMC, or considering an investment, you’ll find these details to be very valuable.
Before we dive into the numbers, HCMC did mention several lawsuits, which could materially impact the company.
First, two lawsuits were filed against HCMC, and its subsidiaries, regarding claimed battery defects for an electronic cigarette device. The Plaintiffs claim the batteries were sold by an HCMC subsidiary, and they have sued for damages, plus approximately $400,000 in medical costs. The initial complaints were filed between January 2019 and April 2019.
The second lawsuit though, if HCMC wins it, could mean a significant jump in value for this company. On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris. The lawsuit claims that Phillis Morris’ product named, “IQOS®” is an infringement on HCMC-owned patents. This is huge, as Philip Morris claims that is has approximately 14 million users of their IQOS®” product, and that they have invested more than $3 billion in their smokeless tobacco products.
Now, Philip Morris has retaliated through filing a petition with the U.S. Patent and Trademark Office, or PTAB, seeking to institute an inter partes review to invalidate HCMC’s related patent.
Of course, this is scary, because Philip Morris has a lot more funding then HCMC to retain top lawyers. If Philip Morris’ petition is accepted, HCMC will have three months to file a preliminary response. Then within three to six months, the PTAB will decide whether to allow or deny the proceedings. If the proceedings are allowed, then within one year later, the PTAB will issue a final decision regarding the validity of some, or all, of the claims in the Patent.
Now let’s get into HCMC’s financial details.
HCMC’s Yahoo Finance Profile reveals that the company has a market cap of 369 million and a huge average trading volume of 231 million shares per day – making it clearly a favorite of day traders.
Their annual income statement, listed on Yahoo Finance, reflected an increase of revenues from 2017 through 2019, then a slide back during the COVID issues during 2020.
First note that all the numbers you see here are listed in thousands, so a negative 202, really is a negative 202,000. We know that companies can manipulate their revenue numbers in various ways, which are allowed by current reporting practices. But they can’t manipulate the Operating Cash Flow or Free cash flow numbers.
The operating cash flow is the cash that a company has raised from their own operations or efforts, versus through loans, for example. The most important are the Free Cash flow numbers, which reflect the Operating cash flow, minus related expenses. You can see that the operating cash flow has reflected fairly large negative numbers for 2019 and 2020.
In looking at the Free cash flow quarterly numbers for HCMC. You will note that the negative free cash flow has more than doubled in Q1, 2021 versus Q1, 2020.
HCMC explains some of their financial issues due to increasing net losses in their latest quarterly financial statement as follows:
Net Vapor sales decreased $0.2 million to $0.6 million for the three months ended March 31, 2021 as compared to $0.8 million for the same period in 2020. The decrease in sales was primarily due to a consistent decreased in foot traffic and the closure of one store during the three months ended March 31, 2021 as compared to the same period in 2020.
Net Grocery sales decreased $0.4 million to $2.9 million for the three months ended March 31, 2021 as compared to $3.3 million for the same period in 2020. The decrease in sales was primarily due to a decrease in the customer count compared to the same period in 2020
Vapor cost of goods sold for the three months ended March 31, 2021 and 2020 were $0.2 million and $0.3 million, respectively, a decrease of $0.1 million. The decrease was primarily due to decreases in sales and product costs during the three months ending March 31, 2021 as compared to the same period in 2020. Gross profit was $0.4 million in 2021, and $0.5 million for three months ended March 31, 2021.
Grocery cost of goods sold for the three months ended March 31, 2021 and 2020 were $1.7 million and $2.0 million
It’s also important to note that there hasn’t been an HCMC insider purchase of their stock recorded, except for the one purchase of 447 million shares that Kevin Frija made in 2016. We usually view insider’s purchase of their company stock as a great sign of belief that the company’s value will soon be increasing.
On June 23rd, the historical short volume for HCMC grew to 37%. Possibly because of the lawsuits, and a potential negative outcome.
My take is that until HCMC’s stock price will likely be in a holding pattern until either improved financial reports can reflect a positive impact from the Q-Cup, or if HCMC gains a win in the Phillip Morris patent infringement lawsuit. But if the Phillip Morris lawsuit has a positive outcome for HCMC, this would be great news for the company and their bottom line!
