Companies listed on the OTC/pink sheets can often be shell corporations and companies just frankly not worth owning. The listing requirements are different than the major exchanges. Jones Soda is a real company with substantial operations. They are headquartered in Seattle, WA but sell nationwide in grocery stores. I have seen their soda products on the shelf in my local grocery store here in North Carolina.
The company has always sold bottled soda drinks. They now have a fountain soda business for restaurants and customers. The more interesting developments lately have been their move into cannabis infused drinks in 2022 and craft alcohol mixers. The cannabis is under the Mary Jones brand in California and Washington. These products include 10mg and 100mg cannabis-infused soda.
There has been a push on the national level to get closer to decriminalizing marijuana just in the past year. A new federal rule announced in May will reclassify marijuana as a less-dangerous, Schedule III drug.
The trend also has been for more states to legalize marijuana and cannabis. The Florida Supreme Court made a ballot initiative earlier this year to legalize recreational marijuana in Florida. It could be on the ballot in November.
Cannabis is legal in some form, for either recreational or medical use, in more than 40 states. The fact Jones Soda is only selling their cannabis drinks in two states and Canada leaves a lot of opportunity for growth.
They say in the annual report they are planning to expand into other states. The cannabis drinks are a highly competitive market but the outlook is sure a lot better than the soda product line which they have had for years. The U.S. is 81% of their sales and Canada 19%. As of March this year they had 27 employees,15 are employed in sales and marketing.
Valuations
The company has a market cap of $40 million as of today June 12th. Trailing twelve month sales are $17 million.
The company is trading for roughly 2.3 times sales. Sales in the most recent quarter were up 29% year over year. This is a fair price for a company like this. Small companies can really grow sales fast. I think this valuation is more undervalued considering the new markets they are now in.
Gross margin improved by a nice 8% from proactive pricing adjustments, supply chain optimization, and increased sales of Mary Jones brand revenue which generally have higher margins. The company hasn't had positive free cash flow or positive earnings for a long time if ever. I see the entry into the cannabis and craft mixer drinks as a big turning point that will bring much more positive developments than prior years.
They also made some great new hires in key roles. A new CEO David Knight is joining at the end of this month! The current CEO is retiring. Mr. Knight worked at Pepsi as a vice president of marketing Gatorade and was vice president of marketing at Quaker Oats.
In March Eric Bittner joined Jones as its new Chief Operating Officer, bringing 20 years of leadership in the beverage industry to lead the company's operations. He most recently led turnarounds at Roar Organic's and Fever Tree, where he served as the SVP of North American Manufacturing. Additionally, he has held supply chain leadership positions at Keurig Dr. Pepper, Niagara Bottling, and PepsiCo.
Mary Money was named Director of New Product Development and Commercialization at Jones. Money is a highly experienced R&D scientist, with over 30 years of experience in Food and Beverage. She has worked for PepsiCo and ConAgra Foods. These are some amazing hires for a company this size and they look very lucky to have grabbed these from Pepsico together.
Final Thoughts
Usually when I look at companies this small they are at a deep value to assets on the balance sheet. Jones, however is not a deep value but the balance sheet sports a 2.36 current ratio which is an adequate ratio. Current ratio of 2 or higher shows a high likelihood of a company in general being able to pay it's short-term bills. The Company believes its cash on hand, projected cash generated from product sales and funds received from the committed revolving credit facility are sufficient to fund the Company's operations for a period of at least 12 months. The company in my opinion is in one of the best positions it's been in as long as I've known about it.
Technically, the price action has gotten momentum and the stock is up significantly this year and after their most recent quarter. It's currently in a bullish triangle pattern. I'd like to see the stock hit $.41 a share to make sure the momentum is still going to continue before buying the next couple months.
I don't currently own any shares. I may buy JSDA shares in the future. Stocks trading for less than $1 a share can be incredibly volatile and the prices can drop significantly without news or any events. If I buy it I will use limit buy orders and not a market order.