Three reasons NOT to invest in Abattis Bioceuticals Corp. stock (ATTBF)

What does Abattis Bioceuticals Corp. (ATTBF) do?

Abattis Bioceuticals Corp. originally sought to be a vertically-integrated company serving the medical marijuana and natural health products industries. They’ve slowly evolved away from that model to reduce overhead. The company’s now focused on generating revenue from its natural tonics, elixirs and blends, many of which contain its proprietary botanical blend ingredient PhytoNOS. The company’s also seeking a Controlled Substance License (CSL) with Health Canada via subsidiary Northern Vine Labs so it can possess and produce cannabis.

Three reasons NOT to invest in Abattis Bioceuticals Corp. stock (ATTBF)

1) Red ink. ATTBF lost $1.5 million (CAD) during the nine months ended June 30, 2016. That’s better than the prior year’s same nine months when the company lost $2.4 million (CAD). Unfortunately, the biggest reason for the smaller loss was cost-cutting (not revenue growth).

The one bright spot? Sales grew from $7,720 (CAD) in 2014 to $91,940 (CAD). That’s a gain of more than 1,000 percent. Yes, it’s fairly easy to grow when you’re only doing $7,000 (CAD) in sales per year, but their numbers are at least moving in the right direction. 2016 could be a defining year for Abattis. “As at June 30, 2016, the Company had a cash balance of $338 (September 30, 2015 – $157,758) and a working capital deficiency of $674,518 (September 30, 2015 – $787,857).” Money is tight, and the need for revenue has never been greater. All told, Abattis has lost $15,105,400 since inception. That’s a lot of cheese.

2) Stock dilution. Between April and June of 2016 (the latest time period available), Abattis issued nearly 13 million shares of ATTBF. That adds up to nearly $600,000 (CAD) worth of stock. If all those shares ended up for sale in short order, ATTBF’s stock could tumble – especially since average daily volume is a tiny fraction (229,000) of the number of shares the company issued.

Look for even more shares to be issued in the coming months. “In order to fund the Company’s ongoing operational needs, the Company will need additional funding through equity or debt financing, joint venture arrangements or a combination thereof,” Abattis writes. “The Company’s operations to date have been financed by the issuance of its common shares and debt instruments. The Company continues to seek capital through various means including the issuance of equity and debt. While the Company has been successful in raising funds in the past, there is no assurance that it will continue to do so in the future or that it will be available on a timely basis or on terms acceptable to the Company.”

3) Not enough focus? Abattis has its hands in a lot of pots (so to speak). Altogether, the company lists ten subsidiaries:

  • Abattis Bioceuticals International Inc.
  • Animo Wellness Corporation
  • BioCell Labs Inc.
  • Biocube Green Grow Systems Corp.
  • iJuana Cannabis Inc.
  • Instant Payment Systems LLC
  • National Access Pharmacy Corp.
  • North American BioExtracts Inc.
  • Northern Vine Canada Inc.
  • Phytalytics LLC

To raise capital, Abattis has started selling off some core technologies from its subsidiaries. “On August 21, 2015, Abattis sold the tangible asset, the flash freeze extractor prototype (FFE) and the intangible asset, the poultry avian flu patent, for $100,000 and 2.1 million free-trading shares of Abattis stock,” the company wrote in a recent MD&A. Those sales booked a loss of $393k (CAD).

Additionally, Abattis suspended operations at Phytalytics, a marijuana testing company in Washington state, in October of 2015. Despite capturing some 9 percent of the state’s testing marketshare, the business proved unprofitable.

One promising subsidiary is Northern Vine Labs. The Canadian company is seeking a Controlled Substance License (CSL) with Health Canada. The process is slow and costly, though. “Northern Vine’s first inspection in support of obtaining this License was completed on January 29, 2016,” the company wrote in a recent MD&A. If Northern Vine Labs acquires a license, it’s unclear how long it might take for it to start generating revenue from the venture. A license in hand might be enough to raise some capital from investors, though.

The bottom line on Abattis Bioceuticals Corp. stock (ATTBF)?

Should the three reasons listed above scare you off Abattis Bioceuticals stock? Probably. The company grew its sales last year by some 1,000 percent, but it still only generated $91,940 (CAD) in sales. It spent more than that in advertising alone (C$129,758). It also burnt through $420,309 (CAD) in legal fees and $1.1 million (CAD) in management and consulting fees.

Abattis does seem serious about cutting costs and generating revenue. Last month, they announced a partnership with China’s Jaingsu to export Abattis’ line of Phtnos Superfruit tonics and VitaGum to mainland China. It’s hard to say whether that’s too little too late. As I mentioned above, a cannabis license is pending for Northern Vine Labs. A positive result might buy the company more time, but they need to show they can generate some cash, and they need to do it soon. I’d stay away from the stock until they can prove that.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here and marijuana stocks here. Full disclosure: I do not own a position in ATTBF, and I do not plan to initiate one in the next 72 hours.

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