In a frothy market you can get a mighty high multiple if you’re in the right niche. Like marijuana. That’s the story of New Age Beverages (NASDAQ:NBEV). NBEV stock tripled last September after announcing a drink containing CBD. Its drinks even have a picture of the late Bob Marley on them.
But pot isn’t NBEV’s real business. Canned beverages are its business. Things like coffee, tea and kombucha. Sodas with strange combinations like watermelon and coconut, the kind of stuff you’ll try at a soda ranch on Route 66.
Since that September explosion, where it briefly traded at almost $9, NBEV stock has lost its fizz, settling into a trading range of between $4-6 per share. But its market cap, $350 million, remains impressive for a drinks company with March quarter sales of $58 million, and no profit.
But still. Pot!
What NBEV Is Up To
New Age Beverages has used its moment in the pot limelight to bulk up the product line. The highlight was this month’s purchase of Brands Within Reach, for $6.4 million, only $500,000 of it cash.
Brands Within Reach has brand licensing and distribution rights for some mainstream beverages, like cold Nestea and Illy coffee. The idea is that this gets New Age in the door at mainstream retailers like Walmart (NYSE:WMT) and Costco Wholesale (NASDAQ:COST), which then might look at its more esoteric brands.
The Morinda combination is already in the numbers due to be reported August 8, where sales of $70.8 million are expected. Following on the first quarter take of $58 million, that’s good growth and, if the pattern persists through the year, it could lead to sales equaling the stock’s current market cap by this time next year.
That’s important, because New Beverage CEO Brent Willis knows he’s in the drinks business, not the pot business. He promised to focus on execution after buying Morinda, but the chance to buy into serious beverages with just stock was too good to pass up.
What Next for NBEV Stock?
Some analysts got very bullish on New Age after the Morinda buy, predicting imminent profits and a steady rise to $9 per share, which would be double its current level.
InvestorPlace’s Josh Enomoto disagrees. He sees the Brands Within Reach acquisition as a turn away from CBD, the source of its frothy valuation. He also sees the current brands as nothing special.
Personally, I like the Brands Within Reach deal. NBEV now has both brands that can get it into the door of big retailers and global distribution for its CBD products. But drinks remain a risky business, a land of giants in which NBEV is a mouse. If Coca-Cola (NYSE:KO), Pepsico (NYSE:PEP) or even Keurig Dr Pepper (NYSE:KDP) decided there was something to this CBD thing, they could blow NBEV out of the water quickly.
The Bottom Line on NBEV Stock
I think the owners of Brands Within Reach know all this, so there’s an overhang of almost $6 million in stock, itching to be sold right now.
Much of the rest of the common stock is held by speculators looking for a quick payout. Institutions hold just over 13% of the common, against almost 26% held by insiders. I think they will bail, too, at the first sign of bad news.
In other words, NBEV stock has a sell-by date, and execution alone won’t stave it off.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.