Althea Group is a manufacturer, distributor, and now also a direct-to-consumer seller of cannabis-based products. Their flagship product is a cannabis-based drink ( a seltzer, bro) that will soon be sold online and in stores across the US.

Here’s the ASX chart of the company’s historical performance:

While the losses might seem scary at first glance, the numbers are not as they appear. A significant portion comes from non-cash write-offs. Specifically, a “non-cash impairment of $17.74 million was recorded for Peak Canada.” This adjustment was made to align AGH’s financials with more realistic post-acquisition performance expectations. 

Although this impacted FY24 results, it clears the path for improved profitability in FY25 by ensuring the company’s financials more accurately reflect current asset values.

To verify my claims here, we’ve got the company’s 4Cs. This year they’ve burned through $2.7M. They recently completed a capital raise, bringing their current cash balance to around $2.8M. This means there’s a strong possibility they will need to raise additional funds, which I consider the biggest risk to the share price. Despite this, I’m willing to accept that risk given the potential for a large inflection point in the company's US entry.

In summary, my investment thesis is based on these key points:

- Strong growth trajectory: The company has been growing at a compound annual growth rate (CAGR) above 30%. This growth is set to continue with their entry into the US market via the cannabis seltzers.

- Path to profitability: While Althea is fundamentally a manufacturer and will require ongoing capital to sustain production, there’s the beginning of some evidence that the company is approaching profitability. We should see this materialise within the current fiscal year.

- Undervalued: The company provided guidance for FY25 with expected revenues in the range of $50 million to $60 million and positive EBITDA between $4 million and $7 million. With current EV around $20M (MC is $15M on share price of 0.037 and they have ~$5M in debt), if this guidance is met, the company is undervalued for a fast-growing entity. 

- Undiscovered potential: Althea appears to me to be largely under the radar in the investment community (last Strawman post was 4 years ago by @mmff ), which could provide additional upside if it becomes discovered.

For now, I hold a very small position. If execution happens, I will slowly add.

- Category Problems : Investing in weed isn’t too different to actually doing weed. What starts off as fun can easily turn pear shaped. My experience with Vitura scarred me for good here. 

- Thin cash cushion: As mentioned, the company’s cash position remains thin, and further capital raises may be necessary, which could impact the share price.

- Industry competition: The cannabis industry is dynamic to say the least. While I don't think competitors are as advanced as Althea in the cannabis beverage market, it’s possible that new entrants emerge, reducing the market share and future profits.