Right On Brands, Inc.

What they do

The company creates and markets a line of CBD, CBN, and Delta-8 products under the Endo Brands name, including drops, topicals, pre-rolled smokes, vape pens, and gummies. Its Humble Water Company subsidiary, which was to develop high alkaline water, is dormant and no longer active. All current business is conducted through Endo Brands.

Revenue drivers

• Retail store sales — The company operates a retail store in Rowlett, Texas, which contributed to improved in-store sales in the quarter ended December 31, 2023, and remains a primary source of revenue.
• Wholesale sales — Wholesale revenues were approximately $134,000 in the quarter ended December 31, 2023, compared to none in the prior-year period, as the company began selling to other stores on a bulk basis.
• Product lines (Endo Brands) — Endo Brands offers CBD and Delta-8 products across categories including drops, topicals, tokes (pre-rolled and vape), and gummies, sold both in-store and through wholesale channels.

Recent performance

For the quarter ended December 31, 2023, revenues were approximately $342,000, up 32% from approximately $260,000 in the prior-year period, driven by wholesale growth and improved in-store sales. Gross profit rose 67% to approximately $183,000, with gross margin expanding to 54% from 42%. The company reported a net loss of approximately $221,000 for the quarter, compared to a net loss of approximately $69,000 in the prior-year period, due to financing costs, debt discount amortization, and increased staffing. For the fiscal year ended March 31, 2023, revenue was $1,135,939 with net income of $8,726, a swing from a net loss of $257,016 in fiscal 2022.

Strategy

Management plans to expand wholesale partnerships and increase in-store sales of higher-margin products, expecting revenues to improve in future periods. The company intends to continue developing and marketing new products, which it expects will significantly increase operating expenses and revenues. It also expects to grow its staff and facilities over the next 12 to 36 months to support its long-term growth strategy. Funding is expected to come from additional debt or equity financing, as operations have not yet generated positive cash flow.

Risks

• Going concern and financing risk — The company has an accumulated deficit of $15,761,241 as of March 31, 2023, and has not produced sufficient sales to become cash flow positive, requiring additional financing to continue operations.
• Limited operating history and revenues — As a newer enterprise with limited financial resources and no track record of consistent revenues, the company may be unable to achieve or maintain profitability.
• Competitive market — The company faces competition from established hemp and CBD brands such as Manitoba Hemp Foods, Evo Hemp, Nutiva, Naturally Splendid, and CBD MD.
• Dependence on wholesale expansion — The recent revenue increase relied on wholesale sales that were zero in the prior-year period; failure to grow or maintain these partnerships could reduce revenues.

Outlook

Management expects revenues to improve in future periods as it partners with new locations for wholesaling and expands its offerings. Gross margins are expected to be around 50%, subject to factors outside the company's control. Operating expenses are expected to increase over the next 12-36 months as the company adds personnel and expands facilities. The company acknowledges that without additional financing, its business development plans will be delayed and it may not achieve profitable operations.