Smaller Canadian Stocks Worth a Closer Look: Yerbaé Brands
This article begins coverage of three smaller names that trade on Toronto’s TSX or TSX Venture and have market caps between $100 million and $400 million
By Will Ashworth
Drinks maker Yerbaé Brands (YERB.U) reminds me of a younger version of Celsius Holdings (CELH).
It went public through a reverse merger with a Vancouver-based company listed on the TSX Venture exchange.
San Francisco 49ers Kyle Shanahan and Brock Purdy are investors.
Here at InvestWrite Review, my mission is to write about stocks and companies you might not read about all the time in major Canadian investment publications. These are businesses that possess something readers will find interesting or different.
It might be a fantastic business model, a strong balance sheet, a wicked dividend payment, or an exciting ownership group; the list of things I find fascinating — and investable — about particular businesses is endless.
I plan to weed out these businesses and write about them frequently. I don’t intend to discuss hundreds of companies over the coming months. Instead, I want to get to know a small sample really well.
So, I'm building a group of 30 stocks that I’d be comfortable holding in a portfolio over a 12-18 month investment horizon. I’ll focus on writing about these businesses as often as possible. They’ll be the “sniff test” to determine whether my actionable ideas are good.
But remember, my 30-stock portfolio is intended to hold for the long haul, so patience is the key.
Beginning with this article, I’ll cover three smaller names that trade on Toronto’s TSX or TSX Venture and have market caps between $100 million and $400 million.
Here goes.
Who Is Yerbaé Brands
Yerbaé Brands (TSXV:YERB.U, OTC:YERBF) has a market cap of $104.7 million (all figures in U.S. dollars).
Based in Scottsdale, Arizona, the company started in 2017 when founders Todd and Karrie Gibson figured out how to infuse sparkling water with the South American herb yerba mate. This herb provides a natural source of caffeine, as well as 196 different vitamins, minerals and nutrients. They merely added natural flavoring to it. And Yerbaé was a thing.
The company’s pitch is that “Yerbaé has helped millions say goodbye to sugar, calories, and synthetic ingredients.”
What catches my attention are the people involved in the company, both those serving on its advisory board and the actual investors. The six-person advisory board includes San Francisco 49ers head coach Kyle Shanahan and Annie Thorisdottir, one of the world’s leading CrossFit athletes.
Yes, the world has seen many celebrity and athlete-endorsed beverage brands come and go, but the plant-based angle with zero sugar strikes home to me. My wife and I don’t eat meat (I eat fish for the Omega-3 intake), and I’m not a big soda drinker.
Most recently, the company announced that 49ers QB Brock Purdy became an investor, no doubt influenced by his head coach, who is also an investor and serving on Yerbaé’s advisory board. This is the first product Purdy’s gotten involved with where he’s invested, too.
While the energy drink market it participates in is massive -- $21 billion in the U.S. and $86 billion globally -- revenues remain small. In Q2 2023, it had $4.1 million in net sales, 122% higher than a year earlier, with an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $2.92 million.
Origins of TSV Venture Listing
The beverage company’s route to becoming a public company accelerated in May 2022 when it agreed to combine with Kona Bay Technologies, a small Vancouver-based online customer acquisition software provider.
The company closed the reverse merger in February 2023, paying $47.2 million. A total of 32.5 million Yerbaé shares were issued in consideration for the merger, with Yerbaé shareholders owning 72.8% of the combined entity, Kona Bay shareholders 18.2%, and investors who subscribed to the $6.4 million private placement at the time of the merger owned the remaining 9%.
The Kona Bay officers resigned, and Todd Gibson became CEO while Karrie Gibson was COO. It’s been eight months since completing the reverse merger. Much has happened since then.
Since it completed the reverse merger, its shares are up 21%, hitting a 52-week high of $2.55 in August, only to fall back below $2 by fall. YTD, the shares are down 7.5%, compared to the almost 30% decline in the shares of Canada-traded peer Guru Organic Energy (TSE:GURU)
The two biggest beverage-related exchange-traded funds, Invesco Food & Beverage ETF (NYSEARCA:PBJ) and First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG), are down 10% and 16.8%, respectively, in 2023.
Reminiscent of Celsius Holdings
Yerbaé reminds me of an earlier-stage Celsius Holdings (NASDAQ:CELH) in that it’s selling healthier functional energy drinks backed by celebrities, athletes, and business tycoons.
As recently as June 2021, Kimora Lee Simmons, the former wife of Def Jam Records founder Russell Simmons, owned 5.33% of its stock. Hong Kong billionaire Li Ka Shing owned 8.8% of Celsius, as of April 2022. A year later, 11.5% was held by Solina Chau, a longtime friend of Li Ka Shing and the director of his foundation.
Celsius might seem like an overnight sensation, given its share price has appreciated by 3,400% in the past three-and-a-half years. However, it’s been around since 2004.
It took Celsius 16 years to get to the point where investors started to pay attention to its stock. Yerbaé is only six years into its journey. Investors shouldn’t expect a quick payoff. More importantly, this is not money you want to use from your retirement fund. I’d recommend you consider it “fun money.”
In my next installment about Yerbaé, I’ll discuss what growth catalysts will drive higher revenues.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. None of the above should be construed as investment or financial advice. Investing is inherently risky. Please perform your own due diligence.
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