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Safe Shooting Company (Nasdaq: Shot) is a health and functional beverage company. Its main product is Safety Shot Beverage, an over-the-counter drink that claims to lower blood alcohol levels.Although on the surface this company seems Interestingly, it has similarities to NewAge, Inc. (OTC: NBEVQ), a once-hyped small-cap “health drink” company that ended up going bankrupt two years ago.I Begin to be bearish on NewAge in 2019 After becoming an early investor. While I was pessimistic about it, NewAge at least seemed to gain some traction in the highly competitive beverage space, but ultimately failed. I’ve yet to see anything in SHOT reach NewAge levels of success. I believe the company has a long way to go in terms of dilution while trying to grow.
shooting Expensive considering the financials and a market cap of over $100 million
At the height of its hype, NewAge’s market capitalization exceeded $500 million. However, at the height of its success, Annual revenue approaches $500 million By selling multiple beverage product lines. The gross profit margin is also quite good, about 67%. Commissions and other operating expenses eroded its profits and caused huge operating losses. The company was unable to pay its debts and had to declare bankruptcy. People call NewAge a hype stock, but at least the company has multiple product lines that generate solid revenue and gross margins. Although SHOT’s market capitalization is only about one-fifth of NewAge’s peak valuation, it hasn’t been quite as successful.
SHOT’s revenue in 2023 is only $200,000, with negative gross margins and an operating loss of $15 million. Apparently, investors are betting that the product is some kind of “miracle drug.” Even so, its valuation is equivalent to that of a new technology company, with a business model similar to that of a beverage marketing company. In order for this product to be successful, SHOT would need to spend as much money on marketing and commissions as NewAge did. This ultimately led to NewAge’s downfall, and SHOT did not have the sizable revenue base and gross margins that NewAge had to sustain.
As an example of what I’m talking about, SHOT declare A deal to invite some YouTubers named Nelk Boys to serve as brand ambassadors. The company clearly described this as a positive event. In some ways it is. In order to stand out in the highly competitive and highly saturated beverage industry, SHOT must make deals like this. The thing, I think, is that savvy investors will know exactly what to expect from this deal. Give away free products, give away tons of cash and who knows how much to social media “lifestyle influencers” (i.e. people who make a living by slacking off and who may or may not have good business skills or responsible business partners) This will have an impact on actual sales. It’s a high-risk business model, often a way to generate hype and headlines. Instead of growing the business organically and profitably.
As of the end of 2023, SHOT’s operating capital will be only US$4 million. Based on operating losses and its ongoing business model that requires significant marketing capital, we must assume a substantial need for capital. It can either raise money through debt and risk, like NewAge, or it can raise money through equity and be heavily diluted. Based on what I’ve seen on NewAge, I estimate SHOT needs at least $100 million in capital to have a reasonable chance of becoming cash flow positive.
The good news for the company is that it actually succeeded Recently raised some funds Condition is quite good. 5 million, offering 2.4 million shares without warrants at a price of $2.11. It’s surprising to see this given that small market peers tend to raise capital well below market price and/or with warrants. However, SHOT will need more funding in the future. There is no indication of the institutional investor’s motivations or whether it is willing or able to fund further future financing needs on relatively favorable terms. Therefore, we have to assume that SHOT will need to raise more funds next year. There is no guarantee that the terms of the next round of negotiations will be as favorable. Be wary of significant dilution.
Even if SHOT succeeds, its business model faces unique challenges
Suppose, against all odds, SHOT does manage to break out of the saturated beverage market and become a cash flow positive company with annual sales of over $100 million.There is another major problem with this product and that is its Claims about safe shooting:
Safety Shot is a patented health drink that reduces blood alcohol levels in just 30 minutes. Fast-acting, safe injections work through a variety of factors to lower blood alcohol levels and help process alcohol more efficiently, while also helping the body stay hydrated and improve overall well-being through nootropics and vitamins.
In comparison, this is Risk Factors Section of Annual Report:
We are subject to the inherent risk of product liability claims if use of our products causes, or is believed to cause, illness or injury. Our products contain combinations of ingredients for which there is little long-term experience with the effects of these combinations. Additionally, the interactions of these products with other products, prescription and over-the-counter medications have not been fully explored or understood and may have unintended consequences.
Any product liability claims could increase our costs and adversely affect our revenues and operating income. In addition, liability claims arising from serious adverse events may increase our costs through higher premiums and deductibles and may make it more difficult to obtain adequate insurance coverage in the future. In addition, our product liability insurance may not cover future product liability claims, which, if determined adversely, could subject us to substantial monetary losses.
and
We do not currently have, and may never have, any products on the market that are approved for the treatment of disease. Our business is highly dependent on approval from U.S. and international governmental agencies, and we would be materially harmed if we did not receive approval to manufacture and market our product candidates.
and
It is uncertain whether product liability insurance will be adequate to address product liability claims or whether coverage for such claims will be affordable or available on acceptable terms in the future.
Even if this shot does have an immediate and thought-provoking effect, will it prove to work for everyone? Not every drug works as well for one person as it does for another. Safe shooting is almost certainly the same. The difference is that if a drug has substantial negative side effects on someone, it only affects that person. If a safe shot has significant side effects or is ineffective for someone, the potential impact is on public safety.
Conclusion: Avoid or sell this stock
Even though SHOT generated significant revenue and profits, better-positioned companies like NewAge failed. Even SHOT proves that its claims about safe shooting do have merit. The company risks legal liability and negative publicity. Drunk driving is one of the most universally despised activities in Western culture. This product may be used by some as an excuse or workaround for this behavior.
In my opinion, SHOT’s business model is unlikely to succeed given the financial challenges, saturation of the beverage market, and unique proposition that may attract bad actors. Avoid this stock.
