Surna CEO applauds turnaround, warns of challenges

BOULDER — Surna Inc. (OTC: SRNA), a manufacturer of environmental-control and air-sanitation systems for indoor cannabis-cultivation facilities, has reversed a multi-year trend of negative cash flow, but the Boulder firm is “in no way out of the woods,” according to letter sent to shareholders Tuesday by CEO Tony McDonald. 

The letter highlights recent efforts to shift Surna’s core strategies, grow revenues and control costs while acknowledging significance of ongoing challenges for the firm. 

Fiscal year 2019 saw Surna achieve profitability for the first time. The firm, which faced questions about its cash flow and ability to continue operations as recently as 2017, generated net income of $140,000 in the second quarter of fiscal year 2019. That’s up from a loss of more than $1.4 million during that same period in 2018. 

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“Previously, Surna had inconsistent and unpredictable revenue, which had been flat for the preceding three years,” McDonald wrote. “Historically, we sold expensive ‘Cadillac’ systems to a limited set of customers. Whenever a project was delayed or cancelled, which was often, our cash flow took a dramatic hit.”

Over the last year, Surna began focusing sales on larger, multi-facility cannabis growers who are “less prone to project delays and cancellations than the smaller (and riskier) cultivators that had been our primary customers in the past,” the letter said. 

Additionally, Surna began offering a wider array of products and mechanical, electrical, and plumbing engineering services.

Despite the positive momentum, McDonald stressed that Surna still faces significant headwinds.

“Though improved throughout the course of 2019, our working capital remains negative and is a constant threat to the viability of the business, so we must land more [multi-facility operators] and other contracts and we may have to raise capital again to fund our working capital needs and future growth,” the letter to shareholders said 

In 2020, Surna plans to boost sales by launching lower-tier, less-expensive product lines — Chevrolets rather than Caddilacs, McDonald wrote — that are more accessible to prospective customers and aggressively pursuing strategic partnerships that “might include referral marketing agreements, co-development of unique integrated solutions with best-in-class partners, and acquisitions,” according to McDonald. 

Surna reports its full 2019 fiscal year earnings March 26 during a conference call with investors and analysts.