Farmmi's FDA Registration for U.S. Warehouse Marks Expansion Step Amid High Risk

What happened

Farmmi's U.S. subsidiary, Suppchains Group Inc., has obtained FDA food facility registration for a California warehouse, aiming to expand into North American markets. This move follows a dire FY2024 with revenue down 41.9% to $64.1 million and a net loss of $4.7 million, indicating severe operational challenges. The company remains heavily concentrated in China, with 98.66% domestic sales, facing risks from local dynamics and increased U.S. tariffs on Chinese exports. According to the DeepValue report, execution risk is high and visibility low, though new initiatives like this offer potential upside if they diversify growth. However, this regulatory milestone alone does not address the underlying financial weaknesses or guarantee commercial success.

Implication

The FDA registration enables Farmmi to operate a U.S. warehouse, supporting its export strategy but not mitigating recent revenue declines or loss-making operations. Investors should scrutinize whether this leads to tangible sales growth and margin improvement, as per the DeepValue report's watch items. High execution risk persists due to tariffs and domestic concentration, which could hinder profitability. Without evidence of sustained positive free cash flow and export traction, the distressed valuation remains justified. Thus, while strategically aligned, this news does not warrant a change in the cautious investment stance.

Thesis delta

This news aligns with Farmmi's stated strategy to expand via U.S. subsidiaries, as noted in the DeepValue report. It does not shift the thesis, which remains 'WAIT' due to unaddressed financial weaknesses and execution risks. The focus should stay on monitoring export mix growth and financial inflection before any upgrade.