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Drink company sees stock soar after name change because people are stupid

Hey, look! A bubble! (Photo courtesy of Pixabay.)

The place that gave us Joey Buttafuoco is giving the world another reason to ridicule it.

Long Island Iced Tea Corp., a soft drink company, saw its stock more than triple on Thursday after it changed its name to Long Blockchain.

We will be patient while you beat your head into a concrete wall after reading that previous sentence.

Done yet?

No?

O.K., just get a bandage and some aspirin and we will try to continue.

As we were saying, a company that sweetened water has found a way to lure imbeciles to give it money: a name change that evokes the cryptocurrency revolution.

“Long Island Iced Tea Corp. (NasdaqCM: LTEA) (the “Company”), today announced that the parent company is shifting its primary corporate focus towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology,” said the company on Thursday in a press release dripping with a contempt for humanity rivaling the brutal regime of Idi Amin.

This isn’t the first time the company has pulled the wool over the eyes of the public with its name.

A real Long Island Iced Tea is a repulsive-tasting alcoholic drink combining gin, tequila, vodka, rum, and triple sec with a little bit of Coca Cola. It’s semi-popular with frat boys who don’t have much life experience with a properly prepared drink and get excited at the prospect of downing all sorts of different types of alcohol in one shot as if that will quintuple the kick. [Bad news, junior: it won’t. Now take off that backward white baseball cap and keep your hands to yourself when the waitress passes your table.]

Meanwhile, the company that until recently called itself Long Island Iced Tea Corp. sells drinks more similar to fellow Islanders Snapple than it does to schnapps. They’re in the flavored iced tea and lemonade market—not purveyors of the disgusting drink of the same name.

It has just 19 employees, according to data from Yahoo Finance. And while sales are up for the microcap company, its bottom line is a big hole that’s only getting bigger.

In 2015, the company reported to the SEC just $1.9 million in sales but with a loss of $3.2 million. The following year, sales were up to $4.6 million but losses were $10.5 million. Over the last reported four quarters (including 2016 Q4), the company had revenues of $5 million but a negative net income of $13.6 million. Operating cash flows were negative $9.2 million Its retained earnings—for a company in the black, it’s the profits it keeps for reinvestment—are now negative $25.2 million, double what it was last year.

Summing it up, it loses more than $2 for every $1 it makes and its losses are adding up.

To pay its bills, the company has had to sell shares—some $6.8 million worth in the past four reported quarters alone. A month ago, Long Island Iced Tea filed an S-1 form with the SEC looking to raise an additional $10 million. That filing was withdrawn on Thursday as it changed its name to Long Blockchain, “in conjuction with the shift in business strategy,” as per its press release.

That same press release then went on to list three vaguely worded possible blockchain-related businesses it would get involved with but then added, “the Company does not have an agreement with any of these entities for a transaction and there is no assurance that a definitive agreement with these, or any other entity, will be entered into or ultimately consummated.”

In other words, this may have been as a little as a couple of phone call discussions for all the world knows. Investors who were putting their money into a consumer product were now told their company was pivoting into a financial services blockchain company whether they planned it or not. Granted, those investors could have just put their money into a company already in the business and not experts in mango-infused lemonade, but here we are.

It was all enough for penny stock players to jump in and gobble up shares in ways a struggling iced tea business with heavy losses couldn’t imagine. The stock, which closed on Wednesday at $2.44, went as high as $9.49 the following day.

In the late 1990s, at the height of the first internet bubble, obscure penny stocks in obscure sectors would see huge pops just by adding “.com” to their names. Some were part of “pump and dump” schemes, where promoters would stuff hyped shares on to small investors looking to get rich quick only to end up burned.

In fact, around that time, a film came out called “Boiler Room” about sketch stock manipulators working for a firm called J.T. Marlin.

Its headquarters was on Long Island.

Lawrence Lewitinn, CFA, is editor in chief of Modern Consensus. Disclosures: Lewitinn can be long several cryptocurrencies at any given time. The total amount that he is long is generally less than 10 percent of his total assets.