The cannabis sector has taken a hit along with the rest of the stock market providing a great opportunity to own U.S. multi-state operators (MSOS) that are stepping up to become major forces in the industry. A prime example is iAnthus Capital Holdings (ITHUF) that merged with MPX to create an MSO power, but the stock is trading near the 52-week lows below $4.
FQ1 Revenue Boost
As the domestic cannabis stocks report quarterly results, the companies are generally able to report substantial revenue growth that places the stocks into different market size realms. In the case of iAnthus Capital, the company reported Q1 revenues of $9.6 million, which increased 384% from only $1.9 million in the December quarter.
Due to expansion plans and the closing of the MPX acquisition on February 5, total pro-forma revenues were up at $18.5 million. Even more important, April revenues were ~$8.5 million placing revenues on a quarterly pace of $25.5 million or $102.0 million on an annualized basis.
The MSO went from an unimpressive $1.9 million just a quarter ago to a relatively large cannabis company with a run rate in excess of $100 million. One analyst has the company set to top $500 million in sales by 2021.
The additions of CBD For Life could provide another spark for the stock. The small CBD retailer already has products in 1,000 stores after the latest deal with Urban Outfitters.
Market Hasn’t Caught Up Yet
The stock now has roughly 245 million shares outstanding for a market valuation just shy of $1 billion. My main argument for MSOs is that the stock market hasn’t caught up with the domestic stocks due to the focus on the Canadian LPs that grab all the headlines.
Analysts have iAnthus Capital producing revenues of over $200 million this year and topping $340 million in 2020. Both numbers provide relative bargains in a market where stocks generally trade at 10x forward revenues estimates.
The company just launched the retail brand called “Be. The Cannabis Store” that should provide more industry recognition in the crowded space. The combination of consistent, high-quality retail locations should provide a better opportunity to displace some of the smaller players at a disadvantage as iAnthus expands to 11 states following the MBX acquisition.
The first Be. store opens in Brooklyn in early Q4 followed by a plan to redo the existing 21 dispensaries.
The key investor takeaway is that the establishment of a national cannabis brand should provide iAnthus Capital a path into the top tier of cannabis companies leading to better sales numbers. The additional federal approval of cannabis and future listing on a major stock exchange are big catalysts for the stock.
Eventually, the handful of large MSOs will have to distinguish themselves, but for now an additional thesis is likely to emerge that some of the smaller players like iAnthus Capital get swallowed by Canadian players looking for access to the U.S. market or larger U.S. players looking for massive scale in the largest global cannabis market.
Buying the stock on weakness is the ideal time to build a position in the sector still in the early stages of growth.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: No position.