There have been concerns for some time about the ability of Medicine Man Technologies (MDCL) to differentiate itself from other cannabis consulting services, which with enormous new entries into the segment, has rapidly turned into a commodity business in the pot industry.
The company has been answering those concerns, as evidenced by its recent acquisitions of several companies that will help it to transition to a vertically integrated business, helping it to mitigate some of the risk associated with the consulting unit.
Recent acquisitions include Los Sueños Farms, LLC, cannabis dispensary Mesa Organics Ltd., and Green Equity S.A.S., a company based in Columbia.
For full year 2018, Medicine Man Technologies generated sales of $9.4 million, up 168 percent year-over-year. The company was also able to produce a gross profit of $2.17 for 2018, with net income of $1 million for the year.
Gross margins are at 72 percent, with operating margins of 10 percent. Both of those have been increasing incrementally over the last several years.
At its Spring 2019 presentation for investors, the company guided for 2019 revenue jump to a range of $40 million to $50 million. From the moves the company is making, it’s obvious most of that will come from acquisitions rather than organic growth.
As mentioned earlier, the company has recently acquired Los Sueños Farms, LLC, Mesa Organics Ltd., and Green Equity S.A.S. Los Sueños Farms, LLC and Mesa Organics Ltd. are located in Colorado.
It also has pending acquisitions of MedPharm Holdings, LLC and Medicine Man Denver, which are the primary catalysts for the revenue increase projected for full-year 2019.
Included with the companies are four retail and cultivation locations in Colorado, a cannabis research license, and several popular brands.
The acquisitions will boost Medicine Man Technologies’ international and domestic footprint in cultivation, extraction, production and sales. Its entry into Columbia is important because it’s one of the more desirable South American markets to operate from. Green Equity will offer the company “international licenses and IP for cultivation, manufacturing, extraction, exportation, and R&D.”
All of these mergers and acquisitions have completely changed the business model of the company, which as of the beginning of 2019, had for the most part, was a cannabis consulting business. That included guidance for how to grow cannabis, compliant packaging, financial modeling, assistance with state licensing, facility optimization, and other related services.
It also sold nine nutrients to help in the production and cultivation of cannabis plants.
With its expertise in these areas, it’s apparent to me it should be able to leverage it into its newly acquired companies. While it’s not a given, it’s probable this should help the company be very efficient in its new verticals.
Those interested in taking a closer look at Medicine Man need to take into account the fact it is no longer a consulting business alone, but rapidly changing into a vertically integrated cannabis company.
That is a big game changer for Medicine Man because it was at serious risk of becoming a commodity business unable to differentiate from the growing number of competitors in that segment of the pot market.
With its revenue poised to soar this year, and presumably getting the benefit of scaling on the margins and earnings side of the business, the company should continue to move up in value.
With a strong growth trajectory and solid balance sheet, the company should continue to do very well over the next couple of years. It of course has some risk, but the potential reward has become worth it in my view, with its recent aggressive acquisitions.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: No position.