Stone Fox Capital

About the Author Stone Fox Capital

Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

This Cannabis Stock Is a Strong Buy After Its Recent Plunge

No matter the positive steps taken by the US cannabis multi-state operators (MSOs), the market has completely shunned the stocks. A prime example is iAnthus Capital (ITHUF) that is down over 50% from the recent highs despite recently reporting 35% sequential revenue growth and the stock trading at a reasonable P/S multiple.

Solid Q2

iAnthus has licenses for 68 dispensaries in 11 states with a current focus on the 8 locations already open in Florida plus strong revenues in Arizona and Nevada. For Q2, revenues surged 35% sequentially to $25 million.

The recently closed deal for CBD For Life added $1.2 million into the pro-forma revenues. The company only paid $10.4 million for the access to a CBD brand with distribution into 1,100 retail locations in 46 states and a current revenue stream of nearly $5 million. If only, all cannabis acquisitions were at tis valuation multiple.

iAnthus was able to reduce the adjusted EBITDA loss to $4.7 million in the quarter. The ideal situation is a company generating profits on a quarterly basis, but the sector is quickly ramping so one should expect some short-term losses in certain occasions.

Lots Of Potential

The opportunity here is that iAnthus is opening up dispensaries in new markets of Massachusetts, New York and New Jersey. In addition, the company expects to double the dispensaries in the key Florida market by next year after recently opening 5 stores alone in August.

The CBD For Life brand recently expanded a distribution deal with Dillard’s to 265 department stores in 29 states. The CBD brand saw sales surge in Q2 to $1.2 million, up from only $0.7 million in Q1. The addition of iAnthus as an owner of the brand has seen immediate benefits.

The relatively small U.S. cannabis MSO already has annualized revenues of $100 million with analyst targets reaching over $300 million in 2020. The company is projected to nearly double quarterly revenues to ~$47 million by Q4. Some of the much better-known Canadian cannabis companies aren’t any bigger than the relatively unknown iAnthus.

The stock only has a market cap of $625 million now based on a fully diluted share count of 250 million shares. A big part of the catalysts for small U.S. MSOs are potential buyout targets on industry consolidation or eventual listing on major U.S. stock exchanges along with federal government approval of cannabis. Not to mention, additional revenue opportunities will open up when existing medical marijuana markets open up the much larger recreational cannabis opportunity. Several companies are already seeing the benefit of recreational cannabis approval in Illinois for January 1.

The Consensus Verdict

iAnthus has a vocal camp of bullish analysts with positive expectations for the stock. Out of 5 analysts polled by TipRanks (in the past 7 months), all 5 rate the stock a Buy. With a return potential of 250%, the stock’s 12-month consensus target price stands at C$11.25. (See iAnthus’ price targets and analyst ratings on TipRanks)


The key investor takeaway is that the U.S. MSOs continue sinking lower in part to the substantial weakness in the Canadian LPs that trade on major stock exchanges. At some point, the market will distinguish a difference between the U.S. and Canadian players with the U.S. stocks having several catalysts via further state or federal approval of particular markets and stock listings on major exchanges.

The stock is exceptionally cheap at only 2x ’20 sales estimates providing the ultimate value in the sector.

Disclosure: No position.


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