iAnthus Capital Holdings Inc. (OTC:ITHUF)
Should you invest in iAnthus Capital (OTC:ITHUF)? Recommendation: See Below
iAnthus Capital Holdings, Inc. engages in the provision of financing licensed cannabis cultivators, processors, and dispensaries. Its portfolio includes Grassroots Vermont, Mayflower Medicinals, Organix, and R. Greenleaf. The company was founded by Hadley Ford and Randy Maslow on November 15, 2013 and is headquartered in New York, NY. iAnthus Capital Holdings Inc. (OTC:ITHUF) Cannabis Stock Recommendation.
HQ: New York, NY, USA
Facilities: 11 states
Symbol: ITHUF (OTC); IAN (CSE)
iAnthus builds vertically-integrated (cultivation and retail) cannabis operations in high-growth, limited license US states, ideally with favorable regulations and potential for recreational use. First to go public in the USA and raise capital in Canada.
Market Cap: US $146 mil
Enterprise value: $249.7 mil
Number of Employees: 540
In the US, they have licenses to eventually operate 63 dispensaries. After buying MPX Bioceutical in October 2018, they currently have 68 retail locations in eleven states, and CBD sales in all 50 states:
– 11 in the west: 6 in New Mexico (minority ownership), 4 in Arizona, 1 in CO
– 9 in the east: 3 in Maryland, 2 in NY, 2 in FLA, 1 in MA, 1 in VT
They have a total addressable customer population of 121 million people and a 2019 market size of over $10 billion. They are poised for significant expansion across the country.
Florida is still a medical cannabis market but is already the fourth-largest US cannabis market with roughly 10,000 new patients added each month. iAnthus has two dispensaries here and plans to rapidly expand in 2019, adding one store per month, plus cultivation and processing operations. They can open up to 30 stores here.
Massachusetts legalized adult cannabis use in 2016 and is projected to become one of the largest markets in the country. Here, they operate one store out of 34 in the state and plan to open 5-6 more. They have a Boston dispensary, and in the Fall River area, one hour south of Boston, they are building a 41,000 sf facility on 12 acres for cultivation, production and a dispensary. They also have a 30,000 sf cultivation facility in Holliston, one hour SW of Boston.
In Nevada, they have licenses for up to 4 stores, in addition to their existing 29,000 sf production facility that they can double in size.
Should you invest in iAnthus Capital (OTC:ITHUF)? Recommendation: See Below
Current production: 50,000 kgs per year
Future production: 70,000 kgs per year (estimate)
The total legal US cannabis market is now roughly 1 million kgs ($10 billion), while to total market (including black market) is about $50 billion. This is currently split 50/50 between medical and rec. The legal market is predicted to rise to $50 billion by 2026.
Direct sales: Yes, they operate retail dispensaries
Store networks: They have their own network, currently 68 stores.
Supply agreements: Yes, they have many wholesale clients.
Vertically integrated: Yes.
Horizontally diversified: Only within cannabis, including flower, oils, vape pens, etc.
Previous Year Revenue: $3.41 mil
Outstanding shares (diluted): 171.6 mil
Cash on hand: $28 mil
CEO and co-founder: Hadley Ford (healthcare and investment banking)
President: Randy Maslow
Operations: Pat Tiernan
CFO: Julius Kalcevich, investment banking background
Chief Strategy Officer: Beth Stavola
Chief Medical Officer: Richard Boxer
The leadership team has experience managing operations in multiple industries across many states. Expertise includes:
– Hadley Ford’s building of $100 million of cancer centers in four states,
– Beth Stavola’s building cannabis businesses in multiple states,
– Randy Maslow running nationwide operations for XO Communications, and
– Carlos Perea working in 500+ communities.
They are very brand-oriented. They aim to consolidate their multiple brands to a few larger brands over time. They now own MPX’s well established, award-winning branded products. High Times awarded MPX Strawberry Fields “Best in Flavor” for THC cartridges in 2018. The MPX brand was also one of “Leafly’s Faves 2018.” Leafly also named the MPX Health for Life dispensaries the “Best Overall Dispensary” in Maryland.
Current share price: US $0.84
Price to Sales: 2.11 (Tobacco industry = 5)
52 week low/high: US $0.73 to $6.11
In October 2018, iAnthus closed a bought deal offering of 5 million common shares for CAD$6.65 per share for gross proceeds of CAD$34 million (US $26.5 mil). iAnthus could receive $50 million of outstanding warrants are exercised, as they are likely to be.
The risks of investing in any cannabis or hemp company are currently high given the newness of the market. The risks for this company are quite high, because of the market volatility Given the rapid changes affecting the industry, no company can guarantee to maintain a competitive advantage in the market for the long term.
As a measure of their growth curve, in a little over two years they have grown from less than $10 million of assets to over $340 million. They were not profitable last year and the stock dropped over 75%!
We like their approach of building vertically integrated cannabis businesses mostly in states that have good demand, fewer licenses, and the potential to legalize recreational use. This means they plan to generally have cultivation operations in the same states they have dispensaries. This will allow them to keep the cost of their cannabis low while selling for a maximum margin.
We also like that they are brand focused. They already own their own brands, and now also own the well-respected MPX brands, some of which have received reputable awards. They intend to whittle down from many brands to focus on the best ones, which should produce good results.
iAnthus has licenses to operate over 500,000 SF of cultivation and processing space in the U.S. This could mean they eventually have production capacity over 50,000 kgs/yr. They are getting close to this number.
While this does not make them a big player compared to giants like Canopy Growth and Aurora Cannabis, when coupled with the ability to capture a full margin, this should allow them to eventually generate revenue of at least $200 million per year, and possibly $300 million. A lot depends on where the future price of cannabis settles as more production comes online. Future revenue would likely come from a combination of retail sales at their own dispensaries, and wholesale sales to other outlets.
With new dispensaries coming online rapidly, revenue is growing. Their last official report for the quarter ending September was $1 million, but dispensaries usually generate over $1 million in revenue per year, and with 20 dispensaries now, they should be close to $20 million per year soon.
Plus, they’ve opened one new dispensary per month in Florida. After buying MPX, they plan to eventually have 14 cultivation facilities and over 60 dispensaries in 11 states.
What does this add up to? Well certainly, iAnthus’ future growth is very attractive. The question is, is the stock a good value now? Is it undervalued or overvalued compared to this future growth potential?
Based on iAnthus’ price to sales ratio is 2.11, which is extremely low—half the average ratio of the tobacco industry. We think tobacco’s P/S is a decent proxy for where cannabis will settle when the cannabis market matures in the coming few years.
In other words, all the increased revenue it will generate in 2020, and more is NOT priced into the stock. This is a divergence and an opportunity. We are excited that iAnthus could eventually generate $200- $300 million of revenue in a few years. If and when it does, this would drive the price up solidly. 2020 may be the year iAnthus gains all that it has lost in 2019.
But given the amount of time it will take for the company to generate that much revenue, and all the things that can change in that amount of time, at the current price, we are currently neutral on the stock at this time.
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