Is iAnthus the Best Value Among MSO’s?

There is no question it’s a buyers’ market at the moment in the cannabis space. With valuations across North America at extremely depressed levels, shares in almost any marijuana stock can be had at a bargain-basement price.

That said, even when stocks are cheap investors still want to bag the best values. For cannabis investors looking at U.S. multi-state operators, one name on the lips of a lot of people is iAnthus Capital Holdings (CAN:IAN / US:ITHUF).

This rising MSO has been steadily expanding its U.S. footprint since going public in September 2016. However, the company really made a splash in the U.S. cannabis industry when it announced an all-stock merger with MPX Bioceutical Corp in October 2018, the first of its kind in the cannabis industry.

This roughly doubled the company’s U.S. operations and positioned iAnthus in several more U.S. state markets: Arizona, California, Maryland and Nevada.

Since that time, iAnthus has opened 9 new dispensaries through organic growth. And it has made two additional acquisitions: national CBD products brand CBD For Life, and (most recently) its acquisition of WSCC Inc (aka Sierra Well), on September 19, 2019.

With its latest acquisition, iAnthus now has 29 operational dispensaries. It has a total of 74 cannabis licenses, spread across the 11 states in which it has active operations. Its cannabis products are sold in over 170 licensed dispensaries. And its line of CBD products is available in all 50 states, in 1500+ retail locations.

While iAnthus has been moving steadily onward and upward from an operational standpoint, its share price has been moving in the opposite direction.

[chart courtesy of Stockcharts.com]

Since hitting a high of US$6.62, iAnthus has lost nearly 70% of its value. Obviously, the company has not been alone here. The brutal trough in the cannabis sector through most of 2019 has slashed valuations almost across the board.

For cannabis investors looking for the best-of-the-best in terms of value opportunities, iAnthus is hard to beat. Its recent acquisition of Sierra Well emphasizes the company’s commitment to efficient growth.

The Sierra Well acquisition added two new licensed dispensaries for iAnthus (in Reno and Carson City). It also added an additional 50,000 square feet of cultivation and production facilities, including 4 additional cannabis licenses.

Sierra Well is generating annualized revenues of  roughly US$16 million, with positive net income. iAnthus (and its shareholders) acquired all these assets for a total price of US$27.6 million (cash and shares). Indeed, the low acquisition price at which iAnthus acquired Sierra Well provides a good snapshot for investors on how depressed cannabis valuations are currently – including iAnthus itself.

More broadly, the U.S. is on the cusp of further cannabis regulatory reform in several areas. The FDA has promised a national regulatory framework for CBD products. The SAFE banking bill continues to gain momentum with votes expected in the House and the Senate in the near future. Meanwhile, there is increasing pressure on Congress to legalize cannabis nationally (and regulate it) — thanks to the health problems (and even deaths) caused by unregulated and partially regulated vape pens.

Cannabis valuations will not remain this depressed. While markets can irrationally discount assets for extended periods, ultimately revenues (and profits) will be reflected in the share prices of these companies.

For cannabis investors who still engage in real investing (buy low; sell high), now is the time to be adding to your cannabis positions. Marijuana stocks in the U.S. and Canada are clear “buys” at current valuations, and many investors will see a place for iAnthus in their own portfolio.