iAnthus Capital Holdings
iAnthus is a U.S. MSO that doesn’t get nearly as much attention as its peers.
On a 2019 price-to-sales basis, iAnthus trades at a steep discount to larger multi-state operators as well as Canadian LPs even though it has no problems with cash and a strong footprint across the U.S.
2019 Price to Sales
Not to mention after very strong cash management this quarter the company surprisingly even generated some free cash flow. While still small at this point, the cash burn is definitely trending in the right direction.
iAnthus is still investing heavily in their businesses. They just closed a $100 million financing package from GGP that will allow them to reach profitability and realize the full scope of their long-term growth plans without negatively impacting shareholders.
To date, the company has focused on making acquisitions based on strong brand-equity with consumers with MPX, CBD for Life, and now Sierra Well. With a crowded U.S. industry, these are investments that should generate returns in the medium- to long-term.
As legalization builds momentum across the U.S., we expect MSOs will generate very strong returns for investors, however, we still think 2020 could be a transition year. If the SAFE Act and other regulatory initiatives take longer than expected, it could hit the stock prices over the next 12 months before they build a base to much higher levels.
Given the oversized drop in iAnthus’ share price this year and their solid cash position and operational footprint, we believe iAnthus is an undervalued way to bet on the U.S. cannabis market.
As iAnthus continues to build out its operations and switches to a cashflow generating operation, the discount to peers should shrink giving investors enhanced upside beyond just U.S. legalization.
iAnthus grew revenues 16% quarter over quarter to $22.34 million, with Pro-forma revenues of $30.9 million representing a 23% increase quarter over quarter.
The additional Pro-forma revenues are derived primarily from managed revenues not consolidated on the balance sheet from operations in Arizona, Colorado, and New Mexico.
Gross profits before fair value adjustments from biological assets were $10.74 million, up 17% from last quarter. Gross margins were steady at 48%, demonstrating that iAnthus is ramping production efficiently.
Operating expenses were $37.3 million for the quarter, up slightly from last quarter. Notably, $14.8 million were not cash expenses.
This led to a quarter of positive cash generation of $0.55 million from their operations. While small, the company indicated this will be trending upwards in the coming quarters.
iAnthus invested $20.5 million of cash for the quarter, with $5.56 million as a one-time acquisition-related charge. They expect the investments to continue as they grow their operations; this will constitute the main use of the GGP financing.
EBITDA for the quarter was a loss of $3.9 million compared to a gain of $0.7 million last quarter. While Adjusted EBITDA was positive $2.2 million compared to a loss of $4.7 million last year. For the quarter, the net loss for the company was $15.3 million compared to $9.3 million.
The main quarter-over-quarter changes being driven by fair market value adjustments on derivative liabilities (from share price movements).
Notable Quarterly Highlights
The biggest highlight from this quarter was the announcement of the Sierra Well acquisition, expected to close in 2020. The company is a Nevada operator with dispensaries and production facilities that support iAnthus’ operations in the state.
Last quarters’ annualized revenues were $17 million, with positive EBITDA and net income. The total consideration for the acquisition is approximately $27.6 million, with $5.1 million to be paid in cash.
Further, the company announced the prudent decision to move to a Board of Directors with a majority of independent directors. This will increase accountability for iAnthus shareholders.
iAnthus Capital Holdings is a market awareness client of Capital 10X.
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