THE HEDGEYE EDGE
We believe the U.S. MSOs represent one of the best opportunities to make money in the cannabis space. There are a number of regulatory catalysts on both the Federal and State level that will provide tailwinds for them throughout 2019.
We are focused on companies that have been executing on what they set out to achieve. We have done some unique analysis around unit level demographics for individual dispensaries and compared them both against competitors and the state/U.S. averages that we think will be useful and paint a more clear picture of the assets these companies have.
iAnthus Capital (ITHUF) recently completed the transformational acquisition of MPX Bioceutical on February 5th, which drastically expands their coverage into critical states across the U.S., making iAnthus one of the premier MSO’s.
The combined entity now has access to 11 states with rights to build 63 dispensaries, while 21 are operational today, with plans to have 50 open by CY2019 YE. The acquisition also expands their cultivation and processing square footage from ~210K to ~600K.
MPX brings aboard an already strong Arizona business, which provides an immediate revenue gain. Focus states for iAnthus as they look to continue to expand are OH, MI, PA, MI, CA, IL and eventually TX once things open up there.
The majority of iAnthus’ unit growth is set to come from Florida, where they will go from 3 locations currently, to 20 by the end of the CY. Massachusetts is another pivotal state for them and the industry more broadly. iAnthus will have 6 stores by year-end, but their ability to sell to adult-use customers is still the question mark given the regulators in the state have a history of dragging their feet. We anticipate iAnthus to execute on what they can control, and are hopeful the regulators fall into line.
Currently, iAnthus is running their dispensaries under multiple brand names, but they are in the process of hiring a new CMO that will start towards the end of March, and that is when they will roll-out a new name for their dispensaries that will be the same nationwide.
Speaking of marketing, branding is a big component to their future. Although they admit to the difficulties of branding in today’s regulatory environment, good product at a reasonable price is what is winning today. iAnthus is open to carrying competitor products but wouldn’t want to support a retailer name such as a Curaleaf branded product. It would not be a competitive advantage in their eyes.
iAnthus has a longer-term goal of getting out of things they don’t specialize in such as growing, as more wholesale markets open up – companies that think they can be great at everything don’t appeal to us!
Last, but certainly not least, iAnthus has a strong management team and corporate governance which is a critical component to picking a cannabis company to go long. We’re in the early innings of this industry so having a sound management team and corporate governance is of the upmost importance. To the extent you are buying management teams and the promise of huge sales growth at this point, you have to have faith in execution.
We think the addition of critical MPX executives will be additive to their senior leadership team, the most notable of which is Beth Stavola, a cannabis veteran and pioneer in the Arizona market. She will bring aboard critical retail and branding experience that iAnthus needs.
This brings together top notch operational knowledge from MPX and iAnthus’ robust financial and M&A capabilities. We believe 2019 will be a great year of transformation for iAnthus, as they work on integrating the operations of these two organizations.
We think iAnthus can be a double or triple over the next couple of years.
ONE-YEAR TRAILING CHART
