Will iAnthus be able to Surmount Challenges to Emerge a Strong Multistate Operator?

31 Jan Will iAnthus be able to Surmount Challenges to Emerge a Strong Multistate Operator?

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iAnthus Capital Holdings (OTCQX: ITHUF), a multistate cannabis operator with cultivation, processing and over 30 dispensary facilities in 11 states in the U.S, has received approval from the Massachusetts Cannabis Control Commission, to grow and process recreational-use cannabis. The Company will commence its operations for adult-use cultivation from January 27, 2020. The license will enable iAnthus to serve the needs of the states recreational cannabis market with products such as flowers, edibles and concentrates. The facility is already supplying its Boston-based dispensaries, besides 30 other dispensaries and has plans to extend its supply to Worcester-based adult-use dispensary, which are currently in construction phase and an additional 35 other adult-use dispensaries.

Hadley Ford, CEO of iAnthus, stated,

“The Massachusetts cannabis market generated nearly $400 million in gross sales from adult-use cannabis retailers during its first year of legalization, according to the CCC.” He further added “Demand for adult-use cannabis in Massachusetts has continued to exceed supply and stock-outs are endemic across the market. We look forward to the opportunity to bring safe, high quality, well-curated products to the adult-use market just as we have to the medical market to help address this problem.”

Furthermore the Company had recently announced the opening of its GrowHealthy dispensary in Stuart, Florida, bringing its total dispensary count in Florida to twelve and its total store count to 30. iAnthus has plans to open additional stores in 2020, in locations such as Pensacola, Tallahassee and Largo, pending regulatory approval. It has additional sites under construction and 10 more stores under lease as per the Company.

iAnthus Capital Holdings (OTCQX:ITHUF)

Market Cap: $257.95M; Current Share Price: 1.48 USD
Data by YCharts

Industry
The Global legal marijuana market is likely to reach over USD 66.3 billion by the end of 2025, as per a report by Grand View Research, Inc, growing at a CAGR of 23.9%. There is a growing acceptance of the curative effects of cannabis, with some countries such as Canada and certain states of U.S legalizing the use of Marijuana for medical and recreational use. Research has time and again shown that cannabinoids (CBD), extracted from the cannabis plant, have varied medical uses with minimal side effects, making it a sought after alternative to traditional pharmaceutical options.

Image Source: Unsplash

The U.S, where the use of cannabis has only been legalized in 33 states for medical use and 11 states for recreational use, is one of the largest untapped markets for Marijuana, with an estimated value of over USD 11.9 billion in 2018, which is likely to grow at a CAGR of 24.1% from 2019 to 2025.

This offers a great opportunity for multistate, vertically integrated dispensary operators who hold extensive licenses across multiple states. There have been series of mergers and acquisitions in the Cannabis space, which have seen consolidation of major players such as Aurora Cannabis, Canopy Growth, Curaleaf etc, in the anticipation of legalization of marijuana in the U.S by the end of 2019, with a view to increase their retail presence and expand their operations.

According to an estimate by BDS Analytics, medical and retail dispensaries together contributed to over $10.5 billion in cannabis spending in 2018. Dispensaries also provide a source of employment to about 121,000 full-time, and 50,000 indirect full-time workers, being engaged by the industry in 2018. The sector is likely to provide employment to an estimated 291,500 direct full-time employees by 2021.

These figures point to the fact that Marijuana Dispensaries are now an integral part of the blooming global marijuana market and will experience exponential growth in the coming years.

Company
iAnthus has a series of first to its credit, from announcing the first all-share public acquisition with MPX Bioceutical Corp (CNSX: MPXI), the largest public cannabis transaction to date in the U.S valued at C$835 million, to being the first multi-state operator in the U.S. to go public and raise money in Canada. The Company is focused on building vertically integrated cannabis operations in high-growth markets and already has a well-established footprint in states such as New York, New Jersey, Massachusetts, Florida, Maryland, Arizona, and Nevada with plans to expand to more locations.

The deal with MPX Bioceuticals helped the Company expand its footprint to both the east and the west coast, with an addressable population of 121 million people, and a $10 billion market size. iAnthus also gained licenses to operate 68 retail locations over 500,000 square feet of cultivation and processing space across the U.S as per the Company.

Image Source: Company

The Company intends to scale its operations across cultivation, processing and retailing, from building the largest indoor cultivation facility and expanding lab space in Florida, to serving over 2,300 retail locations in all 50 states with its CBD line. Its growth strategy involves seeking markets with high barriers to entry and high opportunities for growth.

The Company is primarily targeting markets that offer favorable regulation, limited cannabis licensees, and potential for adult recreational use. The Company recently opened its 30^th dispensary, and has its THC products being carried in over 190 stores nationwide, and its CBD products being carried in over 2,300 stores nationwide.

iAnthus has established a significant footprint through acquisition of regional products brands, which it intends to consolidate under a new product brand in 2020. This will help the Company create more efficient marketing support and leave a larger impact on its target audience. It will continue marketing its award-winning line of MPX-branded products, which has over 150 wholesale partners across the states of Nevada, Arizona and Maryland.

The Company has multiple cultivation facilities such as its 33-acre campus in Lake Wales, Florida that is undergoing a major expansion to a full build-out of over 500,000 square feet. The phase 2 expansion of the finished cultivation facility is now over 150,000 square feet. Additionally it has a 36,000 square foot Holliston cultivation and processing facility in Massachusetts, with a recently installed new extraction equipment that increased extraction productivity at the facility by over seven times as per a Company statement.

Image Source: Company

In Arizona the Company has nearly 42,000 square feet of cultivation and processing across three facilities, with its BHO extracted MPX product line, currently the #1 non-vape concentrate in Arizona by market share, originating from this facility. In addition, it has 29,000 square foot cultivation and processing facility in Las Vegas, Nevada, a 4,000 square foot processing facility in Maryland and a proposed 125,000-square-foot medical cannabis cultivation and processing facility in Warwick, New York and 80,000 square foot cultivation and processing campus in the city of Pleasantville, New Jersey.

iAnthus will be consolidating all of its retail stores under the brand name “Be”, with the first flagship store set to open in Brooklyn, followed by a rebranding exercise for the rest of the stores to be completed in 2020. The Company intends to open stores in key cities such as Miami, Atlantic City, and Las Vegas.

Risk Assessment

The US Retail Marijuana sales are likely to reach $30 billion by 2023, according to an estimate by Marijuana Business Factbook. This presents a massive opportunity for growth and expansion to vertically integrated cannabis companies such as iAnthus. The Company has a robust expansion plan in place which will augur well for its growth in the future. The Company currently holds 30 dispensaries, 68 licenses with over 1000+SKU’s and intends to expand to newer markets rapidly.

The Company is focusing on the wholesale market and is targeting Arizona and Maryland, which offer opportunities for large scale penetration and consolidation of its already significant market share. The Company has entered into an agreement to acquire WSCC Inc (Sierra Well), which will see it gaining two dispensary locations and over 20,000 square feet of cultivation/production facilities in Reno and Carson City. The transaction is expected to close in the first half of 2020.

The Company has launched a new Product Line “Be” and plans to consolidate its various brands under this brand name for easy identification, better marketing support and improved customer experience. Though it intends to continue selling the MPX-based products, some of its most recognized brands such as Mayflower and CBD for life will be consolidated under the new brand name. However there are concerns that the roll out will be a slow process owing to capital constraints.

Besides using Mergers and Acquisitions to build a robust network with presence in Retail, Wholesale and Mass Retail, the Company is also building a strong online presence through its online portals namely CDBForLife.com, Urbanoutfitters.Com and Dillards.com.

The Company has received a $100 million debt package with Gotham Green to fund the build out of its existing markets. There are concerns that the Company suffers from lack of access to capital and has resorted to expensive financings to fund its growth. Lack of capital will prove to be a spoke in the wheel for its growth plans as its fragmented footprint will require more capital to achieve sufficient scale and returns when compared to other multistate operators.

The Cannabis Industry is governed by stringent regulations and is fraught with uncertainty, the Company will have to be prepared to adapt to any changes in policies or capitalize on new opportunities that may arise in the future.