iAnthus Capital (IAN.C) has arguably the most attractive 12 month chart in the entire cannabis industry. They have accomplished this by choosing a multitstate approach business model. iAnthus is a vertically integrated company that plants, grows and sells their products with an array of licenses and dispensaries across the US.
One of the main reasons a multi state approach is so exciting is that cannabis cannot be transferred across state lines. This has lead states like Oregon having a massive oversupply of product which lowers the price considerably. We have heard reports of as low as $200 per pound in the state of Oregon.
States across the country are all at different phases of the cannabis legalization process, getting in early into the limited licensing process is a major advantage, it has been the first movers like iAnthus, MPX and MedMen who have been generating considerable amounts of revenue. It also gives the company an opportunity to establish a brand in a state where there are no established legal cannabis brands.
iAnthus’ strategy centers around building a portfolio of vertically integrated cannabis assets in markets that have significant barriers to entry, i.e., a limited number of licenses. While the Canadian and California markets are both larger than any other single state market in the US, they have low barriers to entry, and as a result have a significantly higher ratio of growers and operators to consumers.
This, combined with the fact that California and Canada are both renowned for their cannabis growing expertise, has led to fears of an ultra-competitive environment where most profits will be competed away as companies fight for market share. The east coast markets where iAnthus’ core assets are located on the other hand have a limited number of competitors, and when combined add up to a population size significantly larger than either California or Canada.
The Next iAnthus
Body & Mind (BAMM.C)
Market Cap: $24.8M
Shares Outstanding: 47.7 million
With a low market cap, not many shares out and a very low price/book, Body & Mind (BAMM.C) is still very undervalued, even with the recent jump . The company did $1,618,967 in revenue in the US last year, netting $948,087. With so many gains happening in Canada, it’s only logical than if and when the hype dies down, the US is the next frontier for those profits to be put into. The US has 10x the population of Canada, and US cannabis stocks have less than 10% of the overall market cap of Canadian cannabis companies.
Well established distribution system with long-term relationships with dispensaries throughout Nevada.
Significant growth opportunity with 7 licenses either under application, appeal or to be submitted shortly. 5 licenses relate to dispensary applications. One under-served Las Vegas dispensary location
has been secured and a second location in process.
Ohio, America’s 7th most populated state was moving towards legalization of recreational cannabis. Since 2016 the state has implemented a medical marijuana program, issued dispensary, processing and production licenses and is set to vote in Q4 of 2019 for full the legalization of cannabis.
Ohio is still in its early stages. California, Colorado, Nevada, Oregon and Washington have been hugely successful with regards to revenue. The Denver Post reported $1.5 billion USD in revenue for the state of Colorado in 2017, to put that into context, Ohio has more than twice the population of Colorado. More so, with 11.6 million people, Ohio has just over half the population of Colorado, Nevada, Oregon and Washington State combined.
2 dispensary applications have been submitted and are in progress. One cultivation license initially denied, however the Arkansas Supreme Court is reviewing the process of licenses awarded. In the event the application is successful, BAM will manage the Arkansas operations with terms to be determined. Both parties have agreed to finance the construction and start- up costs on a 75% BAM and 25% Investor Group basis, with BAM’s contribution convertible up to a 40% equity interest in the Investor Group.
The Wild Wild West
Investors can profit off of the current stigma against cannabis that exists in the US. Cannabis is not widely accepted in most states like it is in Canada, however, as states like Colorado have shown the customer base is more than ready for legal marijuana.
Investors in Canadian cannabis stocks are likely to re-invest in the US cannabis sector because they already understand:
- The array of different products
- Which news is important
- What causes buying in the market
- How much growth potential is in the sector
- What fundamentals to look for to determine a winner
- The risk/reward ratio of investing in emerging sectors
Just as big Canadian banks have stayed away from the sector, the American banks and the American investors have largely stayed away from the cannabis sector as it is emerging and still federally illegal for the time being. May as well profit while the stigma still exists and the prices are low.