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Ianthus Capital (IAN.V, ITHUF.OTC)

iAnthus Capital (IAN.V)

 

Here is my latest investment:

iAnthus (IAN.v) operates best-in-class licensed cannabis facilities throughout the United States providing investors with diversified industry exposure. They own parts or all of facilities and dispensaries.

Here's a quote from CEO Hadley Ford that seemed relevant to me (I'm paraphrasing):

"If I told you that in the 1920s you could acquire 1 of 10 licenses to sell alcohol in the state of New York, you probably would have paid 18M then. That's what we are paying today for 1 of 10 Cannabis licenses in this state."

Currently they operate or will be operating:

7 Cultivation Facilities
4 Processing Facilities
15 Dispensaries (Expanding to 35, 20 of that is in Florida where they only have a 6% equity stake)

They have facilities in 5 states:

New York (Citiva - 100% ownership of 1 of 10 licenses in the state, owns one of two dispensaries in Brooklyn opening Q2 of 2018 and the only one in Staten Island)
Massachusetts (Mayflower Medicinal - 79% ownership in 1 of only 3 dispensaries in Boston, recreational sales expected to open up July 2018)
Florida (6.1% ownership of up to 25 dispensaries)
Vermont (Grassroots Vermont - 100% ownership)
New Mexico (Reynold Greenleaf - 25% ownership of one of market leaders)
Colorado (Organix - Own assets with market share leader in a popular ski town)

They did 688k revenue in their most recent quarter, have 13.4M long term debt and a cash position of 1.8M. The real revenues will start to kick in over the next 3 quarters when they start opening up dispensaries in Boston and New York.

The share structure is a follows:

Shares Outstanding: 44.2M
Warrants, Options, Convertibles -> 12.6N
Fully Diluted Shares Outstanding -> 56.8M

They feel that they will participate in 35 dispensaries in 2019, with at $10M per dispensary they could be at a 2019 revenue run rate of $99 million (multiply each dispensary by ownership %  and by 10M).  Let's assume that Cannabis companies end up at P/S of 10 at this point. That means with 57M shares fully diluted, we could expect a price of $18. Yes, that's $18 US dollars, for a stock trading at $3 Canadian. IMHO these numbers seem quite low. For example, I would expect the dispensary in Boston (1 of 3 in the entire city) or in Brooklyn (1 of 2 in the borough) to do well north of $10M. I’m also ignoring all the interest income they receive in the financings they do.

This is an all-star management team, they understand raising capital, manufacturing, taxes, and capital allocation. I suggest watching some of their investor presentations on YouTube.  According to the last circular CEO Hadley Ford owns 2.7M shares and paid himself a salary of 51k in 2016. We are perfectly aligned with management here.

What moves the needle? Opening of multiple dispensaries and cultivation facilities in New York and Massachusetts. Also, I can promise you Hadley is working on getting a footprint in California. I haven't spoken with him, but it would blow my mind if he doesn’t have a few dance partners lined up.

To sum up my investment thesis: IAN.v trades at a significant discount to Canadian LPs and U.S. competitors. It's completely silly to look at what some of these Canadian weed companies are trading at and how silly cheap you can get in on iAnthus for. My target price is $20 by the end of 2018. And based on relative valuations and what stocks are trading for in Canada, I don’t know if I would sell if this reached $20 because I think they are just getting started in terms of deal making.

 


Disclosure: Long

Comments   

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