iAnthus, a Multi-State Operator (MSO), has been very competitive to its peers with its aggressive expansions plans and acquisitions.
The Q to Q results have been impressive and the gross margins are growing quarter over quarter. In Q3 2019, iAnthus have reported a pro forma revenue of $30.9m with a gross margin of 48.1%. Though they missed on revenue (consensus $35m) they have managed to continue increasing their Gross Margins since Q1 2019.
Positive signs of growth were shown in Q1 2019 and Q2 2109 when the adjusted gross margins were 52.4% (Q2) and 23.4% (Q1) [Adjusted gross margin includes cost of carrying inventory, while gross margin does not take that into consideration].
The overall quarter for iAnthus is positive despite the losses reported. The losses were mainly attributed from opening of dispensaries (expansion), increase in salaries (increase in employees), and a few one-time costs.
In the conference call of Q3 2019, management discussed the purpose of the $100 financing deal from GGP. Hadley stated, ‘that the company is viable and in a good position’, and the that company is “cash generative in their operations”. Hadley also stated that ‘they are covering expenses, covering maintenance and CapEx’. When questioned about the money provided from Gotham, he stated the main purpose of the loan is for “Growth Initiative”.
According to the MD&A for the months ending September 30, 2019, assets have increased to a total of $831.6m and their Total non-current liabilities are $170.4m. The increase of total assets were “As a result of the build out of dispensaries, cultivation and processing facilities across the U.S. largely in Florida, Massachusetts, and New York. The company expects further investment to build out its dispensary network as well as its cultivation and processing capabilities to meet future sales growth through both wholesale and retail channels.” (MD&A page 9)
Based on the valuation and balance sheet of the company, the company is very attractive and undervalued. Long term, the growth initiative and execution from iAnthus is proving its case to be one of the best, if not the best MSO. On a Pro-forma basis, the company has a $120m revenue run rate. The company may double its revenue next year if the company continues to:
- Maintain high gross margins;
- Discipline and control its cost; and
- Expand its national footprint with presence in key markets.
iAnthus has executed thoroughly by establishing a presence in the market as a strong MSO with a healthy business that is cash generative in their operations. Their target for Growth Initiative and expansion is very promising.
Full Disclosure: I have long positions in iAnthus Capital Holdings Inc. I am not receiving compensation for this article. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any companies or public security companies other than being a shareholder with any company whose stock is mentioned in this article.
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