If you asked me last year when marijuana would become legal on the federal level in the United States, I would have said around 2024. Today, my answer is much sooner, possibly by 2020 or 2021. Support for legalization has been on an upward trajectory since the turn of the century. A recent Gallup poll shows 64% of adult Americans now favor a change in the marijuana laws – significantly up from the lackluster 12% who supported it back in 1970.
Polls speak volumes when they include crucial information that could sway elections, and when nearly two-thirds of voters are in favor of something it’s in the best interest of politicians to open their eyes. In fact, three potential presidential candidates are already backing a bill that will not only legalize marijuana, but also allow people who had been previously convicted of possession to have their records expunged.
Whether you are right, left, or center, the bottom line is that politicians care about one thing – getting elected and re-elected. To achieve that, their best route is to go with the masses and it’s becoming clear that Washington will back the public.
Canada has stolen a lot of the limelight after it became the first major country to legalize marijuana at a recreational level, but when the U.S. joins the party it will be the ultimate game changer. To prepare for that day, you must consider early-stage companies that can give you exposure to the monumental decision. One of my favorite stocks to profit from such a move is iAnthus Capital (ITHUF).
iAnthus Capital is a $375 million market cap owner and operator of cannabis cultivators, processors, and dispensaries across the United States. It currently has operations and investments in six states where marijuana is legal at either the medical or recreational level.
The core of the company’s business is focused on Florida, which at 21 million residents is one of the most populous states in the country and an important region for any business to have a footprint. ITHUF is well positioned here with one of 13 licenses and not much competition. When analyzing small emerging companies, the key is growth potential, and an added bonus is solid revenue. In Florida alone, the industry is generating weekly revenue of approximately $3 million. And it continues to grow steadily with the addition of 3,000 new patients per week in the state. Research indicates the Florida market could generate $1 billion in sales by 2020, which could lead to hundreds of millions of dollars annually for ITHUF just from the Sunshine State.
A state that is just as important with its 20 million residents is New York, which could see recreational legalization in the very near future. The company has one of only 10 licenses in the state, and management has the ability to expand its footprint as demand grows. Its flagship dispensary will be the 2,000 square foot dispensary across the street from the Barclays Center in Brooklyn. If you are not familiar with the Barclays Center, it is the home of an NBA and NHL team and hosts a number of concerts and events – that’s what you call prime real estate for a marijuana dispensary!
Getting in Ahead of the Crowd
iAnthus’ most recent earnings report was for the first quarter of 2018. It brought in $3.2 million, which is nearly 1,000 percent growth from $0.3 million last year. The net loss for the quarter also improved to –$0.6 million versus a $1.9 million loss during the first quarter of 2017.
It is all about assets and cash for early-stage companies that are positioning themselves for the upcoming marijuana rush. Assets increased to $124 million from $45.8 million. Cash also received a boost during the quarter after a $50 million investment from Gotham Green Partners. The proceeds will be used to fuel expansion in both cultivation as well as dispensaries.
While traditional valuation metrics are not as useful when analyzing early-stage companies, iAnthus is trading with a market cap of $375 million, well below its peers. Not all stocks are created equal, but it is clear that ITHUF is undervalued compared to its direct peers and that only adds to its attractiveness.
Already a leader in its field, there is huge upside potential for this company over the next five to 10 years as the marijuana industry begins to mature. Those who get in early will be in the best position to reap the rewards.