iAnthus Capital is now in the cannabis big leagues, Beacon says

The just completed acquisition of MPX Bioceutical puts iAnthus Capital Holdings (iAnthus Capital Holdings Stock Quote, Chart CSX:IAN) in some rare company, says Beacon Securities analyst Russell Stanley says.

On Tuesday, iAnthus reported that it had completed the previously announced acquisition of MPX Bioceutical. The equity value of the all-stock purchase came in at approximately $835-million.

“2019 will be a transformative year for iAnthus, with the closing of our business combination with MPX being a crucial step forward, IAN CEO Hadley Ford said. “As the U.S. cannabis market continues to expand with increasing consumer and regulatory acceptance, iAnthus will continue to execute and provide the quality products and brands that our customers demand. As demonstrated with our 2018 acquisitions in Florida and New York, and now with the closing of our MPX transaction, the iAnthus team continues to demonstrate its focus on growing its platform and operations.”

Stanley says this is a game changer.

“iAnthus is now truly a Tier 1 multi-state operator (MSO) and much deserving of significant multiple expansion,” the analyst says.

“iAnthus now has operations in 11 states, representing an aggregate population of 121M people,” Stanley adds. “In addition to the company’s pre-transaction platform that included developing operations in the highly coveted states of Florida, New York and Massachusetts, the MPX acquisition brings a platform business in Arizona generating annualized revenue of approximately $50M, as well as operations in Nevada, Maryland, and California, and additional licenses in Massachusetts. Moreover, MPX was recently awarded 1 of just 6 highly-sought-after vertically integrated licenses in New Jersey (there were 146 applications), as well as 4 of 61 dispensary licenses recently announced in Nevada. In both cases, companies that were passed over for licenses have lodged complaints regarding the selection process. However, we view that as somewhat normal for the cannabis market at this point, and stress that the key takeaway is that the MPX team joining iAnthus has demonstrated skill in winning licenses in highly competitive markets, which is a crucial driver behind organic growth.

In a research update to client today, Stanley maintained his “Buy” rating and one-year price target of $16.00 on iAnthus, implying a return of 129 per cent at the time of publication.

Stanley thinks IAN will post an Adjusted EBITDA loss of $22-million on revenue of $3.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $25.0-million on a topline of $188-million the following year.

“While this is a transformation acquisition, we do not rule out the possibility of further M&A, as IAN’s stock will now have far more appeal to potential vendors,” the analyst cautions. “Further progress on the buildouts in MA, NY and FL, as well as additional de novo license wins, could also act as catalysts.”