iAnthus Capital is making moves in Nevada, PI says

US multi-state operator iAnthus Capital Holdings (iAnthus Capital Holdings Stock Quote, Chart CSE:IAN) is boosting its presence in the red-hot cannabis market of Nevada, a move that will benefit the company, says PI Financial analyst Jason Zandberg.

The analyst on Thursday delivered a corporate update to clients in which he maintained his “Buy” recommendation and price target of C$10.00 per share.

Currently with operations in 11 states including 27 dispensaries as well as cannabis cultivation, processing and distribution facilities, iAnthus Capital announced on Thursday the acquisition of Sierra Well, a northern Nevada-based vertically integrated cannabis company operating two dispensaries and two cultivation and production facilities of more than 20,000 sq ft each, one in Reno and the other in Carson City. Sierra Well also owns one of 26 issued distribution licenses for the state.

The deal is valued at approximately $27.6 million, made up of $5.1 million in cash and $22.5 million in shares prices at the ten-day VWAP prior to closing. (All figures in US dollars unless where noted otherwise.)

“Strengthening our foothold in one of the most successful adult-use cannabis markets is consistent with our strategy to deliver iAnthus’ nationally recognized products in premier markets,” said Hadley Ford, CEO of iAnthus, in a press release.

“This strategic transaction will allow us to scale our Nevada operations, add talent, and solidify both our retail and brand presence in both the Northern and Southern portions of the state.”

The transaction, which is expected to close in the first half of 2020 and is subject to regulatory approvals, will see the two Sierra Well dispensaries renamed under iAnthus’ Be. brand. The brand is set to launch across the US next month and is being billed as a patient-friendly and consumer-oriented vision, with its flagship store in Brooklyn, New York.

In his update, Zandberg notes that Sierra Well’s most recent annualized revenue was about $16 million with a 20-per-cent EBITDA margin and a positive net income. With the purchase, iAnthus’ footprint in Nevada includes six dispensaries, four of which are pending approval to open, along with three cultivation and processing facilities including its 50,000 sq ft facility which currently manufacturers MPX-branded products.

“The Nevada cannabis market generated $680 million in fiscal 2019 and is growing rapidly thanks to tourism (Las Vegas hosts about 42 million tourists per year),” writes Zandberg.

“Through this acquisition, IAN has accelerated its market penetration in Nevada as there is uncertainty about when IAN can build out the four dispensaries that were awarded in late 2018 due to the ongoing major investigation of the regime in the state. MPX-branded products are currently sold in over 40 per cent of dispensaries in Nevada and we believe IAN will benefit from having additional cultivation and processing capabilities as well as owning distribution license in the state.”

Zandberg’s updated forecasts for IAN now include revenue for fiscal 2019 and 2020 of $92.3 million and $242.2 million (previously unchanged and $230.2 million, respectively) and EBITDA for fiscal 2019 and 2020 of negative $14.2 million and $59.4 million (previously unchanged and $57.1 million, respectively).

The analyst’s $10.00 target represented a projected 12-month return of 252 per cent at the time of publication.