Echelon Capital Markets analyst Andrew Semple is feeling somewhat merry in regards to MariMed Inc (MariMed Stock Quote, Chart, News OTC:MRMD), maintaining a “Speculative Buy” rating and $1.50/share target price (all figures in this article are in US dollars) for a potential return of 115.8 per cent in an update to clients on Thursday.
Headquartered in Norwood, Mass., MariMed Inc cultivates, produces, and dispenses medicinal and recreational cannabis in the United States and internationally, counting Nature’s Heritage flower and concentrates, Kalm Fusion chewable tablets and powder drink mixes, Betty’s Eddies natural fruit chews, Bubby’s Baked social sweets, and Florance cannabidiol formulations under its brand umbrella.
Semple’s latest analysis comes after the company reported its fourth quarter financial results, along with 2021 year-end figures and guidance for 2022.
Semple also included a few notes from his recent site visit to the company’s headquarters in Massachusetts, which also included its cultivation facility and dispensary.
“We were impressed by the Company’s rapt focus on creating unique quality products for consumers. We saw first-hand that the Company has been successful with its strategy of bringing craft-quality products to market at scale,” Semple said. “This tour increased our conviction that the Company’s plans for increasing production capacity across several states will drive accelerated revenue.”
MariMed’s quarterly report was headlined by $31 million in revenue, which came in ahead of the $30.4 million forecast from Echelon Capital Markets and the $29.3 million consensus estimate, though it also represented a 6.3 per cent year-over-year decrease.
The company had its ups and downs in the revenue space, with gains in Illinois offset by tougher competition and production hiccups in Massachusetts, while other states remained relatively in line with estimates.
MariMed came in a bit light in terms of its gross margin of 49.4 per cent in relation to the Echelon estimate of 54 per cent, while the company’s adjusted EBITDA of $8.3 million was a miss from the Echelon projection of $10.8 million, which was largely attributable to weaker than expected margins, but also as opex increased sequentially.
Looking ahead to 2022, Semple notes that the company’s largest organic growth will come from opening new dispensaries and expanding capacity in existing markets, particularly through its two additional stores in Massachusetts and a dispensary in Annapolis, Md., along with its acquisition of Kind Therapeutics in the state.
MariMed is also planning to expand into the beverage business with the development of its Vibations powered cannabis drink mix line.
“We are very pleased to deliver another strong year of financial performance for our shareholders, more than doubling our revenue and Adjusted EBITDA,” said Bob Fireman, President and Chief Executive Officer of MariMed in the company’s March 16 press release. “Our validated management team continued to grind it out, staying focused on the financial discipline and operational excellence that has defined our approach. We strengthened an already solid balance sheet through our operating cash flow generation and made great progress across all four pillars of our strategic growth plan.”
After ending 2021 with $121.5 million in revenue, company management brought forth sales guidance of between $145 million and $150 million, coming in ahead of Semple’s expectation of $138.2 million, which in itself would represent a year-over-year increase of 13.7 per cent. From there, Semple forecasts a jump to $169.3 million in 2023, which would represent a year-over-year increase of 22.5 per cent.
In terms of valuation, Semple forecasts a drop in the company’s EV/Sales multiple from 2.1x in 2021 to a projected 1.9x in 2022, then dipping again to a projected 1.5x in 2023, representing a discount to the target of 3.5x.
Meanwhile, after finishing 2021 with $43.1 million and an implied margin of 35.5 per cent, Semple sees the company’s adjusted EBITDA dropping slightly in 2022, with the $45.1 million forecast producing a compressed margin of 32.6 per cent, though he follows it up with a rebound in 2023, projecting $61.4 million in adjusted EBITDA for an implied margin of 36.3 per cent.
From a valuation perspective, Semple forecasts the company’s EV/EBITDA multiple to drop from 6x in 2021 to 5.7x in 2022, then to a projected 4.2x in 2023, a significant discount to the 9.6x target in 2023.
Semple sees a similar trajectory in the company’s gross margin with a dip from 55 per cent in 2021 to a projected 53 per cent in 2022, then returning to the 55 per cent threshold in 2023.
MariMed’s stock price has moved up and down over the last 12 months, ultimately coming out at a loss of 11.2 per cent, though the loss is a more pronounced 21.1 per cent since the start of 2022. After hitting a low of $0.63/share on April 19, the stock jumped to a 52-week high of $1.14/share on June 3, though it has primarily been down ever since.