MariMed stock is a buy in US cannabis, says Echelon

A new acquisition looks good on US cannabis company MariMed (MariMed Inc Stock Quote, Charts, News, Analysts, Financials OTC:MRMD), according to Echelon Capital Markets analyst Andrew Semple who updated clients on the company on Thursday. Semple reiterated his “Speculative Buy” rating on MariMed, saying the company is expanding operations in the under-appreciated cannabis market in the state of Maryland.

Headquartered in Norwood, Mass, MariMed has medical and adult-use cannabis operations and products across the US, with facilities in Illinois and Massachusetts, its own branded products sold in third-party dispensaries and in the company’s own stores and it also manages operations of cannabis facilities in other states including Maryland, Delaware and Nevada.

MariMed announced on Thursday the closing of its acquisition of Maryland-based vertically integrated cannabis company Kind Therapeutics, with the deal having been first announced in January of this year. The aggregate purchase price was $20 million with an added $2 million to acquire the minority interests from one of Kind’s owners in two subsidiaries that own cannabis facilities in Maryland and Delaware. Kind has a 180,000 sq ft cultivation and production facility in Hagerstown and is developing a dispensary in Anne Arundel County, and MariMed said it intends on expanding all aspects of the Kind business by adding more cultivation capacity, a GMP kitchen along with brands and products. (All figures in US dollars.)

“As owners of Kind Therapeutics we are now able to expand its operations to be a leader in the Maryland cannabis industry for years to come,” said Tim Shaw, COO of MariMed, in a press release.

Semple said the acquisition and consolidation of Kind’s assets are expected to result in higher wholesale and retail revenues for MariMed, effectively making Maryland the company’s third-largest market by sales. 

“With the closing of the acquisition on April 27, we expect Kind to contribute two months of revenue to Q222 results, compared to our forecasts which expected the acquisition to close in Q322. This pulls forward the increase in both retail and wholesale revenues we expected to result from the consolidation of the Maryland assets. MariMed intends to rapidly expand upon Kind’s assets in Maryland, including adding 40K sq ft of cultivation canopy and a GMP certified kitchen. These investments will improve the supply of product MariMed can direct to its 6,000 sq ft dispensary under development in Annapolis, which we expect to open in Q321. Increased cultivation capacity also frees up product for the high-margin wholesale channel in the state,” Semple wrote.

On the Maryland pot market, Semple said it’s under-appreciated, with adult-use conversion very likely to come in 2023 after a legalization proposal to be on the state’s November 2022 ballot. The advance could quadruple the Maryland market from $0.6 billion to $2.0 billion in the coming years, Semple said.

“Maryland has an attractive regulatory structure, limiting the number of cultivation and processing licenses that may be issued in the state, as well as the number of licenses that may be owned by any one entity,” Semple wrote. “While there is no cap on the number of dispensary licences, the state regulator has not issued any new dispensary licenses since 2016 and has not indicated plans to do so in the future. We believe this regulatory structure will preserve the attractiveness of the Maryland wholesale market, even before considering the bump in demand from adult-use sales potentially beginning next year.”

As for MariMed’s prospects, Semple thinks the company will generate full 2022 revenue and adjusted EBITDA of $138.2 million and $45.1 million, respectively, and grow to 2023’s revenue and adjusted EBITDA of $169.3 million and $61.4 million, respectively. With his “Speculative Buy” rating, Semple has maintained a target price of $1.50, which at the time of publication represented a projected one-year return of 130.8 per cent.

MariMed, with a market cap at about $220 million, is currently down about ten per cent over the past 12 months and down about 23 per cent year-to-date. The company entered the US cannabis sector in 2014, and Semple has called MariMed one of the most experienced cannabis companies in the industry, developing a solid portfolio of highly productive assets across limited-license markets along with its branded product portfolio that Semple said has been well-received by consumers.

“The Company’s success in recent years stems from a strategic consolidation plan, whereby it aims to acquire full ownership positions in licensed cannabis entities that it consults for through management service agreements,” Semple wrote in a March 4 report. “The success of this strategy has seen US cannabis revenues increase by more than 7x over the past two years. We believe the management team are capable operators, as evidenced by the strong growth achieved in cannabis revenues, an impressive sales per store metric (annualized run rate of $18.8 million per store (!) on average in Q321), and MariMed’s track record of having generated positive FCF in each of the past seven quarters.”