MariMed has a 167 per cent upside, says Echelon

A new credit facility comes at a great time for US cannabis name MariMed Inc (MariMed Stock Quote, Charts, News, Analysts, Financials OTC:MRMD), according to Echelon Capital Markets analyst Andrew Semple, who provided an update to clients on Monday. Semple said the debt financing is a savvy move by MariMed to bolster its balance sheet ahead of a liquidity crunch coming for many US cannabis companies.

MariMed, a multi-state operator (MSO) that produces and distributes medical and adult-use cannabis products in the US, announced on January 24 the closing of a $35 million credit facility with Chicago Atlantic Advisors as lead lender and Echelon Capital acting as a financial advisor. $30 million has been drawn immediately and a further $5 million is available over the next six months. The company said it plans to use the proceeds to organically develop its production facilities in Illinois, Massachusetts, Maryland and Missouri, while also repaying seller notes incurred in its acquisition of Kind Therapeutics.

“While we are capable of funding our current growth plans with cash flow from operations, the time is right to raise capital and accelerate these plans, which we believe will result in meaningful returns to our shareholders,” said President and interim CEO Jon Levine in a press release.

To its advantage, Semple said the extra funds will help position MariMed in the currently favourable market conditions for acquisitions in cannabis, where private market valuations for M&A are declining rapidly as capital remains limited and hopes of reform at the federal level over the near term continue to fade.

Further, Semple said many of the larger MSOs, who are generally better capitalized, have in many cases reached their respective allowable license caps in key markets, leaving them unable to purchase more assets to keep growing their businesses.

“MariMed is now positioned as one of just a handful of US cannabis companies with sufficient capital and the license capacity to be able to take advantage of these market conditions, and we expect MariMed to become active with tuck-in acquisitions following this announcement. We believe the Company will be able to find assets at low-to- mid single digits of forward EBITDA contribution, which would likely be accretive relative to the incremental cost of debt capital raised,” Semple said.

“Our bullish view is further supported by MariMed’s bolstered balance sheet, ample growth opportunities within existing markets and in new states via M&A, as well as potential upside to our financial forecasts once Maryland implements adult-use cannabis sales,” he said.

With the update, Semple maintained a “Speculative Buy” rating on MRMD and $1.10 per share target price, which represented at press time a projected one-year return of 167.0 per cent.