IMCC stock is still a buy, Roth says

Despite some potential headwinds, Roth MKM analyst Scott Fortune has maintained his “Buy” rating on IM Cannabis Corp (IM Cannabis Corp Stock Quote, Chart, News, Analysts, Financials NASDAQ:IMCC).

On March 28, IMCC reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted a Net Loss of $3.5-million on revenue of $10.7-million, a topline that was down 26 per cent over the same period last year.

“As previously warned and as expected, unfortunately, the Israel-Hamas war had a negative impact on our fourth quarter 2023 results, which weighed on our full year results,” said CFO Uri Birenberg. “Due to the ongoing conflict, there was a 6% decrease in our yearly revenue. Coupled with our fourth quarter of 2023 inventory reduction, the war caused our fourth quarter gross profit to decrease by 68% as compared to the fourth quarter of 2022. However, our gross profit for 2023 increased by 7.5% to $9.8 million as compared to last year. Partially offsetting these declines, we were able to reduce our operating costs in the fourth quarter of 2023 by 55% as compared to the fourth quarter of 2022, ending the year with a 43% reduction in our operating costs as compared to last year, as we leaned further into our goal of active cost management.”

Fortune says things are actually setting up quite well for IMCC.

“IMC continues to scale into its Israel/German markets against geopolitical instability and competitive pressures,” the analyst wrote. “Its two key markets continue to see tailwinds: 1) the Israel conflict continues to cause instability but has led to higher consumption and recent regulatory loosening of cannabis policy bodes well for 2024, and 2) German legalization should allow for IMC to expand upon its 5th ranked distribution infrastructure and highest sales/SKU
in the market. Management has secured enough supply to service anticipated German demand, but we believe this will inflect in 2025 as consumers shift from illicit channels, where pricing is actually higher than the legal market. Margins should improve in 2024 as management controls purchasing more efficiently and the German mix ramps up, offset slightly by higher costs to ship product into Israel. The announced reverse merger with Kadimastem remains in the early stages, and we believe management is continuing to run the legacy cannabis business as usual until further notice.”

In a research update to clients March 29, Fortune maintained his “Buy” rating and price target of $1.00 on IM Cannabis.

The analyst thinks the company will post an EBITDA loss of $4.2-million on revenue of $46.3-million in fiscal 2024.

“With improved expectations in Israel and legalization in Germany providing longer-term growth prospects, we believe IM remains well-positioned to benefit from overall global cannabis reform. We look for cost efficiencies and operational execution expanding margins in ’24, ahead of favorable regulatory reform of medical cannabis in Israel and Germany to drive top-line growth. We are adjusting our ’24 revenue/EBITDA estimates to C$46.3M/(C$4.2M).”