MariMed is executing its plan for growth and revenues saw a big increase QoQ of 51%. Revenues printed $20.4M, up from $13M the previous quarter. Full-year revenues were ~$50M for the company. Guidance for FY2021 is double what they just printed at $100M. I wanted to break down the latest earnings release and then do some analysis on the future projections to show where this stock will be in the upcoming year. I believe $MRMD has a lot of upside potential.
Here is a look at the latest chart for $MRMD:
Today, cannabis stocks are selling off as bigger players whose valuations are out of line with reality. I see this as purely a buying opportunity. Once you actually look at the fundamentals of a stock then getting in at excellent prices makes sense. The garbage stocks can do what they will do. MariMed has upside potential and $MRMD will be heading higher over this year.
Here is the latest revenue print for MariMed:
The latest revenue gains were quite large QoQ; ~50%. Future guidance has the company printing a 100% increase YoY. I’m having trouble with this because and I will explain why below. The thesis is: How does MariMed only print 100% gain off of its future potential? The reason I say this is each subsequent QoQ gain is only about 10%. This, versus the 50% increase they just printed.
Nonetheless, with the plan they are executing, opening stores in states with large growth potential, MariMed is on track for continued revenue growth. The overall industry is growing significantly and so a company that is increasing revenues simultaneously is in line with the industry.
MariMed Gross Margins
Gross margins for MariMed softened a bit this quarter from levels that were a standout for me:
There were offsets from 2019 that appeared in the latest quarter. At the same time, there cost decreases that showed up, but the write-offs were significant enough to make a difference in the bottom line. MariMed realized some $17M in write-downs, which had that not occurred, and MariMed were to have instead sold these products, this would have increased revenues, margins and kept costs in line with previous levels. Instead, these write-downs make the numbers look askew.
MariMed Operating Costs & Efficiencies
With MariMed coming online with a couple of new dispensaries, operating costs were skewed. That had no real affect on operating efficiencies:
The very best companies are usually between 30% – 35% with operational costs. I have seen some companies print the 20-handle on a percentage basis, usually about 27% or 25%. But, 14% knocks things out of the park in a whole new way.
It is important to first understand how this metric is derived: Mathematically, total operating costs relative to total revenues. Operating costs are costs associated with doing business but not the immediate costs associated with manufacturing a product. General and Administrative are in this cost.
As revenues increase, so will total operating costs but, at a much lower rate. For instance, the relative cost of a lease on a dispensary will be the same. But, if a dispensary increases its revenues by, say 50% YoY, the lease stays the same. However, on a relative basis, the cost is a much smaller portion of total revenue.
MariMed is guiding that they will be doubling revenue this year. This metric, by extension, will improve if that is possible. This, of course, assumes no more write-downs. Management has not guided on this. I have to be honest, I have a tough time believing they can print better numbers than this on a consistent basis.
MariMed Net Income
MariMed is one of the few cannabis companies printing positive net income:
EBITDA is guided to increase significantly for the next year and I am going to factor that into my analysis. For now, the positive net income with a doubling of the revenue as well as an large increase in EBITDA is going to factor well for this cannabis stock.
MariMed Future Guidance
As was mentioned, MariMed has provided future guidance. It is large; double this year’s revenues. Here is what $100M in future revenues looks like:
There was a 50% increase QoQ in the latest revenues. I pushed up revenues to a 10% QoQ rate of growth. This seems very modest to me. MariMed is opening up a couple more dispensaries this year. The stores that just opened are starting to contribute to revenue gains. This is what pushed the latest quarter up as much as it did.
So, I ask this question, with two more stores opening up, how is there only a modest QoQ gain?
It may be that revenues come in significantly higher than estimated. I believe that is a big possibility.
$MRMD future outlook
Let’s break down the numbers to see where $MRMD can be in one year’s time:
- $100M in gross revenues;
- 62.5% in gross profits for $62.5M;
- 27.5% in operating costs for $27.5M;
- $35M in total operating profits
- Continuing costs of 10% (Very modest) for $10M
- $25 in net profits (MariMed guided for $30M in EBITDA, so this is within reason)
- 300M shares outstanding
- EPS: $0.083
With a 100x earnings multiple, $MRMD trades at $8.30 within a year’s time.
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