Bluma Wellness is being acquired by Cresco Labs. Cresco just released its earnings and I wanted to break down those earnings to see where $CRLBF would be trading based upon its latest earnings release. In order to do that, I needed to look at Bluma Wellness first to determine where this stock could be in the near-term future. Then, understanding Cresco’s general trajectory makes for solid analysis. For the record, Cresco just announced yet another acquisition of Cultivate in Massachusetts which is a vertical grow with three dispensaries. They are not public so evaluating that deal will be a bit more difficult.
In the meantime, let’s look at Bluma to determine its value.
Here is the latest stock movement for $BMWLF:
The Art Of The Deal
The deal is an all-stock deal where Bluma shareholders are to receive 0.0859 shares of Cfresco in exchange for their Bluma shares. Is that a good thing, or a bad thing?
At the time of the deal, Bluma was trading at about $1.00 and Cresco was trading at about $12.00. From an immediate cash perspective, it’s a wash. But, from a value perspective, you have to ask a few questions such as: What did an investor give up and what are they gaining?
On the one hand, Bluma has value by itself and is on a certain trajectory. I am going to break down that with a synopsis and show you what they could be worth. On the other hand, an investor is no longer getting the future value of just Bluma but also Cresco as a whole.
To understand that philosophical question you have to ask which will outperform which? Would you gain more value with Bluma alone or is Cresco going to outpace Bluma? If Bluma outpaced Cresco, then the dilution of the rate of growth is spread out throughout all shareholders. But, the opposite is also possible.
Who is Bluma?
This is a fundamental question that is boiled down to metrics. First, they have two grow facilities and 8 dispensaries, and another 10 dispensaries in the process of opening up.
Ruskin Florida Grow Facility Highlights:
24,000 Square Feet Dutch Greenhouse
4,019 lb Annual Cultivation Capacity
Indiantown Florida Grow Facility Highlights:
- 54,000 Square Feet Nexus Hybrid & Climate Controlled Cultivation Greenhouse
Post-Harvest, Dry Cure, Processing, & Extraction Facility
13,457 lb Annual Cultivation Capacity
The two facilities have approximately 17.5k lb of annual capacity. Let’s say they hit 95% of that in any given year. That would be approximately 16,625 lb of flower per year. At $1,500.00 per pound, the wholesale value of that would ~$25M annually.
- 60% would be gross profits to the company; $15M
- 40% would be cost of goods; $10M
Now, that is the wholesale value of that amount annually, but it needs to be converted into retail sales also since Bluma has 8 dispensaries with an additional 10 to go.
A dispensary sells the final product. That product is cut and packaged. And, for some products, it will be further processed (Vapes, tinctures, and other products). Since we do not know the entire makeup of everything, let’s just look at the very basics.
And, the wholesale value would be 35% of the dispensary’s individual retail expense. So, the $25M would be 35% of ~$71.5M.
- $71.5M would have 35% cost of goods; $25M
- $46.5M gross profits
What could Bluma be worth?
So, if we assume that Bluma sold only its own grown products in its dispensaries, then the $71.5M would likely have about 65% gross margins; $46.5M
Bluma has basically two businesses: The grow facility and the dispensaries all under one umbrella. And as for total revenues, they are both the sale of the wholesale product (to the dispensaries) and then the total revenue from the dispensaries (to the customers).
- Total revenues then are: $96M
- Total gross profits are: $61.5M
- The total operating costs of the business should hit about 35% of total revenues; $33M
- Total operating profits would be: $27.9M
With continuing ops coming in about $10M, this leaves ~$17.5M in net profits.
- There are 159M Canadian shares outstanding
- There are 168.5M US shares outstanding
- 327.5M total shares for $0.06 EPS
- Therefore, at 100x future multiple, that is a $6.00 price target
The likely price target would be a 2-year target as all of the dispensaries ramped up to fully opened and acquired a strong customer base.
One other thing, I fully expect that Florida will switch to adult-use legal in the 2-year time period. The 18 dispensaries would be a solid foundation to grow from.
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