MYM Nutraceuticals $MYMMF is one of my top picks… or, at least it was. It was just acquired by IM Cannabis Corp $IMCC. There were a few things I liked about MYM and now that they are being consumed by IMCC it is now necessary to take a solid look at the metrics on IMCC. While MYM is fairly new with reporting revenues, their financial metrics were absolutely solid coming right out of the gate. But, what about IMCC? They’ve hit my radar but I have yet to really dig into the financials and take a serious look at the company.
The terms of the deal were simple: Given a certain stock price for IMCC over a rolling average of days, MYM stock would be acquired and shareholders would be granted a number of shares of ICMM.
Interestingly, ICMM immediately fell on the news of the deal somewhat:
The Art of A Cannabis Deal
Here is a little more information on the deal itself for shareholders, per the news statement:
Under the terms of the Transaction, the shareholders of MYM will receive 0.022 common shares of IMC for each common share of MYM (the “Consideration”). Based on the 20-day volume-weighted average price (“VWAP”) of IMC common shares prior to this announcement, the implied MYM share price of $0.219 pursuant to the exchange ratio implies a 17.9% premium over the same period. Upon the completion of the Transaction, MYM shareholders will own approximately 14.5% of IMC.
I had expected a move for MYM much further than the 17.9% increase however, an investor would still hold on to their ownership of MYM as well as bring in a holding on another, bigger cannabis company. For those holding on to $MYMMF, if $IMCC moves higher, so should $MYMMF, and vice versa.
A couple of standouts that I think are important to note are first, IM Cannabis is listed on the NASDAQ giving far more liquidity as well as the opportunity for bigger investors to more easily get into the stock. Second, IM Cannabis is growing rapidly on an organic basis.
Who are MYM Nutraceuticals & IM Cannabis Company?
The real drive of the acquisition was the expansion of product lines. The. combination of both companies expands the footprint without any overlap allowing both an extension of product offerings. There will likely be total operating costs savings from the combination. But, I do not see too much in that regard; the real drive was the push for expansion of the products. Now, each company will be able to turn to their respective distributors and offer more products. As it is, each company’s respective revenue picture is an impressive move upwards. Being able to turn to each distributor and offer more product should increase sales and revenues at an increasing rate.
MYM Nutraceuticals is a cannabis company operating in the Eastern portion of Canada and has been expanding. The recently acquired Highland Grow from BIOME and BIOME is a large shareholder of MYM. Also, MYM picked up Sublime Culture and CannaCanada which are both also interesting additions to the company’s portfolio.
IM Cannabis is a medical cannabis company that focuses on Germany and Isreal. Both Isreal and Germany are expanding rapidly with medical cannabis. While there are rumors of Germany’s eventual legalization of adult-use cannabis, I am not one to invest from this perspective. Also, IM Cannabis just completed an acquisition of Trichome which is another cannabis company. Trichome had about $775k USD revenue in its latest period. The transaction was just finalized in March and revenues should begin showing up in the near term future.
One of the bright spots for me was the revenue growth rate for MYM Nutraceuticals. They have not been selling their products to consumers for too long; there are only three consecutive revenue releases:
Given how fast MYM is growing I expect that there is a lot of potential in the future for growth. At the same time, as I mentioned now with the current relationships with distributors, MYM will be able to offer more products via its new parent company. So, I expect in about 6 months’ time there will still be significant revenue increases.
At the same time, IM Cannabis is no stranger to rapid revenue growth rates:
IM Cannabis has not released its latest earnings yet and I am anxious to see if there is a continuation of rapid revenue growth. This, of course, will help in economies-of-scale and eventually trickle through to the bottom line. The latest increase QoQ was 57%. That is sizeable.
As I mentioned, IM Cannabis is mainly operating in Germany and Isreal which are both seeing very aggressive growth rates in medical cannabis with new recent changes in legalization. The fact that they are establishing themselves so quickly is very positive. And, just as MYM can offer new products to current distribution networks from IM Cannabis, there is an in-kind opportunity for IM Cannabis to offer products to its distributors from MYM.
MYM Nutraceuticals & IM Cannabis Gross Margins
The reals standout for me with MYM was its profit and cost metrics. Here is a look at gross margins:
I had already set it in my mind that MYM was a solid company when with only two revenue releases they were already hitting a solid 55% gross margin. My expectation was that as they continued to increase revenues, efficiencies and economies-of-scale would only improve upon that. The latest financial release merely iterated what I thought was possible with a 60.5% gross margin rate. As even more production moves through the facilities, this trend will continue. MYM is hitting some of the best levels for cannabis companies.
At the same time, IM Cannabis Corp is hitting impressive levels also:
IM Cannabis is already at a competitive level with its gross margin level. Economies-of-scale will continue to push this number closer to competitive levels. Again, I am anxious to see where the current financial data show up and that should be in the next couple of weeks.
MYM Nutraceuticals & IM Cannabis Corporation Operating Efficiencies
MYM was already at an excellent level for operating efficiency prior to the third release of printing revenue. That is when I made the call that this was a company that deserved to be one of my top picks. Then, they improved upon that:
After scrutinizing some 350 different cannabis companies, I have a pretty decent sense of where a competitive level for different metrics is. The very best companies are hitting between 30% – 35% with total operating costs. MYM is now performing beyond these metrics, again reiterating why this was one of my top picks.
While IM Cannabis has not performed as well in the same metric, with the recent acquisitions and any overlaps being optimized within the company it is very possible that operating efficiencies will prove dramatically very quickly. Also, as revenues increase, operating efficiencies improve. This is a simply mathematical equation.
Again, this is basic mathematics. As long as revenues increase and outpace the rate of growth of total operating costs, this metric will improve.
EBITDA & Net Income
The accretive aspects of the deal are that the new company is expected to be net EBITDA profitable over the next year. MYM has already achieved a level of EBITDA profitability:
My expectation is continued profitability for MYM seeing how it is hitting a lot of other key metrics. But, IM Cannabis still has a small amount of room to go:
The end goal for the acquisition was to have synergies that were immediately accretive. Also, EBITDA profitability by year’s end was a goal. M YM Nutraceuticals is already there. At the same time, with synergies and overlap, this will improve gross margins and operating costs. Likewise, being able to increase revenues via offering new products from one company’s portfolio to existing distribution networks will ultimately improve the prospects of the company’s bottom line.
Is IMCC A Good Buy?
I was already impressed with MYM Nutraceuticals. They have just recently started selling cannabis products on the east coast of Canada. They are beginning to enlarge their scope of sales from coast-to-coast.
At the same time, IM Cannabis Corp is acquiring key companies that expand its footprint without overextending themselves. The current acquisitions are immediately accretive and combined they should achieve EBITDA profitability by year’s end. And, its revenue growth rate is accelerating via organic growth in to areas that are seeing strong sales growth. Both Germany and Isreal are potentially important regions of the world for cannabis sales.
I like the synergies and similarities of IM Cannabis and MYM Nutraceuticals. I am going to keep this combined company in my Top Picks section as I think this combined company will continue to grow and offer a lot of potential upside.
We are still awaiting the latest financial report from IM Cannabis. It is my bet that given the statements made at the acquisition of MYM, IM Cannabis will report continued growth in revenues and earnings.
A Potential Buy
They have all of 50M shares outstanding at this time. IMCC is currently trading at ~$7.50 per share. At an aggressive 100x future earnings multiple, this implies earnings of $0.075 per share. This equates to net profitability of ~$3.75M.
With revenues of just $30M from the combined operations, achieving a higher stock price should happen over the next 12 months. However, the combined company would need to achieve other metrics along the way:
- $30M Gross Revenue
- 65% Gross Margins
- 30% Operating Costs
- 10% Cont. Costs
The combined companies should achieve $30M; they are on a much higher run rate. Also, 65% is close at hand as well as the operating efficiencies and continuing costs. The stated goal is for EBITDA profitability in this fiscal year. IM Cannabis is already 2 quarters into this year. Then, with continued revenues, they should surpass the $30M. This will go far to increase the bottom line with higher economies of scale.
I am looking for a potential stock move for IMCC to go beyond its current level and double in the next 12 – 18 months. However, as with all cannabis stocks, there has been some selling. I see this as a potential buying opportunity.
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