MariMed is starting to take off. $MRMD is pushing higher and higher and it could be that the price I had hoped to add in some more shares may be long gone. In the meantime, management has called for some $100M in revenue for the year with $30M in EBTIDA profits. This could push the stock upwards to $5.00, $7.50, or higher. But, management is also consolidating core companies under one company with revenue to hit anywhere from $200M – $300M. With the same EBITDA profit percentages, this pushes the potential of $MRMD far higher. I wanted to break down this potential to show what is possible.
After a long selloff, the stock settled down around $0.10. Then, after February’s push higher $MRMD moved downwards to $0.60. I had price targets of some $0.50, $0.40, and lower. The general cannabis market had been selling off more and more. But, $MRMD has pivoted to the upside. Here is a broader look at the market:
My feeling is that this is easily a $5.00 stock, if not much higher. However, had the stock settled down at a lower price quite possibly a potential investment could have brought in far more shares. Now, however, $MRMD is above $1.00 trading at $1.05 for the day. It may be that the move lower to the target price is gone.
Let us then begin to look at the breakdown of revenues and profits to justify how the price could rise as it may.
Revenues and Margins
I originally had looked at a breakdown of the $100M with a smaller increase up front for revenue. My original guess was about $22.5M for this quarter. That was surpassed with $24.5M. My guess was exactly that: A guess. I figured this with a more linear increase QoQ. This allowed for a more progressive increase over the following quarters. Here is the latest revenue print:
If MariMed were to continue with the same rate of increase over the next few quarters then they will surpass the initial revenue projections. If MariMed maintains this level of revenue they will achieve the revenue projection of $100M.
But, this is a growing company. They have one of the best-selling edibles on the market. They are expanding that product category to other markets. Given that, it simply does not seem realistic that they will be flat-line in their revenue over the next several quarters. If they continue with a 20% increase just as they did they will hit $29.5M, $35M, and $42M for the next three quarters. That is $100M over the next three quarters alone; $125M for the year.
I will be watching for a balance between the revenue projection and revenue growth rate. I think the $100M is low-ball.
Margins were a bit softer than I had expected. With such a high rate of growth for revenue, I would expect that MariMed could hit higher gross amrgins. I put together a projection given a 55% gross margin. I believe that this is conservative and this could be a potential opportunity:
Even still, if my projections are correct while using a much lower number this still puts $MRMD in a solid position for more gains. But, that is with 55% gross margins. What if MariMed were to turn that around and push margins upwards with the increase of revenue? If over the next three quarters MariMed were to print an additional $100M and they did so with increasing margins, that is an additional $10M to be added to the bottom line of gross profits.
I do not see gross margins as a problem with MariMed. But, I had expected higher growth rates. Nonetheless, with increasing revenues as they are printing I see a significant opportunity for a surprise to the upside.
Operating efficiencies are something of a wonder; they are consistently well below-average:
Most of the very best companies I research are printing between 30% – 35%; I have seen a couple of cannabis companies printing under 30%. The previous quarter’s 14.7% is clearly out of that range of normal whereas this latest quarter is fairly in line with a high-performing cannabis company. I expect that MariMed will continue to keep costs down that as investors this is a metric that can be relied upon.
EBITDA, Net Income, & EPS
As you can see here, despite the increase in revenue, there was a modest decrease in EBITDA profits. One of the reasons was the decline in gross margins. Had MariMed printed the exact same gross margin there would have been an additional $1M added to gross profits which, of course, would have added to EBITDA.
Net income also advanced positively:
There are not too many cannabis stocks that are printing positive net income. In fact, very few are. But, there are many cannabis companies that are EBITDA positive and within range of profitability. MariMed has the jump in that regard.
Is MariMed a good buy?
MariMed has some 320 million shares outstanding. Given the past 2 quarters, should the next quarter continue to be net profit positive I expect an EPS of $15M total. That works out to being approximately $0.0469 per share. With a 100x future earnings multiple, $MRMD would be trading at $4.69 per share.
However, I believe there is going to be potentially more net profits given the gross margin levels. As more revenues work their way through the system this would easily push profits higher. Given an approximate $10M more in gross profits, this could easily push the stock upwards some $2.00 per share on the stock price. This is where I get the idea that $7.50 is a viable price target.
Also, over the course of the next several quarters, MariMed is consolidating and bringing into the core company some outlying companies. This is expected to add an additional $100M – $200M more in revenue. With the same metrics as above, this pushes the $MRMD to a much higher level, perhaps $15.00 – $22.50. The stock is currently trading at $1.00.
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