Body & Mind, BMMJ stock, is a California cannabis company that is putting things together and because of this I wanted to get the BMMJ stock forecast & analysis up onto the site. Body & Mind cannabis is mainly a dispensary system but, they are getting into new states, such as Arkansas, as a product label only. And, in Nevada, they are working as a product & white label producer. So, they have a few things in the works with the five states they are currently in.
Like all other cannabis companies, there was a slight decline in revenue for the first few months of the year, Q1, or, what would be Body & Mind’s Q3 (their calendar is on an off beginning month). The fall in revenue is consistent with the economy, as well. And, my expectations are that there is much going on with this. I believe all cannabis companies are going to see a drop in revenue for Q2 and Q3; March, April, & May, and June, July, and August. After that, we will have a better understanding of what is going on in the economy.
Future Revenue Expectations
Given that, given a decline in Q1 as well as a likely future decline in Q2, I was reluctant to believe any of the analyst expectations on revenue increases for the year. There is an expectation of some $35M for 2022. On an organic basis, I simply do not see that with Body & Mind.
The lack of hitting the projections may hinder margins as well. This is not to suggest I do not believe that Body & Mind will fail. On the contrary, Body & Mind appears to be growing nicely and building a solid infrastructure. However, the economy is about to contract and, no matter how you slice that, the effects will show up in revenues.
Scaling up For Improved Margins
Economies of scale are necessary to achieve improved margins. If a dispensary costs a certain amount every month with fixed costs, such as rent and necessary electricity, then pushing through 2x the number of products spreads the costs of these necessary essentials over twice as many products sold. That improves margins.
On the one hand, there are expectations for new opening in the coming months with dispensaries and new business opportunities. But, it may be that same-store sales, or dispensaries, are not growing due to the current slow-down in the economy.
The slowing down of the economy will contract revenues and margins in the short term. But, continually growing its foundation will drive revenues, margins, and profits in the future. So, while the economy contracts, and revenues decline, the work being done by Body & Mind will ensure they have a growing pie in the future.
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Body & Mind Financial Data
Here is the latest Body & Mind BMMJ stock forecast & analysis. Body & Mind is on a different calendar than other cannabis stocks and just printed their Q3. I am looking at the calendar year for most of the information here.
Body & Mind Gross Profits
There was a slight decline in revenue for the quarter. I fully expect there to be more of a decline in the next two quarters. I think for the remaining 3 quarters of this year, and including Q1, revenue should hit between $27.5M – $30M; not the $35M that I saw with some analysts.
But, Body & Mind will also be opening up new dispensaries so, that will contribute to revenue increases. And, there is new business where Body & Mind may be able to expand its white label services and continually add revenue there.
All of this is more immediate. But, the eventuality is that once the economy recovers from the current contraction, the foundation that is being built and expanded upon will enable for rapid rise in revenue increases down the road.
Body & Mind Operating Profits
I like what I see with operating costs. The latest print was about 38%. Over the course of the next five years, Body & Mind will grow. And, while growth may be stunted somewhat in the next year, the eventuality is that Body & Mind will be clearing 9-figure revenues.
Given a scenario like that, Body & Mind will improve its operating costs relative to revenue significantly. This means that from this standpoint, Body & Mind will be very competitive with operating costs.
Metrics like this show me up front that management are diligent in its duties of keeping costs contained. There will be marginal gains here with this metric. This will continually add to Body & Mind profitability and the eventuality is that this propels BMMJ stock.
Body & Mind EBTIDA & Net Profits
The past few quarters printed negative EBITDA. This is where achieving economies of scale are so important. But, Body & Mind are close enough that this is achievable.
On the one hand, Body & Mind will become ultra-conscious of costs in an environment where revenue increases are not materializing. This kind of operating environment brings out the creativity and determination in management. Given that Body & Mind are as close as they are with operating costs, this shows that management is working within reasonable bounds that will get there with EBITDA.
Getting in to Body & Mind is really about the long game; especially with the economy on the verge of contracting. Body & Mind will continue to expand its foundation in an economy that is contracting. When the economy rebounds, the necessary footprint will be there to take advantage of that opportunity.
Body & Mind Cash On Hand
For now, there is enough cash on hand to continue operations for a small period. However, that period is going to be short-lived. Body & Mind has some $3M in cash on hand for running operations. This quarter’s loss was nearly $3M.
But, there is also ample total assets where Body & Mind will be able to do some kind of deal that may be non-dilutive in the form of a stock warrant, or some other kind of creative deal.
So, while cash on hand will need to be continually updated, access to cash should not be an issue.
Body & Mind Total Equity
Despite an increasing asset chart, debts are increasing at a slightly higher rate. That is cutting total equity a little bit more and more each quarter. And, as Body & Mind sees actual net earnings profitability slipping a little further down the road, the end result is that there will be a further decline in total assets, all else equal.
But, Body & Mind are also going to continue to expand its foundation. That will add assets. Unfortunately, that will also add costs that, until there is an economies of scale being achieved this will add to the need to raise more capital via debt offering.
This will be a balancing act. The eventuality is that Body & Mind will execute on its plan and, when the economy rebounds, this will accelerate revenues. Then, paying down debt and building up total assets will drive BMMJ stock.
Body & Mind BMMJ Stock Forecast
Body & Mind BMMJ Stock DCF
| Assumptions | ||
|---|---|---|
| Tax Rate | 25% | |
| Discount Rate | 8.000% | |
| Perpetural Growth Rate | 25.0% | |
| EV/EBITDA Mulltiple | 30.0x | |
| Transaction Date | June 1, 2022 | |
| Fiscal Year End | 12/31/21 | |
| Current Price | $0.100 | |
| Market Capitalization | 113,349,464 | |
| Debt | $22,700,000 | |
| Cash | $3,700,000 | |
| Market Value | ||
|---|---|---|
| Market Cap | $11,334,946 | |
| Plus: Debt | $22,700,000 | |
| Less: Cash | $3,700,000 | |
| Enterprise Value | $30,334,946 | |
| Equity Value/Share | $0.1000 |
| Discounted Cash Flow | Entry | 2022 | 2023 | 2024 | 2025 | 2026 | Exit | |
|---|---|---|---|---|---|---|---|---|
| Date | June 1, 2022 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2024 | Dec 31, 2025 | Dec 31, 2026 | Dec 31, 2026 | |
| Time Periods | 1 | 2 | 3 | 4 | 5 | |||
| Year Fraction | 0.58 | 1.00 | 1.00 | 1.00 | 1.00 | |||
| EBIT | $4,275,000 | $8,000,000 | $16,250,000 | $27,500,000 | $37,500,000 | |||
| Less: Cash Taxes | $1,068,750 | $2,000,000 | $4,062,500 | $6,875,000 | $9,375,000 | |||
| Plus: D&A | $997,500 | $1,400,000 | $2,275,000 | $3,500,000 | $4,375,000 | |||
| Less: Capex | $4,275,000 | $6,000,000 | $9,750,000 | $15,000,000 | $18,750,000 | |||
| Less: Changes in NWC | -$2,850,000 | -$4,000,000 | -$6,500,000 | -$10,000,000 | -$12,500,000 | |||
| Unlevered FCF | 1 | $2,778,750 | $5,400,000 | $11,212,500 | $19,125,000 | $26,250,000 | ||
| (Entry)/Exit | -$30,334,946 | $531,617,647 | ||||||
| Transaction CF | - 0 | $1,620,938 | $5,400,000 | $11,212,500 | $19,125,000 | $26,250,000 | $531,617,647 | |
| - 0 | $1,620,938 | $5,400,000 | $11,212,500 | $19,125,000 | $26,250,000 | $531,617,647 |
| Rate of Return | ||
|---|---|---|
| Target Price Upside | 3,455% | |
| Internal Rate of Return (IRR) | 99% | |
| Market Value vs Intrinsic Value | ||
| Market Value | $0.10 | |
| Upside | $3.46 | |
| Intrinsic Value | $3.56 |
Because of the pending decline in revenue potential, I had to incorporate that into the BMMJ stock forecast. The economy is going to slow and, revenues will remain stagnant for a couple of quarters. However, that will change up after the economy recovers. Then, margins will sharpen up significantly afterward.
This is going to act like a slingshot. And, along the way, with Body & Mind continually building its foundation and footprint, when the economy does rebound, there will be a big surge in activity and revenue growth.
I incorporated this into the BMMJ stock projection. I used numbers that were a little softer in the first part and then pushed from there. The end result was a lower stock price but, there is significant upside for BMMJ stock still.
Is Body & Mind BMMJ Stock A Good Investment?
Do I own BMMJ Stock? No. I do not see Body & Mind as the best performer right now. But, they are a growing company that will get there. If you currently own this stock, the eventuality is that this stock will move upward over time, but, that is the story of most cannabis stocks. Getting in at this price would be a solid opportunity because the upside is large. Again, however, this is the story with many cannabis stocks.
The nice thing about cannabis stocks at this point is that this process will unfold and these stocks will get there over a period of time. We are in the process of seeing the re-legalization of cannabis throughout the United States, and the rest of the world. As the foundations for this are built, there will be significant build-up in the necessary infrastructure to service all of the potential customers.
Body & Mind is participating in that and will see significant upside along the way because of that. For now, I believe their metrics are going to be challenged because of the economy. But, eventually, that will turn. And, BMMJ stock will slingshot upward from that.
