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Germany has legalized cannabis. Sort of… it’s more of a promise at this point, but the plan is already being considered. Germany has 84M people; Germany just became the world’s largest cannabis market. This is big news for IM Cannabis Company IMCC stock as they are an international company poised for significant growth in Germany with the recent cannabis legalization. IM Cannabis Company is still in its growing stage; they are in Germany, Israel, and Canada. Financial numbers are not stellar at this point for IM Cannabis Company but that has more to do with the fact that they have been merging several companies recently. There was solid revenue growth for the latest Q3 quarter. But, other metrics are still lagging; IM Cannabis will need to significantly increase its revenue base in order to see improved costs and margins.
Still, despite the lack of revenue at this time, the fact that Germany has legalized cannabis is huge. With Germany legalizing cannabis, it may very well be that other countries in the EU could do the same enabling the bigger US MSOs the opportunity to expand into the second biggest economy in the world.
Keep in mind how important Germany is: California has only 39M people in the state. Germany easily eclipses California as the biggest sovereignty in the world. Any US MSO wanting to be a world dominant player will be gearing up to get in to Germany. It may very well be that IMCC gets acquired simply because this would be an easy route into this country, and simultaneously give the acquiring company access to Israel and Canada.
A Word On Top Pick Status
I had MYM Nutraceuticals in my Top Picks when I launched this site back in March of this year. MYM was acquired by IM Cannabis. Mostly, I have left IMCC in the Top Picks but, to be honest, I had been getting antsy to see some decent increases. In fact, I had just had a discussion with someone recently about the fact that I was likely to reevaluate IMCC after looking at this quarter’s financial release. The numbers themselves were not necessarily spectacular.
But, Germany legalizing cannabis is a very big deal and I can see two things moving forward. First, IM Cannabis will likely put together a solid-performing company over some period of time. But, the German legalization of cannabis will have the effect of driving the possibility of revenue growth very rapidly throughout the biggest single sovereignty in the world for this company. For that, I see a lot of potential.
This is something I iterate often, there will be tremendous M&A activity throughout cannabis in the coming months and years. IM Cannabis is working to become a big player and have just recently announced even more acquisitions themselves. Still, I cannot think that American MSOs are not now looking towards the world’s biggest cannabis market and strategizing right now on the fastest and least expensive method of entering this market. Given that, US MSOs with lots of cash and net earnings positive are in a position to make moves. IM Cannabis may be in play.
Growth Story
Notwithstanding the opportunity of being acquired, IM Cannabis is growing. They have done merge deals (MYM Nutraceuticals as an example) and have just announced even more deals. Revenues are increasing. But, and as I mentioned, revenues are not high enough to be at the point where IM Cannabis is EBITDA profitable yet. Still, with the growth and new potential in Germany, this process may get accelerated.
IM Cannabis Company IMCC Stock Comparison
Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:
- #22 Market Cap: $233M
- #27 Revenue Growth Rate: 28.6%
- #73 Gross Margins: 9.1%
- #43 Operating Efficiencies: 82%
- #70 EBITDA/Revenue: -78%
- #30 Cash/Debt Ratio: 40%
- #21 Total Assets: $122M
IM Cannabis Company has a few bright spots. But, the real story is future growth potential and the company’s positioning in getting there. IMCC is positioned for Germany’s legalization and the potential of Israeli legalization. The growth over the next several years will be tremendous as the world’s biggest single market becomes legal for recreational cannabis.
IM Cannabis Co IMCC Stock Financial Data
Here is a break down of the financial numbers for the latest Q3 financial statements. Keep in mind, this is a springboard and from here, we will see bigger revenue gains and improved financial metrics.
Gross Profits
IM Cannabis Co Revenue
Revenue growth was strong for the quarter and as more and more of the acquisitions acquiesce, there will be continued revenue increases. Expectations are for C$150M out of the Canadian portion of the company in the next three years. Should C$30M print this year, C$50M following year, then C$70M the year after, they will have achieved their goal in Canada.
But, Canada is a small portion as Israel is also expected to see complete decriminalization and continued growth there. With 130K patients now, IMCC is expecting 250K by the end of 2025; an approximate 20% increase YoY. The company is already moving at a faster pace than this.
Then, there is Germany with the promise of cannabis legalization. Should the party promises prevail, Germany’s output will need to increase immediately. Currently, IMCC is capable of about 15K pounds of cannabis production annually. At ~$2,000 per pound, that is about $30M in revenue from Germany alone. For now, IMCC is scaling up into this and, as the company increases its customer base, they will be able to scale into new legalization across the board.
Given all of this, gross margins are targeted at approximately 50% of revenue. My expectation is that IMCC hits $100M in revenue annually within an approximate 18 month timeframe that they will begin that run-rate in just 2 quarters; six months.
Operating Profits
- IM Cannabis Co Revenue
At this stage, operating profits are not a thing of beauty at this time. Operating costs are rising along with revenue increases. As a percentage, operating efficiencies are hitting nearly 90% for the quarter. But, if revenues increase at drastically faster rates then the eventuality is that operating costs, while increasing at a slower pace, will turn to more competitive levels.
The target for normal operating costs is an approximate 30% – 35% of revenue. But, my thinking is that with the gross margin rate stated at coming in at 50%, very likely operating efficiencies are going to be on the lower end and come in at ~40%. Still, that would leave ~10% for continuing costs.
EBTIDA & Net Profits
IM Cannabis Co EBITDA Revenue
For another quarter, EBITDA was negative for the quarter and has been so for the past four quarters. I had expected this to be a loss given margins. Should continued scaling up of revenue move as planned, EBTIDA as a percentage of revenue will likely increase along with improved margins. Then, this will trickle down to net earnings.
My back-of-the-napkin calculations have an approximate $100M as the break-even point for net earnings. This is the level I am using with my forward calculations and I expect that over the next four years beyond this, and especially with Germany shifting to legalization, IMCC may be in a position to print some $500M in annual revenue five years out with increasing earnings moving forward.
Cash On Hand
IM Cannabis Co Cash on Hand
So far, IM Cannabis Company has had a couple of rounds of raising capital, and they have some cash on hand at this stage. But, they will need more to continue operations. They have a decent enough amount of cash for now but, there will be a need in the future. That may be dilutive if IM Cannabis were to head to the markets to raise cash. This is something that I grow weary of and often tell individuals to be on the watch for.
IM Cannabis does not have enough cash at this point to sustain themselves moving forward. But, they may be able to use debt financing as their debt situation is small; IM Cannabis does not carry much debt at this time.
Total Equity
IM Cannabis Co Total Assets
Continually, total equity is increasing along with revenues. Debt is minimal when you look at the total liabilities versus total assets. So, IM Cannabis have several options for bringing cash to the table for financing future operations. The continued expansion of the three markets, Israel, Germany, and Canada, will allow for them to grow from where they are. Should IM Cannabis swing to the upside with revenue & move to net earnings positive, this will be a positive development.
IMCC Stock Activity
This is going to be a continuous segment in my analysis from now on since the short positions are in charge as much as they are. I am going to break down two sections of the stocks so anyone can consider this in their considerations for acquiring any one stock.
Short Seller Activity
Stock selling short has been the norm for cannabis companies. Above, I am showing the percentage of short selling per daily volume. IMCC has seen sales above the 50% mark, but the numbers are far smaller than some other more big-name companies. With the recent moves higher in the stock on the backs of Germany’s announcement, the shorts may get squeezed out quickly. This has the ability to push the stock upwards even more.
IM Cannabis Co IMCC Stock Chart
Lately, given the Germany announcement, there have been movements higher in IMCC:
For now, IMCC may continue to see movements higher over the next few weeks. Keep in mind, all we really have is a promise. But, when you have the three coalition parties joining together stating that this is going to happen, barring any last minute changes, this is very likely to happen. Once it does, this is when I expect to see a lot more fireworks for IMCC stock and a few others (As it turns out, Halo Collective may have play in the German legalization).
Is IM Cannabis Co IMCC Stock a Good Investment?
As I mentioned, I ‘inherited’ IMCC via MYM Nutraceuticals. They had solid numbers and I expected they would continue to print well. MYM would be the Canadian arm of this multi-country cannabis company. Given the fact that they are first to market status company in Germany and many other companies are likely to rush in, I believe this positions IM Cannabis much better than the competition.
Over the next 2 – 5 years, I expect Israeli and Canadian revenues to improve to levels that would make this cannabis company profitable. Then, there is Germany. The potential business IMCC can gain from this will be far greater than both Canada and Israel combined.
I hope my point is clear: Germany cannabis legalization is one of the biggest news events in cannabis by far. They are an enormous market; the biggest single market in the world right now. This will be a powerhouse market.
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