iAnthus ITHUF stock Forecast & Analysis

Cannabis Federal Legalization Via Biden Reclassifying cannabis.

iAnthus ITHUF stock may be the most despised cannabis stock there is.  Investors feel as if they were burnt rather badly previously.  Still, I wanted to get the ITHUF stock forecast & analysis up onto the website. Genuinely, iAnthus printed an ugly loss this quarter which was attributed to one-time write-offs associated with restructuring debt and other expenses.[1]iAnthus Press Release  Moving forward, if iAnthus can continue its cost containment as well as somehow improve general margins, there could be something here.  However, revenue growth is flat to nothing.  Economies of scale are what would be needed to get to that next level.  With higher gross revenues from increased units sold, this will improve gross margins.

Fact is, over a period of time, iAnthus has built up some decent revenues.  However, the past three quarters has seen revenues decline significantly.  But, and more importantly, total equity has fallen into negative territory calling in to question iAnthus’s future ability to move forward.  Without increasing revenue, scaling up to profitability will be difficult.  Then, cash burn will push iAnthus to raise more capital.  This will mean future equity declines without in-kind increases in profitability.  iAnthus will be sitting on teetering future.

Notwithstanding the previous deal the put such a bad taste in investors mouths, the prospects for future increases in ITHUF stock look limited also.  In the ITHUF stock forecast using the DCF below, I used a more progressive increase in revenue increases but, I kept margins at a lower rate.  The fact is, I do not necessarily believe that iAnthus will be able to hit its revenue targets that I have for this stock.  This is a limitation that will act negatively on sentiment for ITHUF.[2]iAnthus Press Releases

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iAnthus Financial Data

Here is the ITHUF stock financial data for the latest period as well the analysis of the financial data.

iAnthus Gross Profits

  • iAnthus Revenue

I mentioned in the intro that margins are the next key to what could be the potential profitability goal for iAnthus.  But, the sequential increase for now is not nearly enough.  The economy itself is poised to contract significantly, something I have been keeping the pulse on for followers & subscribers here.  When the economy contracts, all companies, cannabis companies or not, are going to see a contraction in revenues.

Still, gross margins are not horrible when compared to other cannabis stocks.  Despite that, there is still sizable upside potential.  If iAnthus could hit an approximate 65% gross margins they would be competitive with some of the better performing cannabis stocks.  The ability to get there exists if other companies can get there.  For now, cost metrics are such that iAnthus is not there yet.

iAnthus Operating Profits

  • iAnthus Operating Costs

Congratulations to iAnthus for pushing its operating costs up as it has.  Operating margins are mathematical metric.  This shows how well a company performs from the back office perspective of what Sales, General, & Administrative – SG&A – are doing with regard to creating revenue on a ratio basis versus cost expenses for the back office.  And, the latest moves are in the wrong direction.

Because this is a cost metric, a ratio of costs versus revenue, you want the lowest possible number.  The trend higher is in the wrong direction, obviously. And, since SG&A plays so prominently into EBTIDA, this matters as to whether iAnthus could prove that scaling up would result in a profitable venture.

iAnthus EBITDA & Net Profits

  • iAnthus EBITDA

In order to get to EBITDA levels that are more sustainable for the long term future of iAnthus, gross margins would do well in an increasing revenue environment.  And, maybe iAnthus can squeeze out an additional 10% from gross margins with a solid increase in revenue.  Then, should costs improve on a relative basis and operating margins improve overall, that gets iAnthus back to a level of EBITDA profitability that would make for a rosier picture.

But, there are other issues that only a massive surge in revenue will improve the outlook.

iAnthus Cash On Hand

  • iAnthus Cash on Hand

Cash on hand along with net earnings as big as they are on a regular basis means the cash burn rate is going to eat all of the available cash too fast.  This has a lot of negative future potential.  The complete story, when you look at it from above, shows that this company has major challenges.  The debt servicing, and the fact that iAnthus is likely to take on more debt, means this challenge will get bigger and bigger as time goes forward.

iAnthus Total Equity

  • iAnthus Total Assets

Total equity entered into negative territory and, I see this as a long term issue.  A company needs equity to drive revenue.  If equity is in negative territory, and a company needs to raise more cash just to finance future operations, that money is not going to future growth but toward future payments to sustain ongoing operations.  This digs a whole and it creates more debt.

For me, increasing total equity is just as important as increasing total revenue as well as improving margins.  The negative total equity for me with iAnthus is a serious red flag to me.

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iAnthus ITHUF Stock Forecast

iAnthus ITHUF stock revenue projections

iAnthus DCF

Above, you can see the revenue projections that I used for iAnthus.  And, as I mentioned further above, I think this is a stretch.  In fact, I think this is going to be difficult for iAnthus to achieve.  I also used fairly softer margins with the ITHUF stock forecast and analysis which, that will likely be what is seen in the future.  However, if iAnthus were to scale up revenues and achieve scale that then need to, margins will likely improve significantly.

In the meantime, I feel as if the stock itself may move higher.   But, this is not because of future fundamentals that have shifted into a gear where investors will line up as much as it is that cannabis federal legalization may pull investors in and cannabis stocks more broadly surge.

Is iAnthus ITHUF Stock A Good Investment?

iAnthus ITUHF stock chart 10Oct22

It should be telling that the moves higher from nearly all cannabis stocks did nothing for ITHUF stock.  Whereas the potential rally of all cannabis stocks would mean that participation in movements should have pushed this stock upward, my target price of just a few pennies higher says that ITHUF stock may not have any gas in the tank.

There are a couple of issues with iAnthus.

  • Revenue is no longer moving higher.
  • Cash burn.
  • Total equity in negative territory.

None of the above adds up to anything positive long term.

If I were a betting man, I could easily see reasons why ITHUF stock could get driven downward.  For now, the $425M market capitalization seems unreasonable with the future of capital needs versus cash burn.  Then, there is the shares outstanding which, that always gets me thinking that there is too much in the way of downside potential.  I expect there to be more financing and, I expect that the cash burn will continue.  This means dilution as well as more negative total equity.

If I were holding on to this stock, ITHUF stock, and there were a surge in cannabis stocks in general, I would get out and look for better opportunities elsewhere.

iAnthus Financial Data

iAnthus ITHUF Stock Financial Data

References

References
1 iAnthus Press Release
2 iAnthus Press Releases

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