Finding the next Jushi (549% 12-month return) – Part 6: The Parent Company

In Part 1, with the help of my Cannabis Investor Portal, I narrowed 29 cannabis stocks down to 11 companies with less than $400 million in market cap and a price-to-sales (P/S) of 5 or less. In Part 2, I eliminated the 5 companies I felt would do well in the future, but not gain 549% in the next 12 months. I will now cover the final six – each with their own article and analysis on why I think a 549% is possible. Hollister Biosciences was the first, Harborside was the second, MariMed was the third – now I’m calling an audible and reviewing The Parent Company ahead of a few others on the list.

The Parent Company (NEO: GRAM.U, GRAM.WT.U) (OTCQX: GRAMF; OTC PINK: GRMWF)

Price target to gain 549%:  $51 (from $9.30)

Full Disclosure: I have a position in The Parant Company warrants.

The Parent Company, a California-centric cannabis company with Hip Hop great Jay Z as the Chief Visionary Officer, has had a disappointing share price performance since it was a Special Purpose Acquisition Company (SPAC) and recent IPO – the stock is down 32% so far in 2021.

California Focus

California is the largest, most competitive cannabis market in America with sales expected to reach $7.4 billion in 2025. The Parent Company’s goal is to dominate California with a vertically integrated structure with direct-to-consumer retail and delivery throughout the entire state. Already in 450+ California dispensaries, the company has a significant edge over the competition – over $300 million in cash raised from the IPO and star-power marketing with Jay Z and Roc Nation pushing their brands.

The Parent Company’s goals are to dominate California through aggressive M&A, enter the Tri-State area (New York/New Jersey/Connecticut), and then push their brands nationally. While most Multi-State Operators (MSO) are setting up vertical integration in each state they operate, The Parent Company is planning on using major east and west coast hubs, and when federal legalization comes, distribute their brands to the rest of the country. It’s a riskier strategy (what if federal legalization is 3+ years away?), but could pay off in a big way if legalization comes within two years.

Financials

The Parent Company has a mountain of cash ($300+ million) to perform aggressive M&A and only $10 million in debt. The company is expected to generate $34 million in adjusted EBITDA in 2021 and $137 EBITDA million in 2022.

The Parent Company is estimated to close 2020 with $185 million revenue and projected to generate $334 million in 2021 and $593 million in 2022.

Based on The Parent Company’s current $1.08 billion market cap, its stock trades at a price-to-sales (P/S) ratio of 1.8. By comparison, the top-tier MSOs are trading over 10 P/S and Canada’s Canopy Growth trades at a 25 P/S. If The Parent Company can show they are executing their gameplan, the stock should gravitate towards a 10x P/S, moving the stock up 555% (10/1.8 = 555).

NOTE: This article should not be considered advice to buy the stock. Do your own research and consult a financial expert before investing.

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