2020 ended the year with a bunch of mergers and acquisitions in the cannabis space and I expect that to continue soon. Since Democrats took control of the U.S. Senate in January, the larger cannabis multi-state operators (MSOs) have raised money at a feverish pace through secondary stock offerings. Who are the best available publically trader smaller cap cannabis stocks and who is likely to buy them?
1. Vireo Health (VREOF)
Vireo Health’s stock has spiked after two straight days of positive legislative news coming out of Minnesota and New Mexico, two states no major MSO is in. Vireo Health also has four stores in New York, a state likely to pass adult-use recreational cannabis legislation in 2021. Throw in one dispensary in recently fully legalized Arizona and a wholesale presence in Maryland and Ohio, and you have the most attractive small-cap company in the cannabis sector. Vireo’s stock trades at a reasonable price/sales ratio of 9 and grew revenue 68% year-over-year. The only negative is that the company doesn’t have positive EBITDA margins yet, but that should change in 2021.
LIKELY BUYER: Trulieve is the likely buyer of Vireo health as they are the only major MSO without a presence in all the states mentioned above. Trulieve has the cash and a C$750 million dollar shelf prospectus, providing about $1 billion in equity if needed. Trulieve’s shares are near an all-time high (excellent currency) and they have one of the lowest outstanding shares total.
2. Harborside (HBORF)
Harborside operates in two states, California and Oregon. The company trades at a dirt-cheap price/sales of 2 and has very attractive EBITDA margins of 42%, second only to Trulieve’s 50%. When MSO CEOs are looking for M&A opportunities, they look for companies that are immediately accretive. Harborside is immediately impactful to the bottom line and is estimated to bring in over $100 million in revenue in 2021.
LIKELY BUYER: AYR Strategies is the only major MSO without a presence in California, the top Cannabis state in the country and the best cannabis market in the world. The question is not if Ayr enters California, it’s when and Harborside provides the best opportunity at a great price.
3. MariMed (MRMD)
MariMed has transitioned from primarily generating revenue from consulting, licensing, and management fees, but now also owns dispensaries and sells wholesale in Massachusetts and Illinois. The company also manages facilities in Delaware, Maryland, and Nevada. MariMed states they project to earn $100-$200 in annual revenue once they fully consolidate their business, which would put them at a forward price/sales of less than 2.
LIKELY BUYER: Terrascend is the only major MSO without a presence in Illinois and Massachusetts. Currently, Terrascend is only in three states and MariMed would immediately expand that footprint to 11.
4. Cansortium (CNTMF)
Consortium is the last best available Florida acquisition target. The company has 24 dispensaries in Florida and the only MSO in Texas. The company is also in Minnesota and Pennsylvania, two attractive cannabis states. Consortium grew revenue 94% year-over-year. Florida is a must-be-in state because voters will likely legalize adult-use recreational use in 2022. Texas is nearly untouched cannabis territory and the second-largest U.S. state by population.
LIKELY BUYER: Terrascend is the only major MSO without a presence in Florida. A private buyer or SPAC could also make a play.
5. C21 Investments (CXXIF)
C21 Investments operates in two states, Nevada and Oregon. The company trades at a price/sales of 4, mostly due to slowed revenue growth year-over-year and quarter-over-quarter. The company appears to be heading back in the right direction.
LIKELY BUYER: Columbia Care or Cresco – both lack a presence in Nevada and Oregon and both recently raised cash through secondary stock offerings. Columbia Care seems to be in a race with Curaleaf for the biggest footprint. Trulieve seems to be focused on the northeast at the moment, but could easily make a move.
Make sure you check out my free Cannabis Investors Portal for important data on the top cannabis companies in America.
