MariMed: The Best Kept Secret in Cannabis
A Deep Dive Into the Ridiculously Undervalued MSO
MariMed might be the best kept secret of any cannabis multi-state operator (MSO) with more than $100 million in revenue, but it probably won’t remain that way. The company trades at 7 times trailing 2021 EBITDA, 5 times this year’s estimate and approximately 3 times my estimate for 2023 and this is all with no leverage.
Besides being one of the most undervalued, MariMed is the only major MSO that beat estimates last year, and that was off guidance that the company had previously raised. And the company’s numbers are likely too low again, especially for 2023, as analysts may not be considering what will happen when MariMed consolidates its Maryland operations, nearly doubles its cultivation footprint in the state and opens a new dispensary right in front of the state approving full adult use in November of this year.
Not only can most investors not invest in MariMed due to Federal illegality, but because MariMed only trades over the counter (OTC) and does not have a Canadian ticker, the few sizable cannabis investors can’t invest either. The MSOS ETF, which has over $1 billion of assets and dominates the cannabis landscape, doesn’t own any shares of MariMed. The MSOS ETF can only own plant touching cannabis stocks with Canadian tickers, they cannot own OTC shares, due to the swap structure they use to get around the rules that prohibit NASDAQ listed companies to invest in cannabis businesses that touch the cannabis plant. But this should soon change, as MariMed has filed for listing on the Canadian Securities Exchange to rectify this, so that the ETFs and other investors can buy.
The stock also trades below $1 per share and of the few professional investors that can invest in MariMed, some are restricted by prime brokers because MariMed is deemed a “penny stock,” simply because it trades below $1 per share, even though its market cap is over $300 million.
Also, the company only recently in the last six months started a concerted investor relations effort, as the company was trying to restructure after an ill-fated bet on hemp and CBD in 2019. A cleaned-up balance sheet and a renewed emphasis on its regulated THC cultivation and dispensary business has led to a remarkable turnaround for the company
I believe that the company trades at approximately 3 times my EBITDA estimate of $75 million for 2023, a remarkable number for a company that has more than doubled revenue in the past two years, with over 30% EBITDA margins and with no leverage. This is an absurd valuation in an industry that is already absurdly undervalued, but frankly is par for the course in a capital constrained sector with little institutional involvement.
If MariMed traded at 7 times my estimate of EBITDA in 2023 it would more than double from its current stock price. And that says nothing of where MariMed could trade to if the broader investment world were able to invest. In my opinion, SAFE Banking has a good chance of passing this year, which would give financial firms legal cover to invest and bank with plant touching cannabis firms. SAFE Banking could also possibly provide a path for cannabis stocks to trade on the NASDAQ or NYSE. MariMed could easily trade for 20 times EBITDA in that scenario and would go up by more than 8 times its current price.
If you would like to read more, please click through to my new deep dive report on the company: