WTF happened to iAnthus Capital Holdings (IAN.C) this week?!1?

10/02/2019

The last time iAnthus Capital Holdings (IAN.C) closed in the green before today was September 19, and since then, the stock has dropped 30.7%.

To address the company’s performance, the company’s CEO, Hadley Ford, held a conference call Monday in an effort to calm skittish shareholders.

“While the whole sector has been hit hard, iAnthus has been hit even harder. We are up 3x last year. And while the sector is off 50%, we are down 65% year-to-date. And today, we find ourselves trading at all-time lows.

This free fall has coincided with an unprecedented amount of short activity on our stock and rumors of our inability to finance the build-out of our key markets. The people often forget that on the other side of a short seller, there is a buyer, someone who believes.”

–Hadley Ford, iAnthus CEO

The call transcript is too long to post in its entirety, though a copy has been posted on Reddit, but Ford’s argument for iAnthus is easily summarized in the following points:

  1. That the free-fall coincides with unprecedented amount of short activity on IAN stock and rumors of an  inability to finance build-outs in key markets;
  2.  Gotham Green Partners’ $100M investment guarantees the build-out;
  3. IAN has 27 open dispensaries in the U.S.;
  4. Monthly revenue is USD$10M;
  5. Forecasting to be EBITDA positive in 2020 and;
  6. IAN is only trading at a 4.2 multiple enterprise value.

The first two points can be addressed concurrently: If you aren’t shorting cannabis companies in 2019, the year of our Lord, then you’re too long by half.

Take a look at the Horizons MMJ ETF. Go on, I’ll wait.

Look at all that red. | Source: stockwatch.com

We’re in trouble, ladies and gentlemen. Everyone is bleeding, trading far above fair market value (FMV) and individual embarrassments from bad actors have had a chilling effect on the sector as a whole.And so, when Ford says there is an unprecedented amount of short interest on iAnthus, you have to shake your head.

Of course there is, Hadley. Look at your stock chart. Look at everyone’s. If you’re only dollar cost averaging on the way down, you are seriously limiting yourself in terms of income streams.

Secondly, I can’t find evidence of short interest on IAN being anything exceptional given the logic of sector-wide short positions.

Our Bloomberg terminal turned up nil in terms of short interest, and Marketwatch showed as much for U.S. OTC exchanges.

Not saying nobody is shorting iAnthus, but it’s probably Gotham Green if anybody. Think about it, does Gotham get bigger returns on its convertible if IAN is trading high or low at the time it’s signed?

If true, and why wouldn’t it be, then the company’s management is either:

  1. Incompetent, or
  2. Knowingly borrowing from MMCAP-esque figures who have stared into the Black Sun and survived.

Neither option inspires confidence.

Twenty-seven dispensaries and growing!

In the call, Ford claimed his company’s dispensaries were making $10M in monthly revenue.

Now, iAnthus reported $19.2M in revenue for Q2. That’s $6.4M each month, so an increase of 33% is manageable, but even Curaleaf (CURA.C) isn’t growing revenues that fast.

Ford says he also expects the company to be EBITDA positive in 2020. Currently, the company is $24M EBITDA negative, so unless the company either shrinks its operating expenses or finds a way to reduce the cost of sales while cranking revenue dramatically, that’s unlikely.

‘But IAN is only trading 4.2x enterprise value!’ That’s still four times too high. No, it’s not the 60x sales we’ve seen, but the market always reaches equilibrium.

In short, iAnthus is returning to its fair-market value, pun intended.

 

–Ethan Reyes


Correction: The story initially reported iAnthus’ CEO claimed monthly revenues of $40M.

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