MariMed Inc (MRMD)

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The Bull Case for MRMD is simple. There’s the multi-state cannabis business—MRMD is licensed in 6 states today (DE, MD, MA, RI, IL, NV), and there’s the newer, nationally-legal hemp business.
In cannabis, the big impact will be moving from simply a consulting/services provider to a full seed-to- sale operator. The simple fact is they’ve been doing the whole business the whole time; it was split up simply due to original license requirements. The consolidation is being held up only by state license transfer rules and rules about profit/not-for-profit companies in this space, but it’s all moving forward. That probably takes up cannabis revenues by 5x. Then there is MA which is built (second largest grow facility) but hasn’t yet come into production—so in simply mining the existing licenses, there’s dramatic revenue upside. This business is valuable and will grow as medical moves to recreational because medical license holders are in first position. This is all the Company has been valued on up to now—and the price has varied from $1.25 to $5+ per share, with most recently from $3 to $5 until selling pressure developed (see below).
Then there’s hemp. The company appears to have a two part strategy—(1) take equity in key hemp players and (2) deliver consulting/services to them and CBD-based brands to the market. First, the equity. MRMD owns 33.5% of GenCanna, which today is private. How big is GenCanna? The closest public company is probably Charlotte’s Web (CW). GenCanna says they paid Kentucky farmers $5 million for hemp last year (https://www.lanereport.com/110157/2019/01/hemp-moves-into-growth-mode/). Assume raw hemp is 66% of total production costs (conservative). For CW in 2018, revenues were 4x total production costs. So, this might suggest GenCanna did ~$30 million in revenue in 2018 (4x$7.5). With passage of the Farm Bill in December, hemp is exploding in 2019. CW is projected to nearly double their revenue from $69 million to $135-$150 million (https://marketrealist.com/2019/01/why-charlottes-web-holdings-revenue-is-expected-to-spike/). Because GenCanna is behind, they appear to be pushing to expand more. They say they had 900 acres under contract in 2018 and are looking to have 10,000 under contract in 2019 (https://www.apnews.com/5c51cf8c836e4126916570cc36bd625c). That’s more than 10x. Too much to see in 1 year but might see it over several. Let’s try it another way. MRMD just procured seed for GenCanna’s farmers at a “seed” cost as $20 million. Seed cost to crop revenue ratios for “improved” seed are from 10% to 30%; let’s be conservative and assume 30%. Those seeds will produce $66 million in crop that becomes $100 million as production costs and $400 million in revenue to GenCanna—not all processed immediately but over time, split between 2019 and 2020. That also gets you to a 10x+ number over a couple of years. Let’s do it again a different way: at our $30M estimate for 2018, GenCanna was roughly half of CW’s $69M in revenue. Assume GenCanna simply doubles or triples in 2019 on their way to their 10x growth—that would make them at least half of CW in 2019. CW’s capitalization is $2.2 billion (https://www.marketwatch.com/investing/stock/cwbhf). That would make GenCanna worth $1.1+ billion. MRMD owns 33.5% of GenCanna: that ownership interest then is worth $368 million. At 233 million shares outstanding (fully diluted), that’s $1.58 per share—and realistically it’s probably much higher. MRMD appears to also have some potential ownership of Atalo Holdings, another large hemp production group in Kentucky about the same size as GenCanna (the investment in GenCanna started as a loan that converted; MariMed has made two loans to Atalo so far) (https://www.benzinga.com/markets/cannabis/19/01/13032584/an-early-mover-in-the-industry-seeks-helpful-answers-for-hemp-farmer). So, MRMD has an “asset” on its balance sheet that in reality is worth probably more than the value the whole stock is trading for today—with all the value of the GenCanna shares, you in essence are getting the significant cannabis business (above) and the emerging hemp services+CBD branded product sales (below) for free.
MRMD’s new hemp division will be selling services to GenCanna and other hemp players (just like it started out in cannabis) and is also assembling its own CBD brands to sell direct-to-consumer and through retail (this quarter’s announcement of the Florance brand). The services/seed sale to GenCanna in Q2 (with more to follow) shows this business has value too. To get retail space for their CBD brands, they are introducing a retailer and consumer information center to educate the market how to buy these products, something that’s really needed. That’s the HempEngine announced this quarter as well.