April 6, 2020
There Are Still Plenty of Reasons to Hold Onto iAnthus
By Don Yocham
Today, iAnthus Capital Holdings Inc. (OTC: ITHUF) announced that it would not make interest payments on $61.7 million of convertible debt.
The result was a decline in the company's stock price of more than 50% at the open to $0.30.
However, I'm going to recommend that you continue to hold onto your positions in iAnthus. Here's why.
There's Still Plenty to Like About iAnthus
The biggest expense component for iAnthus is its selling, general, and administrative (SG&A) expenses, and these can be reduced dramatically.
Its costs of goods sold are under control and the company was moving rapidly towards being cash flow positive. Once iAnthus right-sizes its SG&A expenses, cash flow will improve dramatically, and it will accelerate its path to profitability.
As I've written to you before, cannabis sales are not adversely affected by COVID-19 and should hold up well in a potential recession. In other words, cannabis stocks are defensive stocks, and at these levels, it makes sense to see the measures iAnthus can take to emerge as an even stronger company.
The company delayed the release of its financials as it works on disclosing these measures, and once it does, we can see the true extent of the changes.
Whether creditors are playing hardball with management or vice-versa is hard to tell at this point. But I can easily imagine a scenario where management is working to prevent excessive dilution on what is otherwise a solid operation.
I'm also a fan of Beth Stavola, the company's Chief Strategy Officer that it picked up in the acquisition of MPX Bioceuticals last year. She has a great reputation in the industry. I wouldn't be surprised to see her take the helm as the company makes adjustments.
What to Watch Going Forward
The most concerning part of the announcement was the formation of a special committee to investigate related party transactions involving the current CEO, Hadley Ford.
Related party transactions are transactions in which the two parties have a common interest, which can sometimes appear to be a conflict.
We'll have to see how this takes shape and the full extent of the transactions. Was he self-dealing, or were the transactions a necessity, but not properly disclosed?
I'll be watching those developments closely, but for now, hold onto your positions.
Take care,
Don Yocham, CFA
Executive Director, National Institute for Cannabis Investors
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