2020 has been transformational for legal cannabis, but given the chaos of COVID-19, and the industry’s challenges last year,its marked improvement seems to have flown under the radar.
So far this year, we have noticed a sharp decrease in the amount acquisitions and the size of private placements. In Canada, these trends are much more apparent, and we have noticed a substantial slowdown in business activity.
Although COVID-19 is the easiest to blame for the decrease in activity in Canada, the trend became evident in 2019 and prior to the outbreak. In the US, the cannabis sector has been much more active and we have been keeping a close eye on how the industry continues to perform.
ManifestSeven (M7) is a California cannabis company that has attractive leverage to some of the most important parts of the value chain and we are favorable on how the story has evolved so far this year. M7 is comprised of a number of appealing growth verticals and we are bullish on the amount of value that can be found between the assets.
M7 is California’s first omnichannel for legal cannabis, servicing both business-to-business (B2B) and business-to-consumer (B2C) markets. The ancillary cannabis company has numerous distribution hubs across that state, and on the retail side has acquired the likes of leading delivery service MDelivers, MyJane, a curated subscription service for women, and 1-800-CANNABIS, the phone and online gateways for the retail experience.
M7’s Tactical Growth Strategy is Paying Dividends
M7 has been operational since 2014 and has recorded a number of major changes since inception. The current management team took over the in 2017 and pivoted the business to focus on high value verticals within the cannabis sector. The management team analyzed thousands of deals prior to making an investment and we are favorable on the amount of due diligence that was conducted and the types of deals that the business is seeing.
2019 was a banner year for M7 and we expect 2020 to be even more significant. Last year, the company made accretive acquisitions, opened a flagship retail store as well as a delivery service, raised capital, and filed documents to list on the Canadian Stock Exchange.
M7 expects to commence trading on the CSE in the second quarter of 2020 and we are monitoring how the story continues to advance ahead of the planned listing, which could be as soon as mid-July. The company expects to be reporting positive adjusted EBITDA this year and to record a 100% increase in revenue when compared to 2019.
M7 is led by a management team boasting decades of experience investing in, advising, and scaling successful enterprises from start-up to exit across multiple emerging markets and high-growth sectors. We believe that the management team is comprised of individuals with diverse expertise and we find this to be significant.
Focused on Scaling the Business
Many cannabis companies that went public in 2015 to 2017 are facing significant challenges and we believe that a majority of these companies should have remained private. By being patient, M7 has been able to conserve cash and focus on creating long-term value. Many of the companies that considered to be early movers are facing liquidity issues and will have problems with being able to scale the business over the long term.
M7 has been patient with its public listing, initially focusing on validating a proprietary and defensible strategy that prioritizes efficiency over scale. The management team is focused on bringing the business down a path to profitability and we are favorable on this aspect of the story.
M7 remained activate in its M&A activity in early 2020, and continues to complete a private placement offering ahead of its planned listing. If you were to compare M7 to its peers, you will notice that it outperformskey benchmarks such as revenue per square foot and revenue to capital invested.
It’s most significant acquisition of 2020 is The People’s Kush, a legal cannabis delivery service that is based in Davis, California, giving M7 access to greater Sacramento.The acquisition is expected to be immediately accretive and will be integrated into the company’s retail arm Weden, which has storefront and delivery operations across the state. By integrating into M7’s omni-channel platform, The People’s Kush is offering customers access to a more seamless environment when it comes to accessing premium legal cannabis products.
A Differentiated Opportunity that is Streamlining the California Market
M7 represents a differentiated opportunity and is focused on streamlining the cannabis purchasing process. The company is integrating B2B and B2C operations into a proprietary supply chain that doesn’t end at the retailer’s shelves and we are bullish on the structure of the business.
The California cannabis company is focused on consolidating distribution, delivery, and dispensary operations into a single B2B and B2C omnichannel infrastructure. M7 has more than 150 active and compliant retail dispensary accounts, more than a dozen commercial vehicles, and a database of more than 10,000 ancillary B2B clients.
One of the most exciting aspects of the M7 story is related to the delivery side of the business. During a time where many consumers do not want to leave their homes, the company has found a way to deliver product, and we are bullish on this vertical of the business. Many cannabis deliveries companies have been reporting record growth and this is a trend that we expect to continue. M7’s retail armhas reported substantial revenue increases in lockstep with California’s stay-at-home orders, and we will monitor how the delivery service supports the growth of the business.
M7’s integrated B2B and B2C omnichannel platform drives multiple revenue streams and aggregates valuable data, all while building brand equity across multiple in-house operational assets. We are favorable on the structure of the business and the amount of synergies that can be found between its assets.
Once M7 is able to validate its omnichannel strategy in California, it plans to expand to additional markets. California is the world’s largest cannabis market and we are bullish on the leverage that M7 has to it. The company has 5 active licenses at three facilities and 3 pending licenses. We expect to see additional facilities be granted a license in the near future and for that to be a catalyst for the business.
A Multi-Faceted Growth Opportunity
Going forward, M7 expects to aggressively drive organic growth and unlock efficiencies from its core operations, while also targeting accretive, strategic acquisition opportunities. Some of the potential milestones for the business include:
- The company expects distribution and delivery operations at the Brisbane facility to commence by the third quarter of 2020
- Making a significant investment in inventory to ramp up regulated B2B operations planned for the third quarter of 2020
- Opportunities to originate dispensary licenses in primary and secondary California markets
- Continued integration of MyJane into statewide distribution and delivery operations
- The acquisition of accretive dispensary and delivery operations in primary California markets
- The granting of strategic licenses and operational assets of distressed businesses
We expect to see M7 recognize significant value from these businesses over the course of 2020 and will monitor how the management team is able to further integrate and advance these assets. The company represents an advanced play on the California market that is generating substantial revenues and executing on a path to profitability.
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