With less than one month left in 2019, the cannabis sector has become a major talking point as investors are looking to discover companies that are positioned for growth in 2020 and beyond.
During the last year, we have seen a significant increase in the number of publicly traded cannabis companies. Although we are favorable on the increase as well as the trend, many of these operators have similar business models and we are primarily interested in businesses that have a unique business model, that present visible growth prospects, and are led by a management team focused on creating value for shareholders.
As it relates to a majority of the new cannabis listings in 2019, many of these companies are less than two years old and are in the early stages of growth. Most of these operators do not have the cash that is needed to execute, and we are focused on businesses that are fully funded and are executing on previously announced initiatives.
ManifestSeven (M7): A Pre-IPO Opportunity to be Aware of
Earlier this month, we published an update on ManifestSeven (M7) ahead of a planned public listing and this is an opportunity that meets the criteria we are looking for with a pre-IPO company. Since 2014, M7 has been highly focused on the California cannabis market and we are bullish on the strategy to execute on this burgeoning opportunity.
M7 represents a differentiated growth story and the management team has been focused on executing on a strategy that will bring the business on a path to profitability. The company does not touch the cannabis plant and represents an ancillary opportunity. We are favorable on the structure of the operation and how the business will be ready to capitalize on the plant-touching side of the industry once cannabis is legalized at the federal level in the US.
When it comes to the California cannabis market, M7 is focused on integrating distribution and retail operations into a proprietary supply chain that does not end at the retailer’s shelves. The company owns a basket of cannabis businesses that provide leverage to the entire value chain and we are bullish on the assets that fall under the company’s umbrella.
Owns an Umbrella of High-Growth Ancillary Cannabis Companies
One of the reasons we are bullish on M7 is due to the experience of the management team and the amount of due diligence that was conducted prior to acquisitions. The company started out as a venture investment firm known as MJIC, and evaluated hundreds of cannabis and ancillary companies to potentially invest in. This amount of experience puts M7 in a league of its own and we want to highlight the assets that fall under the operation:
- MDelivers: A leading delivery service in California with a customer base of 30,000+ that opens up both the northern and southern California market
- MyJane: The company provides a curated service by women, for women, that operates on a subscription basis
- 1-800-CANNABIS: The operation serves as both M7’s phone and online gateways into its retail experience
- Haven (formerly ShowGrow: The dispensary was acquired in August and represents the first dispensary in the companies B2C strategy.
When looking at the assets that fall under the M7 umbrella, there is a lot to be excited about and we are favorable on the amount of value and the synergies that can be found between these assets. These businesses represent the cornerstone of M7’s seamless retail channel (e-commerce, delivery and subscription) and have played a key role in the execution of the company’s vision of creating a one-stop shop for all products and services. Going forward we are bullish on the growth prospects associated with the M7 operation and we expect to see the company continue to growth through inorganic and organic growth initiates.
We believe that these three businesses provide M7 with a scalable and ready-to-access retail model that can service a vast majority of the California market. We believe that these acquisitions have quickly proved to be accretive and find this to be an important aspect of the story. Over the next year, we expect to see M7 recognize significant value from these businesses and will monitor how the management team is able to further integrate and advance these assets.
The Sum of M7’s Parts Represents a Major Opportunity
We believe that M7 is focused on the some of the most attractive ancillary verticals of California’s cannabis industry. From distribution to delivery, from subscription services to dispensary services, the company has attractive potential catalysts for growth and we want to highlight the verticals that the business is focused on:
- Distribution: In California, M7’s distribution, manufacturing and logistics infrastructure enables efficient, compliant and scalable commerce for the legal cannabis supply chain with numerous distributions centers across California, including Long Beach, Oakland etc.
- Dispensary: M7 is creating a portfolio of dispensary storefronts in strategic markets in California that operate under the Weden brand, with a flagship outlet in Santa Ana, Orange County.
- Delivery: The company is able to reach millions of California cannabis consumers through a network of integrated and wholly owned delivery operations
- Subscription: Through MyJane, the company offers a curated line of products for women and we are favorable on how the service has been gaining traction
When we analyze the assets that fall under the M7 umbrella, it is easy to understand the amount of potential synergies for business. The sum of the parts of the business represents an attractive long-term growth opportunity and we expect to see the divisions of the operation to find ways to support each other. Over the long-term this will allow the business to grow in a way that is cost effective and we find this to be an important aspect of the story.
A Focus on Control, Compliance, and Distribution
One of the first words that comes to mind when we think of M7 is control. The company controls distribution, delivery and dispensary on its seamless platform and we are favorable on its focus on compliance. In a market where safety is of utmost importance, compliance has been a top priority for M7. We believe that a focus on compliance is one of the most important aspects when it comes to building a platform that can be trusted and we expect to see M7 benefit from this focus.
If you look at the landscape of the cannabis sector, there is no true market leader and the reason for this is because there has been a distinct failure as it relates to distribution and infrastructure. By focusing on retail and distribution, M7 has control over what goes to market and we find this to be significant. We are favorable on the way the company will be able to understand the market through this focus and are excited about its vision.
In the last few years, M7 has been able to create one of the largest networks of California cannabis consumers. Once cannabis is legalized at the federal level, the company will be able to easily pivot the business to capitalize on the plant touching side of the industry. When M7 is able to start selling THC products to a specific location, it will already have a connection with the end user and we are favorable on the long-term growth prospects associated with a potential pivot. Going forward, we expect to see M7 continued to take a compliance first approach and believe that this is the most important aspect for the business.
A Long-Term Cannabis Opportunity
M7 is California’s first omnichannel model for legal cannabis, servicing both business-to- business (B2B) and business-to-consumer (B2C), and we are favorable on the strategy in place as it relates to advancing the operation. The management team is highly focused on creating value for shareholders and bringing the business on a path of profitability. We find this to be significant as the investor community has been highly focused on discovering profitable cannabis businesses.
With a network of more than 10,000 ancillary B2B clients, M7 is well positioned to execute on the distribution side of the California cannabis industry and we are bullish on this aspect of the story. The company has more than 335 active and compliant dispensary accounts and we are favorable on the relationships that it has with legal operators.
In 2020 and beyond, we expect to see M7 continue to take a compliance first approach and believe that this is the most important factor for the business. One of the most significant trends for California’s cannabis industry in 2019 has been the shutting down of illegal operators. This is a trend that is expected to continue and will be a catalyst for companies like M7. As illegal operators get shut down, M7 should benefit and we expect to see the business survive the test of time.
By the second quarter of 2020, M7 expects to be cash flow positive and we will monitor how the management team continues to ramp up the business. The company does not hold any debt and has been reporting strong top-line growth. This is a trend that is expected to become more significant in the coming quarters and we are favorable on the way the management team has been focused on reducing expenses.
Unlike most cannabis companies that recently went public (or have been public for several years), M7 is actually advancing operations and we believe that the business has visible catalysts for growth. The current revenue run rate is approaching $60 million of annual revenues and we are favorable on how this number has increased on a year-over-year basis. Going forward, this is a trend that is expected to continue and we are favorable on the strategy in place as it relates to growing in an effective manner.
To learn more about M7 is positioned to be a leading cannabis operator, please reach out to email@example.com to be added to our distribution list.
Pursuant to an agreement between StoneBridge Partners LLC and Manifest7. (MSVN) we have been hired for a period of 180 days beginning August 1, 2019 and ending February 1, 2020 to publicly disseminate information about (MSVN) including on the Website and other media including Facebook and Twitter. We are being paid $10,000 per month for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (MSVN), which we purchased in the open market. We may buy or sell additional shares of (MSVN) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.