Earlier this month, we issued an update on Stem Holdings (STEM.CN) (STMH) after we met with the management team in Vancouver. This United States multi-state-operator has been nothing short of an execution story and is led by a management team that has a proven track record of success.
Stem Holdings initially focused on the Oregon cannabis market and has since expanded into Oklahoma and Nevada. We are favorable on the approach that the company has taken when it comes to its expansion focused growth initiatives and believe that Stem has targeted strategic cannabis markets.
When it comes to Stem Holdings, there are several factors that make us excited and we want to highlight these. First, the company trades at a very attractive valuation when compared to its peers and believe that this opportunity is flying under the radar. Second, Stem Holdings is in the middle of a major expansion and we expect the company’s fundamentals to significantly improve going forward. Finally, the company has significant catalysts for growth and we are confident in the management team’s ability to execute and create value for shareholders.
An Opportunity with Significant Growth Potential
During the last year, we have seen several United States multi-state-operators commence trading on the Canadian Stock Exchange with multi-billion-dollar valuations. Stem Holdings has a market cap of approx. $33 million and we believe that the market significantly under-appreciates this opportunity.
Although Stem Holdings is not as well positioned as some of the leading United States multi-state-operators, the company is trading at a significant discount to smaller scale US firms and we think this disconnect is transitory. As Stem Holdings continues to execute on its growth strategy, we expect to see the market take notice and expect this valuation disparity to drastically change.
Over the next year, we expect to see Stem significantly increase its reach and take market share in new cannabis markets. The company is in the middle of a major expansion and is looking at opportunities in Massachusetts, Florida, and California. These are some of the most attractive cannabis markets in the United States (and in the world) and we will monitor how the team executes on this.
We are confident in the management team’s ability to expand operations and enter these new markets and this is an important aspect of the story. When looking at a cannabis company from an investment perspective, the management team is one of the most important factors to look at and we believe that this is an area where Stem Holdings excels.
One of the reasons why we are so confident in the management team is because they have proven to be successful in Oregon, which has been one of the toughest markets to operate in. We expect to see the company replicate its success in these new markets and are bullish on the growth prospects going forward.
A Company with Significant Catalysts for Growth
Stem recently reported a significant development and announced that it would be opening a cultivation facility in Nevada. Las Vegas attracts more than 44 million tourists each year and this makes the city a very attractive cannabis market. The focus on this market is significant and will significantly improve brand awareness for the company.
The cannabis market in Las Vegas is booming and the facility is strategically located just a few miles off the Las Vegas strip. This facility provides Stem Holdings with a strategic location in a burgeoning cannabis market and we will monitor how the team executes on this. We are bullish on the leverage to the Nevada market and expect to see the company’s family of brands generate significant traction.
Going forward, we expect the Las Vegas market to support revenue growth and this is an important aspect of the story. One of Stem Holdings’ operational partners, TJ’s Gardens, is a cannabis product line that derives from regenerative, no-till living soil flower and we expect to see strong demand for this product. We have visited several Las Vegas dispensaries and have noticed that there are not many cannabis products cultivated with organic, pesticide-free methods available for consumers.
During the last few years, consumers have been more focused on consuming organic products and we expect to see this theme play out in the cannabis industry. The focus on producing pesticide free, naturally grown cannabis is important and we expect to see Stem Holdings’ products gain significant shelf space in Las Vegas dispensaries.
Stem Holdings is Flying Under the Radar
When we are looking at new cannabis opportunities, there are several factors that we look into after we analyze a company and we want to highlight some of these. First, we look at the valuation and then compare it to the company’s peers. Next, we look at the company’s growth prospects and evaluate its ability to capitalize on them. Then we look at the number of shares that are traded on a daily basis to better understand how well-known and how liquid the company is. Lastly, we look at the recent price movements and how momentum is trending.
When looking at Stem Holdings, we are very excited about the company’s future. Based on the metrics highlighted above, we think the company is significantly under-appreciated and certainly flying under the radar. Stem Holdings is well capitalized after recently completing a $3 million offering of special warrants and we expect to see this capital put to work in ways that are beneficial to shareholders.
Although the company has had relatively light trading volume, we do not expect this trend to continue for much longer. As Stem Holdings continues to execute and advance its fundamental story, market awareness will increase and so will volume. This will create a recipe for success for Stem Holdings and this is an opportunity that investors need be watching.
Pursuant to an agreement between StoneBridge Partners LLC and Stem Holdings (STEM) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (STEM) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (STEM) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (STEM), which we purchased in the open market. We plan to sell the “ZERO” shares of (STEM) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (STEM) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.