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Friends,
Last week, I wrote how I have become more bullish on MSOs, and the NCV American Cannabis Operator Index has rallied a bit since then after falling the day I published the piece about the big round trip. Near the end of that article, I said that there were some good options for cannabis investors among the ancillary companies that don’t pay 280E tax and that trade on the NASDAQ and that have better valuation than the MSOs.
WM Technology (NASDAQ: MAPS) is a good example. It is debt-free with ample cash and trades on the NASDAQ. The valuation is insanely low, even after the big rally this week. There is just one analyst that has been covering it and providing estimates, and I think the numbers are too low. They haven’t been updated since the company filed its 10-K for 2023 and its 10-Q for Q1 in late May.
The analyst expects 2024 revenue will fall 7% to $175 million. Adjusted EBITDA is expected by that analyst to be just $25 million, which would be a decline of 33%. The company provided guidance for Q2 that suggests that this adjusted EBITDA outlook is way too low. For 2025, the outlook is better, with revenue expected at $190 million, up 8%, with adjusted EBITDA soaring 56% to $39 million. This would be an adjusted EBITDA margin of 20.5%.
The company had no debt and cash of $35.7 million. The share structure is very stable, with the only securities that could boost the share-count being warrants that are way out-of-the-money. The fully-diluted in-the-money share-count is 171.9 million shares, which gives it a market cap of $ million. The enterprise value is currently just $153 million, which is less than 1X sales. The company is generating free cash flow. Using that projected adjusted EBITDA forecast of $39 million for 2025, which may be too low, the enterprise value trades at just 3.9X. I think that the stock can get to 10X by the end of 2024, which would be $2.48. This is way down from where it used to trade, but it would be more than a double from where it trades now.
So, what’s wrong with MAPS? First, there is minimal coverage. I think this could be good, though. When it began trading after the SPAC merger, there were many analysts covering it excitedly as the stock more than doubled. Now, it’s down about 95% from the peak in 2021, and no one really cares. Another negative aspect of the company is that they don’t do much for investor relations. WM Technology has been very dependent upon California, but it has decreased its exposure there to about half of its business. Finally, the stock is up so far in 2024 by a lot, and this may turn off some investors. Over longer time-frames, though, the stock is down a lot. One that really stands out to me is the move since 8/29, which was the day before the potential rescheduling news hit:
I think that 280E going away will boost the business greatly, but that is not yet a done deal. The balance sheet is good enough to weather the storm if rescheduling does not take place. I like that insiders own a lot of this stock. To me, it looks a lot better than the MSOs, and it is a big part of the model portfolio I offer at 420 Investor.
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Sincerely,
Alan
