VIDEO: iAnthus Capital Holdings Inc Facing Little Competition in Ramp-up of USA Cannabis Operations
iAnthus Capital Holdings Inc (CNSX:IAN) (OTCMKTS:ITUHF) CEO Hadley Ford talks about the change in cannabis strategy for the company moving away from royalty only, to a full service, vertically integrated enterprise. They are now a licensed producer with operations in multiple states, so of them with very little competition. Boston for example will have only 3 dispensaries (one by iAnthus) in a city of more than 700,000 people.
James West: Hadley, thanks for joining me today.
Hadley Ford: Oh, my pleasure.
James West: Hadley, iAnthus, when we last spoke, was focused on investing as a royalty company in primarily US marijuana operations. Is that still the case?
Hadley Ford: No, we changed the model about a year ago. We found out very early on that the investment community was much more interested in having access to real operations in the United States, so we’re now an owner-operator. We own 100 percent of every market we go into, so we’ve got 100 percent ownership in Vermont, Massachusetts, New York, Florida…we have an addressable market of about 48 million people on the East Coast, and an average number of competitors, about 12 across that addressable market.
James West: Okay. So you’re now a licensed producer in those states?
Hadley Ford: Absolutely. Vertically integrated, we grow, process and sell.
James West: Sure. And how has that impacted your market cap?
Hadley Ford: Well, it seems to have been pretty positively received. I think the market cap is probably up two and a half times in the past couple of months, as we’ve executed on that plan. It’s been a busy two months; we actually have converted our investments in Mass and Vermont to 100 percent ownership, and we acquired our license in New York and we acquired our license in Florida. So the past two months have been pretty telling from an operational perspective.
Fortunately today, knock on wood, or whatever this table is made out of, we have seen the market reward us for that.
James West: Sure. Do you see the Canadian market as giving companies way more of a premium than companies operating in the US at this point?
Hadley Ford: Well, I think that’s true right now. Now, from an investment perspective, it is against the law on a Federal basis in the US; I’d expect the US companies to trade at a discount to the opportunities that the Canadian guys have. I’d also say it’s a little bit of an anomaly. I think the markets typically get a sector right, but they may not get the allocation amongst those companies. So I think the market probably valuing the opportunity in Canada to multiple billions that it does is probably right, and I don’t really have a view on whether they’ve allocated it correctly among the companies.
Clearly in the US the opportunity hasn’t been recognized or manifested in the market cap of all the public companies yet.
James West: So that remains an opportunity for investors if Jeff Sessions and the Cole Memo rescinding is reversed…
Hadley Ford: Yeah, which it ultimately will be. I don’t think that anyone should invest or work or spend their time in the market if they don’t think it’s going to be ultimately a regular white market. We all believe it’s going one direction over time. Now, you’re going to have instances where you go two steps forward, one step back – I like to tell investors that that one step back is a great entry point. The stock’s on sale at that point.
James West: You bet, you bet. That’s the way I look at it, too. Okay, so, tell me about how many patients do you serve currently, and are you focused on exclusively medical or are you making preparations for recreational in certain markets?
Hadley Ford: in certain markets. Massachusetts will be a full rec market July 1st, so we’re making preparations for that. New York is medical only; I think there’s probably 40,000 or 50,000 registered patients. We haven’t begun sales yet; we’ll have revenue probably in the second quarter.
Florida probably has 60,000 or 70,000 registered patients for one of the 13 license holders there. And we should probably have revenues sometime in the first quarter there.
James West: So how much cannabis do you produce currently?
Hadley Ford: Again, that varies state by state, and our big three markets – Mass, Florida and New York – we haven’t begun sales yet. But we have tremendous potential; in Florida we’ve got 200,000 square feet of indoor grow, we’ve probably got about 5,000 or 6,000 square feet of canopy there right now. Mass, we’ve got about 36,000 square feet that’s in the veg state right now; we’ll probably have our first crop sometime in the second quarter. And then New York, we’re just beginning construction of the grow facility.
James West: Very cool. So in 2018, what are the big catalysts for iAnthus and its shareholders?
Hadley Ford: You’ve got a number of catalysts in 2018. We’re going to be building out and opening a number of dispensaries, so in Massachusetts, our Harbord Avenue store, one of only three stores in the city of Boston, will be open. We’ve got a great location in another city in Boston, we haven’t publicly announced the city yet, but that’ll be announced and opening. In New York, we’ve been given Brooklyn, a city of 2.6 million people; only one other competitor. We’ll be opening that dispensary in 2018. Also in Staten Island, a city of 500,000, we’re the only dispensary on the island; that’ll open.
Our grow in Allston, Mass will have its first crop; we’ll begin construction in New York. In Florida, we’ll continue to expand the cultivation, we’ll keep investors apprised of that. We’ve signed our first lease for a dispensary in West Palm; that’ll open up sometime in 2018. We’ll have another two, three, four dispensaries opened. Delivery is allowed, so we’ll start to see real revenue ramp in all those markets.
James West: So the ability to own a growing operation and an extraction secondary-product manufacturing facility and a retail storefront dispensary are all possible in all of these states?
Hadley Ford: That’s all possible. We’re vertically integrated. So as I like to point out to investors, and they have a choice to be north or south of the border, when you’re south of the border, you’re getting a retail margin; north of the border, you’re getting a wholesale margin. So I think people would be very excited in Canada if they could sell product at $6.00 or $7.00 a gram; we’re selling product at $10.00, $11.00, $12.00 a gram, and we get to capture all that retail margin as part of the value for the investor.
James West: Right. What is the average cost per gram of production in your operation?
Hadley Ford: That varies widely depending upon what state you’re in, which method you’re using, but you know, we’ll typically be between, you know, $1.50 to $2.00 a gram. It’ll be a little bit less if you’re shifting towards greenhouse, a bit more if you’re indoor.
James West: And so, are you able to articulate your cost of sales across the entire operation, or does it vary dramatically from state to state?
Hadley Ford: Well, we’ve got it all on a spreadsheet right now, but you know, we would expect to see EBITDA margins in the mid-to-low-30s, I would think, on a steady state basis.
James West: Oh, great.
Hadley Ford: So, pretty good margins.
James West: Sure. So can I ask you, what does the whole revenue picture look like in 2018 for iAnthus?
Hadley Ford: It’s a little bit of a wild card because we’re growing, we’re building, so it’s really, you know, when do you open? If you’re opening in April versus May, that has a big impact for the year’s revenues. But you know, my guess would be it would kind of be 20 to 30 million of revenue in 2018, and that would ramp 3x, 4x going into 2019, because it’s all greenfield. You know, 48 million person addressable market, greenfield operations, that’s going to be an incredibly fast ramp.
The way that we like to think about it, my background back in the 90s is really from a telecom perspective. You have businesses like cellular, and people say ooh, I’ve got a license, but what’s that worth? They talked about pops, price per POP. In the cable business, you had subscribers, and it was price per sub. We like to think about it from a dispensary perspective, a well-located dispensary in a market with high barriers to entry, which would be pretty much all of our dispensary locations, can generate 10 to 15 million of revenue.
So as we open up dispensaries, an investor can think that’s a marker for how much potential revenue can be there, and we’ve got the ability to open, you know, four very high revenue dispensaries in New York, three in Massachusetts, including Boston, which could be an absolute home run – one of three in a full-rec city of 700,000 people.
And then Florida we have the ability to open 25 dispensaries.
James West: 25 dispensaries? Wow.
Hadley Ford: Exactly. You kind of run that math, and for instance, our dispensary that we just signed a lease on in West Palm, 70,000 cars go by every day. We’ve got ample parking, there’s probably 300,000 people within a 10-mile drive and we have no competition within that 10 mile circle. So the potential for driving very large amounts of revenue and ramping very quickly is quite promising.
James West: Awesome. Okay, well, Hadley, let’s leave it there for now. We’ll come back to you in a quarter’s time and we’ll see how you’re working out for you. Thanks for coming in today.
Hadley Ford: Always a pleasure.
James West: Thanks.
Hadley Ford: Thank you very much.
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