We’ve followed iAnthus since the earliest days of the Dive Bar Pub Crawl , and have hosted CEO Hadley Ford for an AMA. Despite the passage of two years, they’ve not demonstrated much in terms of performance and share price accretion.

They’ve had big dreams and big deals, and are now getting into a position of improving revenues and stores.

Our last structure on them caught up with operations, and GoBlue’s ‘Quarter in Pictures’ provides a great 360 view on their statements over time.

To the financials!

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• Cash on hand: $28MM. Margin 48%. Sales of some $22MM reported. 
• The sales increase QoQ was only $2MM which seems small given 27 stores and 3 more to come by end of year.
• SBC of $9.5MM. Yeah. Really.
• And…..reloaded another 1.1MM at the money options for management on November 1…..the well was going dry.
• Announced a ‘reset’ around governance and independent directors on the Board…..about time.
• Grew only 5,000 lbs of product in the quarter. For an outfit with so many announcements of indoor/outdoor facilities and square footages – this isn’t much. They’ve claimed that they’re now in full production – so expect production to ramp. If it doesn’t……
• $620MM Goodwill and Intangibles. That’s 74% of total assets. Hella.
• OPEX is just silly at $37MM. Images of a runaway train come to mind.
• These statements are reflective of how they’ve structured their capital from the start. The MPX/CBD for Life buys (interwound with related parties and the Stavola trust) looks like someone trying to swallow a whole lemon (Note 4).
• They reclassed $127MM of goodwill on the deal to intangibles too.
• Well, I’ve just spent 30 minutes in Note 14, where a reported $10MM gain on financial instruments was made. And, I’ve come up dry – I can’t seem to back into how they came to that number. The MD&A states its’ driven by their share prices tanking, but I can’t reconcile the accounting treatment to core valuation. 
• Excluding that ‘gain’ – they would have lost $26MM this quarter (on $22MM in sales no less).

Ok. 

We remarked last time how some of the complexity has waned as they’ve essentially restructured several debt obligations with Gotham Green riding in with a bag of cash. I have no doubt the activities around governance and independence of the Board are a direct result of this and the Torian piece.

Look for SBC to halve (or more) in next financials. It’ll be a good moment to look into the mind of management. 

Sales are concerning, inasmuch as they’ve now got 27 stores in operation (11 opened this year), and another dozen slated to open over the next 6 months. It’s been a curiosity to me how they seem to have lagged in storefronts compared to others. Florida has enabled other MSO’s to get store counts up, and iAnthus is now joined in, and states outright they’ll have 21 in place by June 2020 (they currently have 9). It’s an extremely ambitious claim to make. And this might be a moment to take a look back to the AMA (link above) to track how the ‘now’ correlates to the ‘then’.

Getting an accurate sales run-rate while in build is difficult. The question to me is: How much incremental sales from existing shops is available? Is current sales reflective of actual register receipts, or are there partial months of revenues reported?

From segmented earnings, we discover that their ‘western region’ is operating at a loss, and that GoB has occluded the ‘eastern region’s’ performance.

This is the most important takeaway from these financials to myself. That, and the scar that the MPX buy left. Of a now-adjusted $533MM price of acquisition – we discover there was only $11MM in hard assets on-boarded. Wow.

There’s more of course. There’s a ton of moving parts in their financials but when all is said and done, there’s three takeaways, all increasingly important and centre stage:

1. Sales
2. Sales
3. Sales

It’s no wonder share prices are down, being reflective of the tepid revenue growth reported. We’ll see next time if/how their build forments, and if store additions can move the needle. Aside from leverage and needs for cash to continue to get them, $iAn needs to have revenues begin to outpace expenses. As it is, servicing their cost structures will require 4x current revenues, and the west needs to see some profitability.

They remain 3-4 quarters out – based upon their estimates – to get nearer to that. Which, seems to be the promise of each and every statement they’ve put out. At some point, those promises need to be realized if the patience of investors (and creditors) is to be maintained. It looks like it’s beginning to wear thinner every quarter that goes by.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $iAn.