Cansortium is an Overlooked Cannabis Play on the Verge of Profitability

Cansortium Inc. (CSE:TIUM.U), one of the U.S. marijuana stocks, is poised to light it up in the Florida medical cannabis market

SmallCapPower | September 5, 2019: Cansortium Inc. (CSE:TIUM.U) (OTCQB:CNTMF), one of the Canada-listed U.S. cannabis stocks, is a U.S.-based vertically integrated multi-state operator (MSO) with licenses to cultivate and sell medical cannabis in Florida, Canada, Texas, Pennsylvania, and Puerto Rico. Cansortium’s focus is on medical markets in the U.S. as well as adult-use in Canada. On August 29, 2019, Cansortium reported Q2/19 financial results highlighted by $6.1M in revenue, an 11% increase QoQ.

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Investment Thesis:

Top 5 operator in the Florida market. With 14 dispensaries currently operating and plans to expand to 30 by the end of 2019, Cansortium has positioned itself to become a dominate player in the Florida market. Additionally, Florida has some major catalysts on the horizon, which include the possible recreational legalization on the state ballot in 2020. Prohibition Partners estimates that the recreational and medical cannabis market in Florida could be valued at $5.0B by 2023.

Driving revenue growth through acquisitions in key jurisdictions. Cansortium is planning on expanding into other U.S. markets, most notably Pennsylvania, Michigan, and Texas. Additionally, the Company has a cultivation and sales license for the Canadian recreational market. Revenues from the Canadian (cultivation facility) and Michigan (cultivation and dispensaries) recreational markets are expected by Q4/19.

Clean cap table with 25% management and insider ownership. Management has extensive experience in the Florida market and is well aligned with the interests of shareholders with its 25% ownership stake.

Overview of Operations:

Figure 1: Cansortium OperationsSource: Company Reports, Ubika

Florida represents the majority of Cansortium’s operations. Cansortium has 14 dispensaries in the state (Casselberry, Clearwater, Fort Walton, Gainesville, North Miami, St. Petersburg, Tallahassee, Jacksonville, Orlando, and Lake Worth), along with 91,000 sq. ft of cultivation and 9,000 sq. ft of processing space. Cansortium plans to open an additional 16 dispensaries in Florida by the end 2019, bringing the total in the state to 30. TIUM also plans to expand cultivation operation by 130,000 sq. ft, which is expected to be completed in 2020. Expanded cultivation is required to service Cansortium’s 30 dispensaries, as cannabis companies are required to be vertically integrated in Florida.

Figure 2: Florida Dispensaries

Source: MJBiz Daily, Ubika

Cansortium is one of Florida’s Top 5 license holders, currently with 11 dispensary licenses. Florida is expected to become one of the largest medical markets in the U.S. The state’s medical cannabis program continues to exude strong patient growth. As of July 2019, Florida has 240,000+ registered patients and is currently growing at 10,000 patients/month. Recreational cannabis is expected to be on the 2020 ballot in Florida, and Prohibition Partners estimates that the size of Florida’s recreational and medical cannabis market could reach $5.0B by 2023.

Received Health Canada cultivation license. On May 3, 2019, Cansortium received a Health Canada Cultivation and Processing License. The Company currently has ~20,000 sq. ft of cultivation in Grimsby, Ontario, with plans to expand to 120,000 sq. ft. With Cansortium’s facility coming online in May, we expected first material revenues from Canada to be included in its financial results by Q4/19 (December 31, 2019).

Significant potential in Texas, Pennsylvania, Michigan, and Puerto Rico. In 2017, Cansortium became the first cannabis company to receive a medical license in Texas and has since operated a dispensary and small cultivation operations in the state. Cansortium has the potential to support its operations in the whole state, with a delivery business and a cultivation site that has the capacity to expand to 200,000 sq. ft (currently 1,300 sq. ft). In Pennsylvania, Cansortium has an existing dispensary license and a license to open two additional dispensaries. The Company is currently pursing a clinical registrant license in Pennsylvania (which would allow TIUM a max of six dispensaries and would permit wholesale operations). In Michigan, Cansortium has a LOI to acquire a vertically-integrated operator, pending final license to operate in the state’s medical market. Cansortium also has one dispensary in San Juan, Puerto Rico, a 2,000 sq. ft cultivation site, and 650 sq. ft of processing space.

Financial Analysis:

Sequential revenue growth with solid margins. Cansortium reported Q2/19 financial results on August 29, 2019: net revenue came in at $6.1M compared with $5.5M during Q1/19. Adjusted EBITDA loss was $2.6M (was $4.0M in Q1/19) with a net loss of $5.3M for the quarter. Gross margins for the quarter were 54%. In conjunction with the financial results, management revised downward its FY2019E guidance to $40.0M in revenue (was $80.0M-$82.0M) with an expected net loss of $30.0M (previously net income of $6.5-$7.0M). Management, however, expects the Company to be profitable in the first quarter of 2020. Currently, Cansortium derives 85%+ of its revenues from Florida, however we expect Canadian and Michigan revenues to begin hitting the books by Q4/19.

Valuation:

Figure 3: Cansortium Comps Table

Source: Capital IQ, Ubika

Trades at discount to peers. Cansortium stock trades at a 3.0x 2020E EV/EBITDA multiple, a discount to U.S.-based MSOs, which trade at consensus average multiples of 8.5x. We believe that this valuation gap should close overtime as the Company increases its Florida dispensary count and ramps up operations in other jurisdictions.

Management Team:

Jose Hidalgo, CEO

Founded Cansortium in 2016, 20+ years experience in real estate development, investments, risk management, and capital raising.

Henry Batievsky, CFO

Co-founder of Cansortium, holds a Bachelor of Science from Wharton, and a JD from UCLA. Prior to working at Cansortium, Mr. Batievsky held an extensive career as a real estate lawyer.

Patrick Maloy, COO

Co-founder of Cansortium, a former investment banker and attorney. Mr. Maloy has extensive experience in the fields of agriculture, corporate finance, healthcare, and insurance regulation.

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