04 Oct 2021
2021 has been a banner year for the United States cannabis industry and we expect 2022 to be even more significant.
During the last year, we have noticed a considerable increase in investor interest in US multi-state operators (MSOs) and this is a trend that we expect to continue. The year has also been highlighted by an increase in mergers and acquisitions (M&A) activity and we have been focused on identifying operators that have a compelling valuation and a favorable risk-reward profile
Body and Mind Inc. (CSE: BAMM) (OTCQB: BMMJ) is an MSO that we are bullish on and are favorable on its focus on investing in medical and recreational cannabis cultivation, production, and retail assets in strategic US markets.
The US cannabis operator has attractive leverage to the Nevada market and was awarded one of the first medical cannabis cultivation licenses in the state. Body and Mind also owns cultivation and production licenses in Nevada and we are favorable on how much awareness has been created for the brand through this market.
We classify Body and Mind as an emerging growth story that is flying under the radar. The company has been executing flawlessly on a multi-faceted growth strategy and continues to expand in Nevada, California, Arkansas, Ohio, and Michigan. The management team is highly focused on creating shareholder value by focusing resources on improving operational efficiencies, facility expansions, state licensing opportunities, and M&A.
Executing on a Michigan Expansion Strategy
A few weeks ago, Body and Mind announced that it would enter the Michigan market and execute on a vertical integration strategy. The US cannabis operator plans to capitalize on the market with retail, cultivation, and production facilities (all fully funded).
Through wholly owned subsidiaries, Body and Mind can leverage its expertise of navigating the licensing and approval processes that it gained through the previous work it did with other state and local authorities. The management has a proven track record of success in other high-profile US markets, and we consider the team’s expertise to be a core pillar of the business.
According to statistics from Michigan Cannabis Marker Growth and Size by Anderson Economic Group (commissioned by the Michigan Cannabis Manufacturers Association), the state sold US$985 million of cannabis products in 2020. The report said that approx. one of five Michigan residents used cannabis in 2020 and we are favorable on the amount of consumer cannabis demand that is associated with the market.
August was a big month for Michigan’s cannabis industry, and we are favorable on how the market is growing. Michigan’s Marijuana Regulatory Agency reported $40+ million (USD) of medical cannabis sales and $150+ million (USD) of recreational cannabis sales in the month of August and we are favorable on the leverage that Body and Mind has to the market.
So far, the Body and Mind team has successfully secured locations for each facility and has finalized local and state pre-approval licenses for the dispensary, cultivation, and production facilities. Going forward, the company plans to replicate its success in Michigan by securing licenses and executing on a strategy where each operation would become cash flow positive as quickly and efficiently as possible.
Body and Mind is in the early innings of a major growth cycle and the management team is highly focused on identifying opportunities to bring its award-winning product brand and vertical expertise to additional burgeoning cannabis markets. We are bullish on Body and Mind’s organic and inorganic growth strategy due to the amount of value that could be created for shareholders.
As part of the Michigan growth strategy, Body and Mind leased a commercial building with the intent of developing a cultivation facility that has 50,000 square feet of canopy as well as a production facility. The construction will take place in two phases, and we are favorable on this approach. The first phase will include 20,000 square feet of canopy, 5,000 square feet of processing, and 5,000 square feet of multi-use and office space. The second phase will add 30,000 square feet of canopy and we will monitor how the management team executes on this.
The rationale behind the location of the building is related to how it optimizes lease and operating costs, has access to ample power, and allows for the development team to quickly complete the construction process. We believe these factors enhance the potential value that is associated with the company’s leverage to Michigan and will monitor how the team executes on the construction process (which is expected to start in the near future).
Body and Mind has already been granted a dispensary license in a limited license jurisdiction from local and state authorities and construction has started on the leased building. We are favorable on the license limitations that are associated with this part of the state and expect the company to benefit from this.
The limited license is classified as a social equity license. Due to this, Body and Mind can utilize its social equity program to build awareness and provide financial assistance to minority community and individuals that have been disproportionately affected. We are favorable on the direction the management team is bringing the Michigan operation and expect this asset to prove to be a major growth driver.
Completes the Acquisition of a Licensed Operator in Ohio
Less than a week before Body and Mind announced the update on the Michigan market, the US cannabis operator completed the acquisition of the remaining 70% interest in NMG Ohio. The transaction included the transfer of a dispensary license as well as the final award of a production license. With the closing of the transaction, Body and Mind indirectly owns 100% of NMG Ohio and we expect the market to serve as a value driver for the entire business.
Since inception, Ohio’s medical cannabis market has experienced significant growth and the state has approved language for a ballot initiative to legalize recreational cannabis. Based on the performance of cannabis ballot initiatives in the 2020 election, we expect the state to legalize recreational cannabis soon and this would prove to be a significant catalyst for Body and Mind.
The dispensary that was included in the transaction was one of the first dispensaries to open in Ohio and Body and Mind’s real estate and development team played a key role in developing dispensary and production licenses in Ohio. The dispensary that was acquired operated under the Clubhouse brand and now, it has Body and Mind branding.
Located next to the dispensary is a state-of-the-art processing facility that has been designed to produce popular Body and Mind concentrates through a hydrocarbon extraction process. The processing facility will also produce edibles and oils which is a market segment that we are bullish on due to the higher margins and rising consumer demand for them.
An Opportunity that is Flying Under the Radar
During the last quarter, the cannabis sector has been under pressure and Body and Mind has been impacted by the trend. At current levels, we believe the company has a compelling valuation and a favorable risk-reward profile. We are of the opinion that Body and Mind has significant potential catalysts for growth, and this is an opportunity that our readers should be aware of.
Over the next year, we expect Body and Mind to report strong revenue growth and expect the expansion into Michigan and Ohio to be key growth drivers for the business. We believe the management team has focused on burgeoning cannabis markets and are favorable on the approach it has taken towards growth.
Going forward, we would not be surprised to see Body and Mind expand into additional markets in the US and will monitor how the business is able to capture market share. The management team has a proven track record in Nevada which we consider to be one of the most competitive markets and believe that this bodes well for the business.
Comments