Verano: Get This Profitable Cannabis Player At A Special Discount

Summary

Verano stands out as one of a very few cannabis companies making consistent profits.

A dual strategy of premium product and limited license states should assure continued success.

Shares can be acquired at a discount via the recently announced acquisition of Goodness Growth.

panida wijitpanya/iStock via Getty Images My Five Year Cannabis Investment Plan, published recently on Seeking Alpha , included this: “Invest in a new name only if a company demonstrates superior management capabilities. This should be a rare event.”

The first such event is happening just a few weeks after the plan appeared. Recent research has led to an investment in Verano Holdings, whose management has, in contrast to most cannabis companies, already brought it to consistent profitability. Verano the company

Verano went public on 2/17/2021 in a reverse takeover of Majesta Minerals. At the same time, they merged with Alternative Medical Enterprises, which had cannabis retail assets in Arizona and Florida. Although relatively new on the national scene, Verano had been operating in Illinois since 2014 as a medical marijuana operation. Verano currently has 89 operating dispensaries and 12 cultivation and production facilities in eight states.

Verano is focused on two particular strategies. First, they want to be known for premium cannabis, which has higher margins, less competition, and makes them stand out. Second, they focus on limited license states, like New York, Illinois, and Minnesota. Operations in limited license states are generally more valuable because of the reduced competition.

Verano has been on an acquisition spree, acquiring 10 companies with three more in the pipeline. While I am usually skeptical of the growth-thru-acquisitions strategy, I believe it’s a plus for Verano for reasons discussed later in this article. Verano the business

Verano’s financial performance for the last seven quarters is as follows. All numbers in millions USD. 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 Revenue 66059 75188 100549 113043 143297 198297 206828 Gross profit 50445 43069 68956 61288 88693 100129 133369 Gross profit margin 76.40% 57.30% 68.60% 54.20% 61.90% 50.40% 61.90% Net income 71676 25700 81612 65651 125573 6830 103715 Adjusted EBITDA 41372 24873 55648 48384 75047 81474 110697 Net income is presented because readers expect to see it, but it is not a good metric for short term performance because accounting standards require something called “fair value of biological assets.” An explanation of this term is beyond the scope of this article, but suffice it to say that it causes big fluctuations in net income line unrelated to underlying performance. The “lumpiness” is evident all across the net income line above. Accounting geeks can get the whole story at New Cannabis Ventures .

The important lines are revenue, gross profit, and adjusted EBITDA. The numbers there show consistently impressive performance both before and after going public in February 2021. Why Verano

Verano stands out because it is making profits. This is currently my primary indicator for superior management in this sector, and superior management is my primary reason for investing in cannabis companies. There are very few companies that have achieved this, Green Thumb and Trulieve being the others, and it is important for three reasons. First, it shows that management has the skill to create profits. Second, it shows that profitability is a top priority for management, as it should be. Third, it reduces dependence on dilutive equity and burdensome debt.

There are other reasons to invest in Verano as well. As a relatively new company (only four quarters since going public), many investors are relatively unfamiliar with it. As it attracts more attention more investment money will be attracted to it, particularly as it further differentiates itself through performance. As the following table shows, companies with a similar market cap are much more widely followed:

Company Market Cap (billion $) SA followers Verano ( OTCQX:VRNOF ) 2.97 2460 Cresco Labs ( OTCQX:CRLBF ) 2.19 18390 Green Thumb ( OTCQX:GTBIF ) 3.55 20530 Curaleaf ( OTCPK:CURLF ) 3.92 24150 Trulieve ( OTCQX:TCNNF ) 3.42 23310 The dual strategy of going for the premium market and focusing on limited license states seems solid. I have no special genius for identifying winning business plans in cannabis, but many experts advocate the limited license state strategy. Jay Czarkowski from Canna Advisors explains why on a recent Cannabis Investing Broadcast, as does Jesse Redmond at Green Giants

As mentioned above, profits enable an extra degree of flexibility and independence.

The stock price is at a low and disconnected from company performance, […]

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