Marijuana Stock Sell-Off Means Opportunities
As we approach the first-year mark for the Joe Biden administration, we’re still waiting for the federal government to decriminalize recreational marijuana. While we wait, nearly 40% of the states in the U.S. have legalized recreational marijuana. I think this will pick up in 2022 as state legislators look for new ways to raise tax revenues.
Now that the majority of pot stocks are trading near their 52-week lows and are down by more than 50% from their February 2021 spike, I think it’s an opportune time to look at marijuana stocks (if you haven’t already).
On the micro-cap end, I really like the risk/reward ratio with MariMed Inc (OTCMKTS:MRMD), a vertically integrated producer of medical and recreational cannabis.
As of this writing, MariMed stock is down by 42% from its 52-week high, but it has made a 58% gain in 2021.
MRMD Stock Could Target $2
The below chart shows MariMed stock retrenching after spiking to $1.20 in June. MRMD stock traded as high as $5.80 in October 2018.
Shares of MariMed Inc have been all over the chart during the past year. The trading has included channel breakouts and breakdowns.
After failing to hold at $1.00, MariMed stock has moved lower toward major support at $0.55–$0.60. As of this writing, the stock is trading at $0.83.
Chart courtesy of StockCharts.com
MRMD stock could retake $1.00 in 2022, followed by $1.20, $1.50, and $2.00, representing more than a double in its price.
Third-Quarter Results Support Bull Story for MariMed Stock
In the third quarter of 2021, MariMed Inc, a U.S. pure-play marijuana company, reported its highest core revenue: $33.2 million. That represents a jump of 147% year-over-year. (Source: “MariMed Reports Third Quarter 2021 Earnings,” MariMed Inc, November 15, 2021.)
Other key third-quarter financial results for the company include:
- Gross profits surging 109% year-over-year to $18.2 million
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 213% year-over-year to $12.9 million
- Generally accepted accounting principles (GAAP) earnings climbing 25% year-over-year to $2.1 million
MariMed Inc’s working capital in the third quarter increased to $27.3 million, from a working capital deficit of $2.2 million at the end of 2020.
Analysts estimate that the company will report revenues of $118.5 million for full-year 2021 and $143.7 million for 2022. That’s up from $50.9 million in 2020. (Source: “MariMed Inc. (MRMD),” Yahoo! Finance, last accessed December 28, 2021.)
MariMed’s own prediction of revenues of $118.0 million for full-year 2021 is in line with the analyst estimate. Moreover, the company expects to report adjusted EBITDA of $32.0 million for full-year 2021, which would be well above the company’s 2020 EBITDA. (Source: MariMed Inc, op. cit.)
Trading at 1.7 times its estimated 2022 revenue and at an attractive 7.5 times its estimated 2021 adjusted EBITDA, MariMed Inc looks attractively priced for appreciation in 2022.
Furthermore, I think the new year will bring more favorable sentiment toward the marijuana sector, which should help drive up the price of MRMD stock.