Anyone remotely familiar with cannabis investing has heard of High Times Magazine. However, many are still unaware of the rising U.S. marijuana stock that owns the rights to High Times branded assets in key U.S. markets
Red White & Bloom (CSE: RWB) (OTCQX: RWBYF), a rising U.S. Multi-State Operator (MSO) with a growing American footprint that now includes California, Arizona, Michigan, Illinois, Oklahoma, and Massachusetts, has until now largely flown under most investors’ radar.
With the Red White & Bloom story poised to go mainstream, look for RWB’s stock to be a popular choice for investors in 2021 as word about its significant acquisitions, strengthening fundamentals and potentially game-changing upcoming Q4 earnings continues to spread like wildfire.
Red White & Bloom – From Seed to Explosive Growth
Red White & Bloom went public through a reverse takeover (RTO) of Tidal Royalty in April 2020 and immediately went to work raising capital to expand the company’s footprint.
In 2020, Michigan was the fastest-growing cannabis market in the United States, with the Great Lakes State generating $985 million in sales that year. Red White & Bloom’s investee has a significant market share in Michigan, with 18 dispensaries either operating or will operate soon, 41 licenses total, and three cultivation facilities with two more being developed.
Towards the end of 2019, Red White & Bloom entered Illinois in a major way – signing an agreement to acquire a 3.6 million sq ft indoor CBD grow facility. Illinois surpassed $1 billion in cannabis sales in 2020, and RWB’s massive greenhouse is capable of producing 500,000 lbs CBD per year. The U.S. CBD market alone is projected to be worth $20 billion by 2024.
Commenting on the momentous deal, RWB Chairman and CEO Brad Rogers stated, “Completing this deal represented by the only iconic brand in cannabis which has been around for over 45 years is a real honor. And to usher out the prohibition of cannabis with this type of brand power has RWB in the best position we could be. We will look to leverage this and other licensing partnerships to support our existing retail and cultivation dominance as well as further foundationalize our positioning for future plans.”
In July of 2020, Red White & Bloom started the process of acquiring California-based Platinum Vape, with the blockbuster deal officially closing on September 14, 2020. Platinum Vape’s cannabis products are sold at over 700 retailers throughout Michigan, California, and Oklahoma and provided an annualized revenue run rate of over $70 million with 25-30% EBITDA margins.
RWB’s Michigan investee will further boost the company’s earnings, once the acquisition is closed, and solidify Red White & Bloom as a dominant player in the Great Lakes States.
Exceptional, Proven Leadership
Red White & Bloom CEO Brad Rogers has a significant, successful track record in the cannabis industry. First, Rogers co-founded Mettrum Health Corp., one of Canada’s first medical cannabis Licensed Producers (LPs) – with Mettrum eventually being sold in early 2017 for $430 million to Canopy Growth (TSX: WEED) (NASDAQ: CGC) (FRA: 11L1). Second, Rogers helped grow CannTrust into one of the hottest cannabis companies in the world, with CannTrust’s share price increasing 450% while Brad was President. Rogers departed ways with CannTrust well before the company’s issues with Health Canada arose. Rogers’ vision and feel for the market allowed him to exit the Canadian scene virtually at the market’s top and while everyone was still focused on Canada, he set up shop in the newly emerging U.S. cannabis industry. Roger’s move south of the border would soon give birth to Red White & Bloom. After raising over $130 million of mostly private equity, it’s clear investors are betting overwhelmingly that Rogers will hit his third cannabis home run with RWB.
Source: RWB Investor Presentation
The Growth States: California, Arizona, Oklahoma, and Massachusetts
While Michigan and Illinois are Red White & Bloom’s core markets, four other states provide exceptional growth opportunities for the company. California is the largest market globally, and Red White & Bloom’s Platinum Vape (PV) products are sold in 300 dispensaries across the state. In Arizona, recreational cannabis sales began earlier this year and PV products are about to be sold in 15 dispensaries across the state. The Massachusetts and Oklahoma cannabis markets combined are worth an additional $1 billion. Red White & Bloom’s products are sold in 175 dispensaries across Oklahoma. Also, the company has two cultivation and one processing license in Massachusetts.
Red White & Bloom Enters the Florida Market
On February 25th, Red White & Bloom announced plans to enter the lucrative Florida cannabis market with the company signing a definitive agreement with Acreage Holdings (CSE: ACRG.A.U) (OTCQX: ACRGF) (FRA: 0VZ) to acquire its Florida operations for $60 million in cash and stock. The Acreage Florida deal will see RWB acquire Acreage’s medical marijuana retail dispensary licenses, as well as the company’s 113,546 sq ft cultivation facility, processing assets and 4,360 sq ft office building.
The Florida cannabis market is the third-largest market by revenue in the United States and is expected to be worth $1.25 billion by 2025. Red White & Bloom is now in a strong position to grab a sizable share of the Sunshine State cannabis market. While the deal currently includes one operations store, Acreage Florida has leases for eight prime locations dispersed throughout the state, providing the seeds for a large expansion opportunity. According to Red White & Bloom, they plan to introduce Platinum Vape and High Time brands as soon as the deal closes.
Red White & Bloom’s Fourth Quarter Earnings Could Be the Game Changer
Scheduled to be released on April 30th, Red White & Bloom’s revenue and growth in the fourth quarter will push the company into the “Top Tier” discussion thanks to revenue and EBITDA contributions from Platinum Vape. With the Q4 earnings date fast approaching, it appears that the investing public has not fully realized these three major RWB revenue contributions:
- Platinum Vape entered the recently legalized adult-use Arizona market in 2020 and is expected to generate as much as $145 million in total revenue in 2021.
- Red White & Bloom recently acquired Cannabis Capital Partners, one of twenty-one original Illinois-issued “super licenses” allowing for 220,000 square feet of THC cultivation canopy – expected to generate up to $50 million in revenue.
- Also, RWB’s Michigan investee generated 2020 revenue of $70 million, with further growth expected in 2021. RWB is working towards closing the deal with its Michigan investee soon.
Once you consider these factors and the company’s own guidance of $200+ million of proforma revenue run rate in the fourth quarter, its price-to-sales ratio (P/S Ratio) drops from 33 to 3, making it one of the cheaper multi-state operators considering the average P/S ratio is 10.
Leading cannabis sector analyst Jason Zandberg of PI Financial projects RWB could generate 2021 and 2022 revenues of $293.4 million and $381.4 million, respectively. The analyst is also forecasting EBITDA of $70 million in 2021 and EBITDA of $125.4 million in 2022. Zandberg currently has a $2.50 price target on RWB, which as of Wednesday’s closing price, implies a potential upside of +61.29% from current levels.
PI Financial’s 2021 and 2022 earnings forecast, if achieved, would push RWB’s valuation ratios down further making the stock even more attractive to investors.
When compared to other MSOs such as TerrAscend (CSE: TER) (OTCQX: TRSSF), which has a P/S ratio of 28, Red White & Bloom appears deeply undervalued, especially considering that RWB is in twice as many states and has twice as many dispensaries currently open.
To put the growth potential of Red White & Bloom into perspective, RWB’s stock would have to triple for the company to catch up to the cannabis industry’s average P/S ratio of 10. To equal TerrAscend’s P/S multiple, RWB would need to increase by roughly 900% from current levels.
Industry and Company Catalysts
Outside of favorable national and state political catalysts like federal legalization and new states expected to legalize adult-use cannabis in 2021, several Red White & Bloom catalysts could guide the company past $300 million in revenue in 2021.
First, Platinum Vape entered the newly approved adult-use Arizona market in February, and the company has serious plans to expand its footprint in the state. Platinum Vape’s products are considered premium, and most dispensaries will be happy to carry them.
Second, once the acquisition of RWB’s Michigan investee is closed and leveraged with the company’s High Times and Platinum Vape brands, it will solidify Red White & Bloom’s place as a dominant market share leader in Michigan, a market expected to top $3 billion in 2024.
Additionally, RWB’s Michigan investee will soon bring its 4th, and 5th cultivation facility online in Michigan, a move that will significantly improve the company’s wholesale capability in 2021 and beyond.
Finally, Red White & Bloom has shown a commitment to social equity and corporate social responsibility by participating in food drives and raising money for veteran and animal welfare organizations. Paying attention to social justice issues and taking care of our veterans is always a good business move that pays dividends in the communities you operate in.
Based on Red White & Bloom’s significant stock performance over the last few months, the company is clearly gaining recognition with a larger percentage of the investing community. However, on Wall Street, RWB is still undervalued and flying way under the radar.
With a proven leadership team, a significant footprint in six U.S. states, and an attractively valued stock relative to its MSO peers as evidenced by its low price/sales ratio, and EBITDA multiples, Red White & Bloom appears poised to catapult itself into the same conversation as sector leaders Trulieve (CSE: TRUL) (OTCQX: TCNNF), Cresco Labs (CSE: CL) (OTCQX: CRLBF), and TerrAscend (CSE: TER) (OTCQX: TRSSF).
This U.S. Cannabis Stock Appears to Be Way Undervalued and May Actually Benefit From a Second Wave of the Pandemic
Red White & Bloom is a paid client of The Cannabis Investor. The Cannabis Investor holds a position in RWB.
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