IM Cannabis: a Multi-National Operator Making Moves

IM Cannabis Corp. (IMCC) is a multi-national operator of recreational and medical cannabis, with operations in Israel, Germany, and Canada.

The company’s stock has been trading at $3.81 per share as of Wednesday morning. (See IMCC stock charts on TipRanks)

I am neutral on the stock, and am watching for buy signals during Q3 and Q4.

The Company

IM Cannabis grows and sells its proprietary cannabis strains in the form of dried flower, oils, and other products. The company operates in Israel via its licensing agreement with Focus Medical, and spent C$4.6 million acquiring several Israeli cannabis companies in July.

In Germany, IMCC operates in the medical markets via its fully owned subsidiary Adjupharm GmbH.

IMCC operates in Canada via its fully owned subsidiary Trichome JWC.

Q2-2021 Quarterly Report

The company reported its second-quarter results on August 16.

Revenue increased 192% year-over-year, and 27% quarter-over-quarter, to C$11.1 million.

The company’s adjusted EBITDA for the quarter was a loss of C$5.8 million, as gross margin sank to 5% (compared to 54% from the same quarter last year), due to delays in shipments to Germany, along with production constraints in Canada.

Nonetheless, IMCC’s basic loss per share improved year-over-year, from C$0.52 in 2020, to C$0.10 in 2021.

Q3 and Q4 Revenue Synergies

IM Cannabis predicts significant revenue growth over the next two quarters from its own operations, and from recent acquisitions.

The company has standing supply agreements with several Israeli pharmacies. Focus Medical plans by Q4 to receive import permits, which would allow it to import IMCC’s cannabis from Canada.

IM Cannabis also expects revenue growth in Israel from its acquisition of certain assets from Panaxia, including its cannabis license, delivery service, and in-house pharmacy with existing patients.

There’s also IMCC’s July acquisition of Pharm Yarok, a pharmacy, Rosen High Way, a trade and distribution center, and High Way Shinua, a transportation service. On August 16, IMCC announced the acquisition of Vironna Pharm, another Israeli pharmacy.

In Canada, the company will show revenue from its July acquisition of MYM Nutraceuticals and its grow facility. In addition, IMCC expects an increase from its Trichome JWC subsidiary in Canada, where its Wagners brand has reached higher market share.

In Germany, the company has signed additional supply and sales agreements in the medical market. The German medical cannabis market had been muted during COVID-19 lockdowns, and is now operating at a normal pace.

Risks

The company faces several risks. The larger market is currently bearish on cannabis and the company’s stock may continue its downtrend before finding higher price channels.

As to IMCC’s financials, we do not know the operating costs of the new acquisitions, nor chance of net profit on any upcoming reports.

If the company’s financial reports do not improve, then investor sentiment can change on the stock. The cannabis markets in the different operating segments are subject to government regulations, which can limit revenues. The company is awaiting some licenses in Israel for its newly acquired operations.

Analyst Ratings

According to Wall Street, IM Cannabis has a Moderate Buy consensus rating, based on two Buys assigned in the past three months. At $8.01, the average IMCC price target implies 110.8% upside potential.

Conclusion

IM Cannabis has a unique business strategy, which allows access to the emerging cannabis markets in Israel and Germany. The company also maintains a share of the Canadian recreational market.

Recent acquisitions in Israel and Canada promise higher revenue streams during Q3 and Q4. The company is currently undervalued and a long-hold position may be considered.

Disclosure: On the date of publication, Alan Sumler had no position in any of the companies discussed in this article.

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