Many pot stocks you can buy today are overpriced and trading at incredible premiums, especially since many of them aren't even profitable and are unlikely to achieve that anytime soon. But the stocks that are able to balance growth and profitability can make for great long-term investments.
One stock that falls into that bucket is MariMed (MRMD 0.23%). And with a market cap in the neighborhood of $260 million, it isn't a large company by any stretch. Is this pot stock one of the better buys in the sector, or are there problems beneath the surface that should keep investors from buying up shares of this small multistate operator?
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The company posted incredible numbers last quarter
On May 17, MariMed released its first-quarter results for the first three months of 2021, reporting sales of $24.6 million -- a staggering increase of 230% year over year. The company credits that growth to stronger sales in Massachusetts and Illinois, two of the hottest cannabis markets in the country. Illinois recorded $1 billion in legal pot sales last year, while analysts project that Massachusetts will hit annual revenue of more than $1 billion by 2024.
But the company is looking beyond those two markets. MariMed recently announced the launch of one of its top brands, Betty's Edibles, in Maine. That is the fifth market to carry the edible products, which MariMed claims were among the first vegan cannabis products in the industry. It's part of the company's strategy to focus on unique market opportunities, and a way to differentiate its products.
Perhaps even more impressive than MariMed's encouraging sales numbers and growth opportunities is that last quarter the company also posted an adjusted EBITDA profit of $7.6 million, which is more than eight times the $0.9 million in adjusted earnings it reported in the same period last year. And its net income was also positive at $4.3 million, compared to a loss of $2.3 million a year ago.
MariMed's stock is undervalued
For 2021, the company projects that its revenue will come in at $100 million, and adjusted EBITDA will total $30 million. That puts the stock at a forward price-to-sales (P/S) multiple of less than three. That's dirt-cheap compared to some of its peers. Here's how it compares against some of the smaller multistate operators in the country based on its revenue for the past year:
MRMD PS Ratio data by YCharts
And unlike the other stocks on that chart, MariMed hasn't incurred a net loss over the trailing 12 months. The stock deserves to be trading at a premium given its strong bottom line, and yet it is at a discount compared to others in the industry.
One of the reasons that it could be trading at such a discount is a lack of exposure. Unlike many marijuana stocks, MariMed only trades on the over-the-counter (OTC) exchange, whereas other multistate operators also trade in Canada on either the Canadian Securities Exchange or the NEO Exchange (the NYSE and NASDAQ remain off-limits for plant-touching businesses due to the federal ban on marijuana). With some investors not able (or willing) to invest OTC, there's a limited pool of potential buyers. A move onto another exchange could help MariMed's stock gain much more attention. However, there is no information on MariMed's website to suggest that will change anytime soon.
Should you invest in MariMed?
MariMed has a presence in two excellent markets in Massachusetts and Illinois, which could be enough for the company to deliver some fantastic numbers for its investors. Combine that with some strong margins and low costs that make profitability likely and you have got yourself a top pot stock. Although MariMed has already risen nearly 500% in value over the past 12 months (well ahead of the Horizons Marijuana Life Sciences ETF, which is up only 30%), there is still so much more potential for the stock to rise.
If MariMed lists on a major exchange, even if it is a second-tier one in Canada, that could bolster its stock. However, one thing is for sure: If MariMed can continue generating these kinds of impressive growth numbers this year, its valuation won't stay this low for long, regardless of where its stock trades.
