The U.S. cannabis space has had a very tough few months and WM Technology (MAPS) now leads the pack with disappointing shareholders. The company was surprisingly hit by reduced demand in California due to a surge in the illicit market. My investment thesis remains Bullish on the stock over the long term, but WM Technology needs to find a bottom before shareholders buy more shares.
Dismal Guidance
WM Technology reported a decent Q3’21 quarter, but the company guided to a rather weak Q4’21 for a fast growing business in the cannabis space. The company benefits from the growth of licenses and the expansion of sales in cannabis. Unfortunately though, unlimited license states like California provide the vast majority of revenues while the limited license states don’t provide the same opportunity presently.
Over time the 9,000 dispensary licenses should soar to match the 100,000+ licenses in the alcohol sector. Right now though, the company and shareholders have to work with the current market while investing for the future.
The company reported Q3’21 revenues of $50.9 million for reported growth of 9%. Due to the removal of Canadian businesses, the comparable revenues in the U.S. grew 46%. Regardless of the reset, revenues were up a solid 8% sequentially.
Source: WM Technology Q3’21 presentation
WM Technology has now reset the business twice in the last couple of years and faces another major hurdle. The company guided Q4’21 revenues to flat sequential growth with revenues between $50 million and $52 million. According to management, the issue relates to licensed cannabis product dumped on the illegal market due to over production. Per CEO Chris Beals on the Q3’21 earnings call:
While licenses continue to be issued across our end markets, licensed density is not where it needs to be in the pace of license issuance remained sluggish, which is contributing to a thriving illicit market. And further, there has been a lot written in the press about how producers are dealing with the current supply glut, by in some cases diverting products to unlicensed market channels at significant price discounts, which is only further fueling the consumer demand shift.
Heading into Q4’21, WM Technology has a strong business in the process of rebuilding momentum. Average Monthly Paying Clients grew 223 sequentially to 4,444. The client count had remained above 4,000 following the U.S. license reset back at the end of 2019. Due to the Canada reset at the end of 2020, the client base fell to only 3,863 providing for solid growth during 2021.
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Published: November 19, 2021
