STMH - Stem Holdings (STMH)(STEM:CA) - Entering Colorado Market
Colorado Expansion. Driven by Stem (formerly Stem Holdings, Inc.) has entered into a letter of intent to acquire Colorado Harvest Company, (CHC) one of Denver's oldest, vertically integrated operators. Price and terms of the deal are still in negotiation. In 2021, CHC is expected to generate revenue of $13 million and gross profit of $5.07 million.Colorado Harvest Company. Founded in 2009, CHC serves customers an extensive selection of the finest quality edibles, concentrates, and naturally grown cannabis flower. CHC operates two dispensaries in Denver and one in Aurora. In addition, CHC has two delivery permits and operates two cultivation facilities which produce over 200 pounds of naturally grown cannabis per month.Colorado Market. Colorado remains the second largest legal cannabis market with sales projected to be near $2.5 billion in 2021, up from $2.2 billion in 2020. Colorado remains a very fragmented market with just 22% of the market held by the top ten retail players. Home delivery is new to the market.Benefits to Stem. CHC brings numerous positives to Driven by Stem, in our view, including access to the second largest, and still growing, legal cannabis market in the U.S., a market with significant growth opportunity as the market consolidates. In addition, CHC enables Driven by Stem to roll out its Budee homes delivery service in a new, and concentrated (about 50% of sales are derived from Denver and the three surrounding counties) market. CHC also adds additional proprietary, award winning strains and products to Driven by Stem's quiver.Maintaining Outperform. In spite of a slower than anticipated revenue ramp, we are maintaining our Outperform rating and a $2.00 12-month price target. We believe the Company's merger with Driven Deliveries has established Stem as the first cannabis cultivator and technology omnichannel retailer with e-commerce ordering and express and next-day delivery, providing Stem with not only a first mover advantage but a defensible moat. Read More >>