STMH - Stem Holdings (STMH)(STEM:CA) - What Do Friday's Announcements Mean?

New Direction. After the market close on Friday, Stem Holdings announced it is divesting Driven Deliveries, the e-commerce and delivery platform that was acquired about twelve months ago. According to the press release, the move is a reflection of significantly increased competition in the key California market and reduced price per pound for cannabis, resulting in a consistent low margin business.Management Changes. In addition, Adam Berk resigned as CEO, effective immediately. Co-founder and current CFO Steve Hubbard has been named interim CEO. Mr. Berk's resignation comes on the heels of the late November departure of COO Ellen Deutsch.Immediate Impact. Driven is being sold to its former owners, who will return 12.5 million STMH shares to the Company. Total liabilities will be reduced by $7.1 million, resulting in a $4.1 million increase in working capital. Monthly expenses related to Driven will reduce total expenses by $9.6 million annually, positioning the Company to achieve a positive Adjusted EBITDA in 2022.Where to Now? Interim CEO Hubbard noted that Stem will focus on its California and Oregon operations, including its cultivation, processing, retail, and award winning brands in those areas. Less clear is the status of its ownership interests in other states, such as Massachusetts, or the recent entry into Michigan.Moving to Market Perform. We are surprised by Friday's announcements as the Driven acquisition was expected to be a game-changer for the Company. Until we get additional clarity from management as to the extent and implications of Friday's announcement, we are moving to the sidelines and lowering our rating to Market Perform from our prior Outperform. Read More >>