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TICKERS: STEM; STMH

US Cannabis Firm in 'State of Flux'
Research Report

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The Quick Take

  • Noble Capital has a Market Perform rating on Stem Holdings because the company's future "remains in a state of flux," reported analyst Joe Gomes in a Dec. 18 research note.
  • During its current fiscal year, 2022 (FY22), Stem plans to focus on improving its cannabis retail and growing operations in Oregon and California.
  • This quarter, Q1 FY22, Noble forecasts Stem will generate about $8.5 million ($8.5M) and post a net loss of $4.95M, or $0.02 per share.
  • Looking back at FY21, Stem Holdings reported a net loss of $64.6M, or $0.40 per share.
  • FY21 revenue more than doubled year over year (YOY), coming in at $35.8M versus $14M.
  • As for Q4 FY21, net revenue was $9.2M, as estimated by Noble, up from $5.2M YOY but down from $10.6M quarter over quarter.

In fiscal year 2021 (FY21), Stem Holdings Inc. dba Driven By Stem (STEM:CSE; STMH:OTCQX) more than doubled its FY20 revenue but still remains unprofitable, reported Noble Capital Markets analyst Joe Gomes.

He highlighted that the company's near-term future is clouded, in part by the cannabis environment in its key markets, Oregon and California. Overall sales in Oregon have dropped to pre-COVID levels, and the California cannabis market is in crisis.

"With the December 2021 divestiture of Driven Deliveries, we expect Stem to get back to its roots (i.e.,) its Oregon and California businesses," noted Gomes.

The company plans to do just that this fiscal year, double down on those enterprises and on its grow businesses. Management is confident it can improve in those areas, but as Gomes noted, the "timing of such is unclear." Stem's newly obtained license to sell recreational cannabis in California should help sales (previously, it had only been selling medical marijuana in the state). However, Stem's single location in California is a disadvantage when competing against operators with multiple sites in the state.

Stem has ownership in other entities in more than a handful of other states, and it is unknown what will happen with all of those, Gomes pointed out. Management indicated it may dispose of the ones in which it cannot obtain 100% ownership. This situation also clouds Stem's future.  

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Disclosures:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Stem Holdings Inc., a company mentioned in this article.
6) This article does not constitute medical advice. Officers, employees and contributors to Streetwise Reports are not licensed medical professionals. Readers should always contact their healthcare professionals for medical advice.

Disclosures for Noble Capital Markets Inc., Stem Holdings Inc., Jan. 18, 2022

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE: Senior Generalist Equity Analyst. Chartered Financial Analyst. Over 25 years experience as a Generalist Analyst focused in the small to mid-cap space. MBA in Finance from Pace University and a BS in Agricultural Economics from Cornell University. FINRA licenses 6, 7, 24, 63, 86, 87. Full Bio & Coverage List.
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