ReutersWM Technology: “Selling Shovels” to the Marijuana Industry
WM Technology, Inc. (MAPS) is a very attractive company in the cannabis industry. Like other players in space, the company doesn’t actually touch any plants. Instead, it offers SaaS subscriptions to retailers and brands in the U.S. and Canadian cannabis markets. It manages the Weedmaps List Marketplace, which provides consumers with information about cannabis retailers and brands.
WM technology is growing rapidly and making a profit, which is a rare occurrence in the cannabis industry. Indeed, according to management, the company has been profitable since its inception in 2008.
In addition, it boasts a 95.6% gross margin and it is positive cash flow. This allows WM Technology to reinvest as a percentage of revenue, while not relying on outside capital. As a result, we are bullish on WM technology. (See WM Technology Stock Chart in Tiprank)
The target market for WM technology is the cannabis industry. From 2021 to 202, the industry is expected to have a significant CAGR of 1.9. %%. In 2020, the value of this industry was 22. billion billion US dollars. High growth from the overall industry should serve as significant tailwinds for the company.
Several factors can be blamed for this increase. Initially, more states in the United States continued to legalize the use of medicinal drugs and recreational cannabis. As more states become legal, the total serviceable market will continue to grow. In addition, states that have legalized cannabis offer fewer services in terms of retail licenses. Thus, most markets still operate on the illegal side. This provides a larger runway for growth due to the issuance of new licenses.
Since WM is not a technology or producer, it has the advantage of not competing with a large number of marijuana companies to sell physical products. WM Technology is a provider of specialized software to these cannabis companies.
Given that it was founded in 2008, WM also has a strong first driver facility. Think of the marijuana industry as the 1849 California Gold Rush, where a few prospects enriched it. Most of those who made money at the time sold shovels, supplies and services to prospects. WM technology is the equivalent of “shovel sales” to the cannabis industry. The benefits of “shovel sale” are clearly reflected in the financial statements.
Looking at the company’s U.S. operations, we see strong growth in user and per-user spending. In the first quarter of 2020, the company had 23.28 clients with an average monthly income of 2 22.2 million. In the second quarter of 2021, these figures paid an average of 70 3,706 to 4,221 clients. Clearly, customers find the services very useful and they are willing to increase their costs.
WM Technologies has 18 regulatory risks. At any time, the law may change to reverse the progress that has been made in the industry, which has an impact on retailers. In such a situation, WM technologies will also be affected materially, as it will lose customers who can work long hours.
In addition, some cannabis retailers have sketchy characters who do not act in full compliance. This has already happened in the case of WM Technologies, as it has had to stop providing services to companies that fail to provide valid license information. As a result, the company lost its entire revenue stream from Canada. Nevertheless, growth from U.S. operations has slowed and more than lost revenue.
Tech on Wall Street
Turning to Wall Street, WM Technologies has a strong buy consensus rating, based on six buyouts scheduled in the last three months. The average WM Technologies price target of. 18.75 has a 26.6% side-up probability.
The latest thought
WM Technologies is a rare opportunity to “sell shovels” to the fast-growing cannabis industry. Considering how volatile and unprofitable almost all the companies in space are so far, it is nice to see a company that has been consistently profitable from the beginning. Although companies face regulatory risks, we believe that overall growth trends and catalysts exacerbate these risks.
Disclosure: At the time of publication, Stock Bros. Research had a long position in WM Technologies.
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