Times have dramatically changed since the Controlled Substances Act was passed under Richard Nixon in 1970, making consumption of cannabis illegal in the U.S. Now fully legal in 18 states and only totally illegal in four, cannabis is now lawfully enjoyed in many forms, from candies to oils.
In a Sept. 28 research note, Noble Capital Markets analyst Joe Gomes reported that Stem Holdings Inc. dba Driven By Stem (STEM:CSE; STMH:OTCQX) received a license to open a cannabis distribution center in the city of Mendota in Central California, and plans to debut a 2,000-square-foot facility of this type there in October. Also, the company intends to target a newly opened, nearby market for retail cannabis sales: the city of Fresno.
Gomes highlighted that with this new distribution hub, the Florida-based cannabis products and technology company will be able to better serve its customers, via its Budee e-commerce platform, in four California counties.
"The expansion is expected to drive topline sales with greater efficiency, as the company anticipates savings of up to $1 million in operating expenses, with significant savings in gross receipt taxes," Gomes commented.
California as a whole is the country's largest cannabis market, Gomes pointed out. Current adult use sales there are estimated to be between $4.7 and $5.5 billion and projected to increase to $6.5 billion in the next two years.
In other news, another California city, Fresno, just allowed retail sales of cannabis, creating a new market on which Stem Holdings can capitalize.
"We expect the Fresno market to quickly grow with the new approval and be an attractive market for Driven by Stem," Gomes wrote.
He noted that even though the company's revenue ramp-up has been slower than expected, Noble maintains its Outperform rating on Stem.
"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 [also] a defensible moat," he wrote.
Noble's 12-month price target on Stem is $2 per share, four times the current share price of about $0.25.
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.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Stem Holdings Inc. dba Driven By Stem. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Stem Holdings Inc. dba Driven By Stem. Please click here for more information. An affiliate of Streetwise Reports is conducting a digital media marketing campaign for this article on behalf of Stem Holdings Inc. dba Driven By Stem. Please click here for more information.
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Disclosures from Noble Capital Markets, Inc., Stem Holdings Inc. dba Driven By Stem, Sept. 28, 2021
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