“Selling Shovels” to the Marijuana Industry by TipRanks
© Reuters. WM Technology: “Selling Shovels” to the Marijuana Industry
WM Technology, Inc. (MAPS) is a very interesting company within the marijuana industry. Unlike other players in space, the company does not actually touch any plant. Instead, it offers SaaS subscription offerings to retailers and brands in the cannabis markets in the United States and Canada. It also operates the Weedmaps List Marketplace, which provides consumers with information on cannabis retailers and brands.
WM Technology is growing rapidly and generating profits, which is rare in the cannabis industry. In fact, according to management, the company has been profitable since its inception in 2008.
In addition, it posted gross margins of 95.6% and positive cash flow. This allows WM Technology to reinvest more as a percentage of revenue into growth, without having to rely on outside capital. As a result, we are optimistic about WM Technology. (See WM Technology stock charts on TipRanks)
WM Technology’s target market is the marijuana industry. The industry is expected to experience a substantial CAGR of 13.9% from 2021 to 2026. In 2020, the industry is worth an estimated 22.9 billion USD. The strong growth of the entire industry should act as a significant tailwind for the company.
This growth can be attributed to several factors. For starters, more and more states in the United States continue to legalize the use of medical and recreational marijuana. As more states legalize, the total usable market will continue to grow. Additionally, states that have legalized marijuana are underserved in terms of retail licensing. So most of the market still operates on the illegal side. This offers a wide avenue for growth as new licenses are issued.
Since WM Technology is neither a dispensary nor a producer, it has the advantage of not having to compete with the large number of marijuana companies selling the physical product. WM Technology is the specialist software provider for these marijuana companies.
Since it was founded in 2008, WM also has a strong leading player advantage. Think of the marijuana industry as the California Gold Rush of 1849, where few prospectors got rich. Most of the people making money back then were those who sold shovels, supplies, and services to prospectors. WM technology is the equivalent of “selling shovels” to the marijuana industry. The benefit of “selling shovels” is clearly demonstrated in the financial statements.
When we look at the company’s operations in the United States, we can see strong growth in users and spend per user. In the first quarter of 2020, the company had 3,238 customers paying an average monthly revenue of $ 2,681. In the second quarter of 2021, those numbers grew to 4,221 paying customers on average $ 3,706 each. Obviously, customers find the services very useful and they are prepared to increase their spending.
WM Technologies has 18 regulatory risks. At any time, laws could change to reverse the progress being made within the industry, which would have a big impact on retailers. In such a scenario, WM Technologies would also be significantly affected, as it would lose customers who could no longer operate.
Additionally, some marijuana retailers are fuzzy characters that do not operate in full compliance. This has already been the case for WM Technologies, which had to stop providing services to companies that failed to provide valid license information. As a result, the company lost all of its revenues from Canada. Nonetheless, growth in the US business took over and more than made up for the loss in revenue.
The Taking of Wall Street
When it comes to Wall Street, WM Technologies has a strong buy consensus rating, based on six purchases awarded in the past three months. WM Technologies’ average price target of $ 18.75 implies upside potential of 26.6%.
WM Technologies is a rare opportunity to “sell spades” to the rapidly growing marijuana industry. Given how volatile and unprofitable nearly every other business in space has been so far, it’s nice to see a business that has consistently been profitable since its inception. Although the company faces regulatory risks, we believe that the overall growth trends and catalysts far outweigh these risks.
Disclosure: At the time of publication, Stock Bros. Research had a long position in WM Technologies.
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