Item 9 Labs Corp. (OTCQX: INLB) is doing things differently. And by doing so, they have more than changed their revenue-generating dynamic; they have positioned to earn sustainable and recurring revenues from a market opportunity trail they are blazing. And that's not only excellent news for them.
It's also for those invested in or considering the INLB value proposition, noting they benefit from INLB already hurdling the significant roadblocks others face. Clearing those and having the capital to fund expansion and management capable of moving business plans forward, Item 9 Labs Corp appears to have put itself on the fast track for growth. Results, not hype, support that presumption.
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Intrinsics Expose Book Value Disconnect
In fact, INLB's growth trajectory has been impressive by any measure. So much so that it has apparently outgrown its share price from a book value perspective, with intrinsics suggesting that INLB is trading at just 33% of its (mrq) book value of $.81/share. That disconnect is more than wide; it's an opportunity exposed.
Revenue growth strengthens that sentiment, scoring $17.9 million for the nine months ending on June 30th, 259% higher than 2019 levels and well on pace to break record-setting levels of $21.9 million posted last year. It gets better. Analysts covering INLB expect them to post $23.35 million this year and $30 million in 2023, representing gains of roughly 7% and 37%, respectively.
And that momentum is expected to strengthen.
Focused On Opportunities Others Aren'
That's the likely result of INLB doing the right things in the right markets at the right time, evidenced by legal sales of canna-CBD growing by 40% in 2021 to $25 billion. While impressive, that trend is accelerating, and according to research from BofA Securities, the total economic impact from sector sales is expected to reach $160 billion in 2025. That's excellent news for companies focused on the right places. Remember, while earnings potential may remain enormous when thousands of companies focus on similar market opportunities, even the largest ones can be minimized. That's not the expected case here.
Arizona-based INLB is seizing a combination of revenue sources to expedite its strategic initiatives. Part of that plan includes maximizing an operations footprint approaching upwards of 650,000 square feet on its 50-acre site. That's already one of the largest properties in Arizona zoned to grow and cultivate canna-CBD flowers. INLB isn't stopping there. The company is also developing a 20,000-square-foot cultivation and lab facility in Pahrump, Nevada, projected to be fully operational by the end of this year.
That means that already impressive product placements can get better. In fact, being 100% vertically integrated, meaning they can create, grow, and market the products they make, they can increase product presence in Arizona's dispensary markets well beyond its roughly 60% stake. There are reasons for that to happen. Foremost is that its products are excellently rated.
Best-In-Class Recognition Matters
Already, INLB has earned more than 30 podium finishes at Arizona competitions for product excellence across their high-quality flower, pre-roll, concentrate and vape products. Product excellence is a key contributor to their Unity Rd. brand opening four retail stores throughout Colorado, Oklahoma, and South Dakota. Incidentally, a pending acquisition of Canada-based Sessions Canna-bis would put INLB on track to become one of the country's largest sector retail franchisors. That franchise model is the secret sauce to INLB's expected growth spurt.
It's also the most expedient path for entrepreneurs to break into the sector by benefiting from INLB's expert guidance and roadmap to operating compliantly in a booming canna-CBD market. For INLB and entrepreneurs, it's a winning proposition. On a corporate level, INLB can rapidly expand its Unity Rd. dispensary footprint with low capital expenditure since franchisees own and operate their locations. Franchise investors win by expediting first-to-market opportunities.
Leveraging An Innovative Franchise Model
On its side, INLB generates revenue by selling, through its portfolio of assets, its award-winning products to its franchised locations, the $100,000 franchise license fee, and 7% of gross sales paid to them by franchisees. Those fees, well in-line with multi-sector franchise models, are a relatively small price for admittance to a surging sector. Moreover, it can be the fastest and most compliant way for entrepreneurial ambition to become a revenue-generating business by utilizing the INLB operations pathway to navigate regulatory compliance and supply chain issues. Most importantly, it delivers these new business owners a business model designed for success. In many cases, no prior experience is required.
That's the attraction to franchise opportunities. In fact, because new owners are provided a head start with a proven business plan, quality products, and brand recognition, investing in franchise opportunities over independent start-ups can be the difference between success and failure. For example, purchasing a franchise opportunity in a fast-food storefront like McDonald's (NYSE: MCD) provides a significantly better chance of success than opening a mom-and-pop burger joint.
The independent location could even be better, comparably speaking. But having that MCD name, consistency, and expectation makes the difference. And INLB, already a member of the International Franchise Association (IFA), want's to provide similar and immediate benefits to its clients by leveraging the inherent strength of the Unity Rd. brand for its franchisees. Doing so can help INLB grow bigger faster.
In fact, by providing a formula for business success for franchise investors and a recurring revenue stream for INLB, the path of least resistance for INLB and its shares may be appreciably higher. And with only about 76.7 million shares in the float, with 30.9% of those insider-owned, taking advantage of the valuation disconnect may be a wise and timely consideration. That gap has considerable room to close, with an expected $23.8 million in sales this year and a market cap of about $37 million today, proposing a value of less than 1.5X revenues. That's far from the over 10X multiples given to others in the space.
Maximizing An Established Presence, Opportunity Exposed
Closing that gap puts a return toward August highs back in the crosshairs, with that initial target about 160% higher than current prices. Considering that INLB is better positioned today than when it scored those highs, resistance on the way up may be mitigated as the INLB story gets more widely understood.
Remember, too, while INLB can justify higher valuations today, with a definitive agreement to acquire one of Canada's largest retail franchisors and knowing that upon closing, INLB would become the largest publicly traded sector franchise company on the market, even the most aggressive models may be conservative.
And that's still only a part of the value proposition. That deal will add to other agreements expanding INLB's business interests in Colorado, including a new store opening in North Denver and receiving license approval to open a dispensary in the Cherry Creek neighborhood of Denver, which is expected to be fully operational by the end of 2022. That's still not all.
Earlier this year, INLB signed an Asset Purchase Agreement for a medicinal and recreational dispensary and cultivator, The Herbal Cure, in the up-and-coming Washington Park near Denver. Progress in closing that deal is continuing, and once completed, it could add revenues upwards of $5.4 million to INLB's streams.
All tolled, Item 9 Labs Corp. presents a compelling value proposition. And not only long-term; near-term opportunities and the value inherent from a growing revenue-generating arsenal and business plan can already support appreciably higher share prices. Thus, investing ahead of potential transformative announcements expected in the coming weeks could be a smart way to tap into value already inherent to a fast-growing company. Indeed, there's a lot to like. But the better news, from a company and investor's perspective, is that INLB appears to be just getting started.
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