Item 9 Labs Corp. (OTCQX: INLB) stock is in rally mode, surging over 82% month-to-date and showing no signs of slowing. Shares of INLB reached $0.40 on Wednesday, levels not seen since September. But the excellent news is that the move is merit-based and a result of investor enthusiasm ahead of INLB's plans to become the country's largest franchiser in the booming canna-CBD sector. That mission is doing more than changing INLB's revenue-generating dynamic; steps taken have positioned them to earn sizable upfront, sustainable, and recurring income from a business model trail they are blazing. (*share price of $0.40 on 11/16/22, 9:44am EST, Yahoo! Finance)
But excellent news for INLB is for investors as well. While the November surge is impressive, there appears to be bullish momentum behind the move, especially as more investors become aware of INLB's ability to capitalize on opportunities others can't. Specifically, by already clearing regulatory, legislative, and supply chain issues and having the capital to expedite its strategic initiatives, Item 9 Labs Corp is more than positioned for accelerating growth; they have mitigated competitive threats in a sector opportunity worth billions.
Keep in mind, while the forward-looking proposition looks attractive, so does the here and now.
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Fast-Growing INLB Can Justify Higher Valuations
That's evident by an INLB growth trajectory that is steepening. But not only to its top line. Strengthening fundamentals also expose a valuation disconnect, with that total indicating that INLB shares are trading at just 49% of its (mrq) book value of $.81/share. That disconnect is more than wide; it's an opportunity exposed.
Of course, revenues matter too, and INLB is scoring impressive increases there. For its FY nine months ending June 30th, INLB posted $17.9 million, 259% higher than 2019 and on pace to break full-year record-setting levels of $21.9 million. And that beat could be by a significant margin, with analysts covering INLB expecting them to post $23.35 million this year and $30 million in 2023, representing gains of roughly 7% and 37%, respectively.
That revenue-generating momentum is expected to strengthen, an intended and likely result of INLB capitalizing on a surge in legal sales of canna-CBD, which grew by 40% to $25 billion last year. The better news for INLB, and investors, is that the trend is accelerating. According to research from BofA Securities, the total economic impact from sector sales is expected to reach $160 billion in 2025. Of course, for companies focused on the right opportunities and the ones they can monetize, that's excellent news. Remember, being part of a booming sector only matters if a company has the means to exploit the potential. In other words, enormous opportunities where thousands of companies focus can be minimized as the pieces to that revenue pie get smaller. INLB apparently knows this and has laid the groundwork to maximize its opportunities through several means.
In fact, Arizona-based INLB is creating a combination of revenue sources to expedite its initiative to become bigger faster. 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 could translate to an already strong product placement footprint getting bigger, meaning its 60% presence in the state's dispensaries could get a boost. But even better, by being 100% vertically integrated, meaning they can create, grow, and market the products they make, they can match market share increases with solid margins allowing more revenues to fall toward the bottom line. Having excellently rated and industry-recognized products help that proposition.
Brand Recognition And Quality Matters, INLB Checks Both
So far, 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. That recognition is a pivotal 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 franchisers. That franchise model is the secret sauce to INLB's expected growth spurt.
It also expedites the 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 selling best-in-class products. Earnings on both sides can be significant.
Franchise owners benefit from a sector opportunity where customers are spending billions annually. INLB can also win, generating revenue by selling, through its portfolio of assets, its award-winning products to its franchised locations. In addition to product sales, INLB generally charges an upfront $100,000 franchise license fee and earns 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.
The Franchise Model Is Genius For The Sector
That's the attraction to franchise opportunities. In fact, it's the fastest way to potential success, utilizing brand recognition, a proven business plan, quality products, and collective marketing. The power behind that combination provides immediate benefits compared to independent start-ups. Face it, purchasing a fast-food storefront like McDonald's (NYSE: MCD) provides a significantly better chance of success than opening a mom-and-pop burger joint. Worse for the independent, its products may be much better. Right or wrong, the inherent brand name strength makes the difference.
That's where INLB intends to shine. And they have an excellent start, already a member of the International Franchise Association (IFA), and a plan to provide similar and immediate benefits to its clients by leveraging the inherent strength of the Unity Rd. brand for its franchisees. If all goes as planned, revenues, as analysts suggest, can surge.
If so, valuation models get updated, with more income generally translating to higher share prices that could make the path of least resistance for INLB shares higher. And with only about 76.7 million shares in the float and about 30.9% of those insider-owned, that could happen quickly. In other words, the valuation gap today can close soon, noting that with an expected $23.8 million in sales this year and a market cap of about $35 million today, its price to revenues multiple stands at roughly 1.5X. That's an appreciable difference from the over 10X multiples given to others in the space.
Capitalizing on Opportunities, Maximizing Its Portfolio
Incidentally, INLB has traded significantly higher. And by being better positioned today compared to then, reclaiming highs near $2.00 could happen sooner than later. Re-capturing just the August highs of $1.07 put a 167% increase in the crosshairs. As the INLB story gets more widely understood, that's a likely proposition, noting that each bullish target is supported by a product portfolio worth more than what's indicated.
Know this, too. While INLB can justify higher valuations today, they have a definitive agreement to acquire one of Canada's largest retail franchisers that would make INLB the largest publicly traded sector franchise company on the market upon closing. Once that deal completes, expect analysts to reconvene and update revenue and earnings projections. That's a warranted expectation.
Acquiring Sessions adds to the value proposition by strengthening other agreements, including expanding INLB's business interests in Colorado, including a new store in North Denver, and receiving license approval to open a dispensary in the Cherry Creek neighborhood of Denver. Planned to open by the end of this year. More value could accrue from INLB's intended 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 continues and, once completed, could add more than $5.4 million to INLB's revenue streams.
Thus, all tolled, INLB's sum of its parts presents a compelling and timely investment proposition, with more assets still expected to come. And the better news for those considering now is that potential transformative announcements could already be in the queue, noting timelines provided in prior updates. Hence, trading ahead of those expectations may be a wise consideration. After all, doing so can provide investors more than a stake in a fast-growing asset-filled company; it takes advantage of an apparent ground-floor opportunity in a company whose mission is just getting started.
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