Leafly (LFLY) exists at the intersection of cannabis and technology. As the most visited website in the cannabis space, with 220 million visitors annually (and 18.3 million in July 2023), it provides consumer information and an ordering platform for dispensaries across the United States and Canada. Think of it as the Shopify for cannabis. Its stock has been driven down hard by the aggressive shorts battering the cannabis market, losing 92% of its value. It has been trading well below revenue & earnings-based valuation, and the coveted "golden cross" (50/200 MA crossover) pattern is about to happen soon. For the past two years, Leafly has averaged about $11M a quarter in revenue, reporting a positive EBITDA in its Q2 results. Up until last week, its stock was only trading at $0.30 a share, with a market cap of $14 million. In the past week it has marched up to .70 and a market cap of $29 million. Its main competitor, WeedMaps has similar site usage and weaker financials, and has a market cap of nearly $150 million. Analysts referenced by Refinitiv and Thompson Reuters have price targets of $3.00-7.00 for Leafly, and as of this post is trading at $0.70 This week, both President Biden and the Secretary of HHS Becerra stated their support for the rescheduling of cannabis from a Schedule I to a Schedule III drug, which would be done through administrative action - no action by Congress needed. Senate Majority Leader Schumer and Senate Banking Chair Sherrod Brown also this week stated that a deal on the SAFE Banking Act was "imminent." SAFE would be another major catalyst, allowing banks access to uplist to NASDAQ, access to traditional business banking services, and the ability to use credit cards for payment. There are also serious tax advantages, with 280E business deductions being eligible, which would turn most of the entire sector profitable instantly. I believe that Leafly is extremely undervalued by all traditional metrics, and presents a deep value for investors. The change in the regulatory environment will be a strong wind in Leafly's sails, with new customers and dispensary subscriptions being driven by the sudden increased profitability of the cannabis sector. The stock has traded on relatively low volume, though more people are beginning to notice its potential.
A lot of catalysts at play. The Senate Banking Committee just announced (9/15/23) it is up for consideration on 9/27/23 and the chairman, Sherrod Brown (D-OH) believes the votes are finally there. When SAFE gets out of the Senate Banking Committee, the cannabis sector will pump (95% of bills die in committee, do not make it to Senate floor). When SAFE passes the Senate and gets signed into law, it will fly. When the DEA announces its intent to reschedule, the sector will pump again. After the 30-60 day comment period is over (Administrative Procedures Act requires) and rescheduling is implemented it will explode. Over a longer term, companies in the sector will uplist to better exchanges, see strong growth due to the removal of IRS 280E (prohibits business tax deductions), see substantial capital inflow from inclusion in ETFs, and report strong earning and positive EBITDAs. We are looking at a rally that should sustain itself throughout the 2024 election season, 12-18 months perhaps. With SAFE and rescheduling, the cannabis sector will see a lot of consolidation and growth, but retail will become even more competitive. Market enablers like Leafly will be needed by every dispensary to ensure competition and growth. My theory is it will eventually be acquired by big pharma, who will benefit greatly by using it as a conduit for newly-legal medicinal markets that will be covered through health insurance, at a market cap of $500M to $1B (25-50X current trading price).
