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iAnthus Defaults On Debt: What Comes Next?

Summary

iAnthus defaulted on its debt. Shares plummeted 62%.

Given a shaky balance sheet and a poor share price, iAnthus may need to renegotiate with its creditors.

This may be difficult given iAnthus’s desperate situation and because they are currently suing one of their large creditors.

The company is also investigating whether their CEO had undisclosed conflicts of interest.

I will steer clear.

iAnthus generates reasonable gross profits, but spends far too much money on operating expenses to be profitable.

iAnthus generates reasonable gross profits, but spends far too much money on operating expenses to be profitable. Source: The Growth Operation Cannabis Company Dashboard.

Summary

iAnthus (OTCQX:ITHUF) is an unprofitable U.S. cannabis company which has burned through $89 million over the past year. The company has issued nearly $160 million of debt to fund their continuing operations, with an average interest rate of 11%.

On March 30, iAnthus failed to make a debt payment. After the passing of a cure period, they are in default on all of their debt. Shares fell 62% when this news was released. The company also postponed their earnings release and announced that they are investigating their own CEO for potential conflicts of interest.

Given limited assets and declining share prices, iAnthus will likely need to renegotiate with its creditors. One wrinkle in this plan is that iAnthus is currently suing one of its largest creditors. That acrimonious relationship is likely to make renegotiation more difficult.

I suspect that, at best, shareholders can expect to see very significant dilution from this default. I will continue to steer clear, although this situation may attract special situations investors.

Spending money

iAnthus is a cannabis company which operates in eleven states. Their modern form is the result of a then-$1.6 billion merger with MPX Bioceuticals. Shares have plummeted 97% since then due to poor management and continued cash burn.

As with many cannabis companies, iAnthus is deeply unprofitable. In the third quarter, the company sold $22 million of cannabis but spent $48 million in gross and operating costs. This included $10 million of share-based compensation, or about 43% of iAnthus’s generated revenue.

This extravagant spending has led to significant cash burn. Over the past four quarters, iAnthus has burned through $89 million of free cash. This cash burn includes $37 million of operating cash burn and $52 million invested into iAnthus’s business through capital expenditures. During the time, iAnthus has developed and begun to launch their Be. brand of cannabis stores, most recently launching Be. Staten Island on March 12, 2020.

iAnthus was set to announce annual result for 2019 on the morning of April 7, but their risky debt financing caught up to them before those results were released.

To Read The Rest Of This Article By Jonathan Cooper on Seeking Alpha

Published: April 07, 2020

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