WM Technology Is A Cannabis Stock That Could Double Soon (NASDAQ:MAPS)

WM Technology (NASDAQ:MAPS) was a very hot cannabis stock in 2021. Now, it is down a ton with almost no interest from investors or analysts. I called the stock a Strong Buy in mid-December when it was $0.75. It was then 17% of my model portfolio. I have been in and out of it a few times, but I added it back on Thursday. Despite the higher price, I still consider it a Strong Buy, which I explain here.

WM Technology Finally Reports

Many folks have been concerned about WM Technology potentially delisting from the NASDAQ due to breaking the $1 minimum, but MAPS had a very big second issue: The company was very late to file its 10-K for 2023. On May 17th, it issued a press release that it had received on May 14th a warning from NASDAQ. A week later, it filed both the 10-K and also the 10-Q for Q1, which was late too, after the close. This was a Friday night just ahead of the Memorial Day holiday!

Well, it was an excellent report. The company had already guided for Q4, but the Q1 report was totally new information. Revenue of $44.4 million was down 4% from a year earlier but up from Q4. Adjusted EBITDA of $9.6 million increased 35%. This improvement was driven by lower operating expenses. The company reported positive net income!

Even better than reporting positive operating income and positive net income was that it generated free cash flow. Cash from operations was $7.4 million, a big improvement from a year earlier, and the capital spending was $4.5 million. The debt-free company ended up with $35.7 million in cash, up from $34.4 million at year-end.

WM Technology has a very strong solution with its Weedmaps, but its business is heavily focused upon California (52% of Q1 revenue), which has been a tough market. The state represented 52% of revenue in 2023, and this was down from 56% in 2022 and 61% in 2021. The company has been working on further geographic expansion as well as a broader set of solutions it offers. The company divides its business into three areas: Weedmaps for business, featured and deal listings and other ad solutions. In Q1, Weedmaps for business grew 18%, while featured and deal listings fell 13%. Other ad solutions, just 7% of revenue, expanded 4%. The number of paying customers fell 12% to 4937, while the average revenue paid increased by 9%.

The Outlook For WM Technology Is Strong

I have been using Sentieo as a resource to share analyst outlooks, but the company was acquired by AlphaSense. The Sentieo platform appears to have been transformed to AlphaSense, which has no outlook for WM Technology. I did look this week at the Sentieo outlook, and it didn’t appear to change at all recently. There was just one analyst providing estimates, and the outlook for 2024 was revenue of $175 million, which would be down 7% from 2023, with adjusted EBITDA of $25 million, which would be a 33% drop.

This outlook looked very wrong to me. I explained in an article about the company that I shared in my investing group that with the guidance that MAPS shared for Q2 of similar revenue to Q1 that this forecast was too low. If the company were to repeat Q1 revenue in Q2, this would be $88 million for the first half. The outlook, then, would $87 million for H2, and this would be up only 4%. The numbers are already very low, and there is no reason to expect that they will stay this low. Worse than the revenue outlook, though, is the adjusted EBITDA forecast. MAPS guided Q2 to be $7 million. Adding this to the Q1 yields $16.6 million and suggests that H2 would be just $8.4 million.

The 2025 estimate was much higher. The analyst was projecting that revenue will increase 8% to $190 million with adjusted EBITDA picking up 56% to $39 million, a margin of 20.5%, which is lower than the margin that the company reported in Q1 as well as in Q3 and Q4. Pablo Zuanic of Zuanic & Associates initiated coverage in January when the stock was $0.88. He had a 2025 revenue projection of $216.2 million with adjusted EBITDA forecast at $38.9 million. I haven’t seen an update from the firm, but this view, which wasn’t part of the Sentieo analyst group, supports my optimistic outlook. Even if 280E doesn’t go away, this outlook seems reasonable to me.

The lack of analyst coverage is not really that surprising to me. The revenue has been falling, and the price is way down from its SPAC IPO. The company isn’t doing M&A. The fact that WM Technology hasn’t held a conference call since the Q3 call in November, where there were no questions asked, isn’t helping. MAPS used to publish a monthly IR Newsletter, but the last one was in October of 2022. There are no upcoming events on its IR website. The last event that it attended was in early 2023. The last investor relations slide deck was from Q3.

The WM Technology Chart Is Attractive

MAPS was a hot SPAC, peaking at more than double the SPAC IPO price of $10. In late 2021, it gapped down on the Q3 earnings report and broke that $10 level, falling to as low as $0.60:

The chart shows a potential bottoming after a big crash. Volume remains very low, though, so there is no sign yet that MAPS is in a new bull market, though it is up 37.8% in 2024 so far. This is far ahead of the New Cannabis Ventures Global Cannabis Stock Index.

Looking at just the past two years, the stock traded as high as $5 and is now down about 80%:

What really stands out to me is that the stock is actually below where it was on 8/29/23 ($1.28), the day before the rescheduling rumor first hit. The adjusted EBITDA has improved a lot since then, and the outlook has improved.

I think that $0.60 was a ridiculously low price and see support above there at $0.95. My read of the chart now suggests resistance potentially at $1.30 and $1.70. My third resistance of $2.00 would be a new high for post-2022 but still down a lot from the SPAC price.

WM Technology’s Valuation Is Extremely Cheap

I calculate 171.9 million fully-diluted in-the-money shares outstanding. This includes 95.06 million Class A shares and 55.49 million Class V shares as well as 14.6 million Class P shares and 6.5 million RSUs. It excludes 19.5 million warrants with an exercise price of $11.50. This gives a market cap of $170 million at $0.99. Subtracting the cash, the enterprise value is $134.5 million, which is below 1X revenue.

The enterprise value is just 3.6X the 2023 adjusted EBITDA, which is extraordinarily low. Looking at the 2025 projection, it is just 3.5X. The company is federally legal and doesn’t pay 280E taxes. It trades on the NASDAQ. Despite all of these advantages relative to MSOs, the stock trades cheaper!

My own outlook is that the stock should trade at a level in excess of 10X. Using just 8X the projected 2025 adjusted EBITDA yields a year-end target of $2.02, which is up a bit over 100% in about half a year. Again, I think that this is a very conservative level. The multiple could be higher, and the adjusted EBITDA could grow dramatically if 280E gets wiped out as expected and boosts demand for its services.

Conclusion

WM Technology’s stock is working, but it could work a lot better! The revenue has not been growing, but the company has improved greatly its adjusted EBITDA. My target for year-end is conservative, but it is much higher than the current price. I like that the company is debt-free with cash and that it has been generating free cash flow.

The lack of analyst coverage could be a positive in my view, as I like stocks that aren’t dominated by positive sentiment. Of course, the lack of analyst coverage for MAPS could suggest that any problems are unnoticed by investors. The late filing for the 10-K and the Q1 10-Q, which could have led to delisting by NASDAQ, was certainly a problem, but this is resolved. Of course, the low price could trigger another issue for the company’s listing.

From my perspective, rescheduling will help this company greatly. The ending of 280E taxation will help its customers. My target, though, isn’t built on it happening. Still, if it doesn’t happen, this could hurt the stock.

I think there could be some changes ahead for management, and this could hurt or hopefully help the outlook. Doug Francis, the Executive Chair of WM Technology and a co-founder, took over for the CEO Chris Beals in late 2022. He had previously served as CEO from 2016 to 2019, ahead of going public. Beals works on a broader set of flowers these days! He is CEO of an ecommerce software company for the cut flower and floral industry since April 2023. The CFO is serving on an interim basis and joined in 2024. The Chief Technology Officer joined the company in 2019 and took on the CTO role in late 2022.

For those that want to invest in the cannabis industry, the timing has gotten better. The very popular MSOs are now down on average in 2024 as measured by the New Cannabis Ventures American Cannabis Operator Index, which has declined 3%. It is still up 33.5% from its all-time low in late August, but this was ahead of the potential rescheduling news. I like MAPS a lot, but it is not the only cannabis stock that I like. There are some MSOs and some Canadian LPs too. Still, my outlook is very positive for WM Technology, which is currently 11.6% of my Beat the Global Cannabis Stock Index model portfolio that I share with my investing group. When I wrote in December, it was my second largest position, and it is now my sixth largest of eight stocks.