Looking back it is simply amazing how much money was raised in 2021 via IPOs and SPACs. Anyone with an idea in the AI, Biotech, Cannabis, EV or Fintech sectors, and who could throw together a decent 20-page PowerPoint deck, was likely to have no problem raising a large amount of funding to get their concept off the ground.
Of course, when the music stopped it was the shareholders holding the bag as most of these entities are trading for mere pennies on the dollar now. All are victims of the easy money policies the Federal Reserve kept in place for far too long.
Along with a lot of trash that never deserved anywhere close to the valuations they came public at, there are some potential gems within the discard heap. Lately, I have added small positions in two 'back door' cannabis plays as I think they have decent shots to rebound over time.
The first of these is Agrify Corp (AGFY) . The company builds and supplies fully-integrated, data-driven and evidence-based cultivation solutions to the vertical farming sector. Most of its customers are cannabis producers. The company's mainstay product is the Agrify Vertical Farming Unit or VFU. These VFUs produce a fully enclosed and managed microclimate that can provided up to 35 pounds of product via several harvests annually.
The company is growing like a 'weed', pun intended. Agrify should deliver $140 million in revenue this fiscal year and has $900 million in a 10-year contractual order backlog. The company is posting losses that will subside substantially this year and again next year when analysts expect roughly $200 million in sales.
Agrify's balance sheet is in decent shape and there has been some recent insider buying in the shares. With a market capitalization of approximately $50 million, the stock seems cheap on a forward sales basis.
Next up is WM Technology (MAPS) . This firm offers e-commerce and compliance software solutions to retailers and brands in the cannabis market. Customers can search for and reserve products at local dispensaries, which it also provides useful analytics and other capabilities.
The company has been growing its design and engineering teams to deliver more functionality to clients. They recently added promo capability that allows clients to create and manage all of their promotions, including online promo codes, in-store deals and online deals from one place.
The company should narrow its losses as revenues expand 40% to $200 million this fiscal year and are projected to be $260 million in FY2023. The stock currently goes for around two times next year's projected sales.
These are both small holdings as both names are still risky small-caps. However, I am getting them much further along their roads to profitability and for far lower valuations than their original shareholders. This makes their risk/reward profiles much more enticing.
