Cannabis Stocks To Watch: Schwazze, Undervalued Consolidator

February 10, 2022: We caught up with Schwazze SHWZ management this week to discuss the company’s recently completed deal to enter New Mexico, expansion in Colorado and plans for further near-term growth both through M&A and ongoing construction projects in these states and adjacent markets. We continue to view the company as one of the best growth stories in US cannabis as Schwazze consolidates these to-date fragmented markets. Beyond growth we are confident that execution on expansion will enable margin expansion, sustainable cash generation and greater awareness for the stock. Greater awareness will drive meaningful upside for investors from current levels and the elimination of a discounted valuation in relation to the broader peer group and even similarly sized operators.

Meanwhile, we continue the belief that a lingering opportunity for the company to be acquired by a leading MSO looking to enter Colorado at scale exists, particularly in light of recent investment in the state by top MSOs (including Curaleaf, Columbia Care and PharmaCann in the past ~year). We believe the New Mexico expansion provides a nice compliment to any Colorado interest. Our rating for Schwazze remains Buy and our price target at $2.75. We update our forecast to reflect New Mexico contributions and introduce 2023 estimates.

Investment Highlights:

• Completed acquisition of New Mexico operator and will enter that market ahead of initial rec sales in March.
• Schwazze now well-positioned to be an early leader in the to-date underdeveloped market.
• Anticipate continued expansion as the company further consolidates CO market and expands into additional states.
• Believe could be a takeout candidate as MSOs continue to target Colorado and other mature US cannabis markets.
• Stock undervalued, we expect meaningful upside will come on execution and greater investor awareness of expansion progress.

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