MAPS Stock: Trading at a Double-Digit Discount to a Low-Ball Takeover Offer
Capture a more than 20% spread if the deal goes through, capture the opportunity for even greater upside if this cannabis play stays public.
Back in December, WM Technology (MAPS), a provider of e-commerce and compliance software solutions for the regulated cannabis industry, was the recipient of a go-private offer from its co-founders.
With the offer representing a 39% premium to the stock's trading price just ahead of the announcement, shares not surprisingly surged on the news. What has been surprising, however, is that in the weeks since the announcement, MAPS stock has all but coughed back these gains.
Even as there is skepticism about the non-binding offer translating into a done deal, given the perception by many longtime MAPS investors that it's a "low ball offer," for investors who have yet to enter a position, current prices could represent a "win/win" situation.
Why? No matter where things head from here, it may be far more likely that it results in material gains relative to present price levels, as I'll explain below.
MAPS Stock: Background
WM Technology, better known as Weedmaps, operates both a customer-facing platform for legal cannabis products, as well as provides regulated cannabis businesses the back-end marketing, compliance, and e-commerce software they need to run their businesses professionally and profitably.
Founded in 2008 by Justin Hartfield and Keith Hoerling, Weedmaps scaled up in size during the 2010s, under the leadership of current Chairman/CEO Douglas Francis, as the company capitalized on the rise of the state-level legal recreational cannabis market in the U.S.
In 2020, like many early-stage growth companies were doing at that time, Weedmaps went public via a SPAC merger with Silver Spike Acquisition Corp., which then took on the WM Technology name upon deSPACing. Also like a lot of SPAC deals at that time, MAPS stock soared after deal completion, only to experience a steep price decline as both the "SPAC bubble," as well as the bubble among speculative growth stocks, burst.
Hence, it's not surprising that there is a bit of sour grapes among outside MAPS stocks investors. With shares peaking at prices nearing $30 per share four years ago, it comes as no shock these investors have scoffed at Francis and Hartfield's $1.70 per share offer.
Moreover, takeover offer or not, this stock's poor performance during this time frame may have you skeptical about whether it's worthwhile to jump into this situation. Yet while many busted, poor-performing SPAC names are not worth their respective rock-bottom trading prices, due to poor fundamentals, this is not such a situation.
Growth Challenges Countered by Steady Profitability
Over the past few years, growth for WM Technology has screeched to a halt. Much of this has to do with the current state of the U.S. cannabis market. Changes to federal-level regulation remain a work-in-progress. On the state-level, there has been a slowdown in the number of states legalizing unlimited recreational cannabis licenses.
WM Technology needs more states to go the unlimited license route, in order to attract its most likely customers (small, independent, and legal cannabis retailers). Otherwise, growth challenges, such as the ones seen in WM Technology's latest quarterly results, will persist. During Q3 2024, revenue came in at $46.6 million, a slight decline compared to the $46.7 million in revenue reported for Q3 2023.
Yet while revenues remain stagnant/decline slightly, WM Technology has been steadily profitable in recent years. As CFO Susan Echard noted in the latest quarterly earnings press release, Q3 2024 was MAPS' "eighth consecutive quarter of Adjusted EBITDA profitability." Adjusted EBITDA for Q3 2024 was up 5.6% year-over-year.
WM Technology has also become increasingly profitable on a GAAP basis. Last quarter, net income came in at $5.3 million, a big jump from the $2.5 million net loss reported in the prior year's quarter. Still, despite steady and strong results in recent quarters, WM Trades at a very low valuation. While the growth challenges help to explain MAPS' current low multiple, it may not take much to drive a rerating, in the event the takeover catalyst fails to play out.
Room to Run, Even if Board Rejects Offer
Trading for $1.41 per share today, if management's buyout offer goes through, investors buying today are looking at a speculative merger arbitrage situation with around 20.6% upside. However, even if MAPS stock could potentially experience volatility, in the event the company's board rejects the offer, there may be merit in maintaining a position.
For starters, compared to other application software stocks, MAPS is very undervalued. At current prices, WM Technology trades at a forward P/E ratio of 9.5, and at a trailing twelve month (TTM) EV/EBITDA ratio of 7.25x. For comparison, the sector median P/E for technology stocks is 31.4x, and for TTM EBITDA, it's 20x.
Considering these sector median valuations, it wouldn't be far-fetched for MAPS stock to eventually re-rate to a price between $4.50 and $6 per share. Sure, the risky nature of WM Technology's vertical, coupled with the revenue growth challenges, help to explain this high valuation discrepancy.
However, in the years ahead, regulatory changes could drive both a growth resurgence, as well as substantial multiple expansion for shares. Currently, cannabis is legal for medical use in 39 states, and for recreational use in 24 states. With public support of legalization near historic highs, rising on all sides of the political compass, the state-level recreational market remains poised to continue opening up nationwide.
If many of these states adopt an unlimited license regime, this will likely drive a resurgence in sales growth for WM Technology. Better yet, changes on the Federal level could drive an even stronger resurgence of growth, even if federal regulatory changes didn't full-on legalize cannabis on the federal level.
That is, all it may take regulation-wise to change the game for WM Technology is for the U.S. Congress to finally pass legislation that allows the state-level cannabis industry access to traditional financial services. Past legislation failed to advance, but a new bipartisan bill is forthcoming. President Trump also spoke favorably about cannabis banking reform during his 2024 campaign.
Why would such regulatory change be such a game-changer? These reforms will enable Weedmaps to engage in greater monetization of its platform, including the collection of customer transaction fees, plus the ability to process/collect fees on electronic payments made for orders.
Although unclear to what extent regulatory changes would have on profitability and valuation, the recent issuance of performance-based restricted stock units (or PRSUs) to Douglas Francis give credence to a return to the mid single-digits for MAPS stock over the next few years.
Per the Form 4 filing, half of the PRSUs vest at $3.25 per share, with the remainder vesting at $5 per share.
Risks/Concerns to Consider
Although I believe MAPS is worthy of a speculative buy, irrespective of the take-private offer, there are other risks/concerns to keep in mind. First, if you think that WM Technology could be subject to a bidding war, think again. At the time of the SPAC merger, a tax receivable agreement was included in the transaction terms.
Per the offer press release, a third-party buyer would have to make a $100 million payment, on top of whatever they offered to acquire the company. Even if a buyer was willing to pay this additional figure, Francis and Hartfield own nearly a third of the company, which may be enough ownership to quash a rival bid.
Alongside this, there are also risks/concerns to consider, in the event WM Technology stays a public company. Even as I believe there is a path for shares to re-rate to the mid single-digits, other factors may impact performance in the near to medium-term. If regulatory reforms fail to occur in 2025 or 2026, MAPS could stay stuck at its current discounted valuation.
Although the stock is cheap at present levels, and today's prices are not far above what shares traded for before the offer announcement, a retreat to prior lows isn't out of the question. Namely, if results for Q4 2024, or in the quarters ahead, fall short of the high expectations set by the well-received Q3 2024 earnings release.
Bottom Line on MAPS Stock
Regulatory reform may be the main catalyst for MAPS if it stays independent, but here's another potential catalyst that may emerge: upside related to the acquisition of similar platforms.
For instance, think of the potential cost synergies that would result from an acquisition of Leafly (LFLY) by WM Technology. There would of course likely be antitrust-related regulatory hurdles, and Leafly's ongoing convertible debt issues would also likely need to be resolved, but consider this food for thought, when weighing whether or not to enter a MAPS stock position.
To reiterate, MAPS represents a unique situation. Investors buying today could realize a nearly 26% gain in a short span of time, if WM Technology's board accepts the offer. Even if the offer is rejected, near-term volatility could be countered by a long-term rise back to prior price levels, driven either by regulatory change, or by the company pursuing other opportunities such as bolt-on mergers.
With all of this in mind, consider MAPS stock a buy at current prices.
Does increasing legalization/normalization encourage traditional software and payments companies to enter this space, increasing competition?
How worried are you about DoorDash's recent announcement?https://www.forbes.com/sites/ajherrington/2025/01/10/doordash-launches-cannabis-home-delivery/
Presumably, the management knew about this possibility before submitting the offer, but it could also give them pause.