Driven By Stem was a sponsor at the Benzinga Cannabis Capital Conference on February 25-26, 2021. The information contained in this article in no way represents investment advice or opinion on the part of Benzinga or its writers and is intended for informational purposes only.

With cannabis industry sales projected to grow at a compound annual growth rate (CAGR) of 21%, reaching more than $41 billion by 2025 (from $13.2 billion in 2019), 2021 is proceeding at a steady pace with multiple mergers-and-acquisitions (M&As) underway.

Many deals have caught the industry's attention in the past few months with companies like Jazz Pharmaceuticals (NASDAQ: JAZZ) acquiring GW Pharmaceuticals (NASDAQ: GWPH); Cresco Labs (OTC: CRLBF) acquiring Origin House; Canopy Growth Corp. (NASDAQ: CGC) and Acreage Holdings (OTC: ACRHF) on a path to merge; and Indus Holding Inc. (OTCQX: INDXF) acquiring Lowell Herb Co. The time has not been better for the industry.

As more states legalize cannabis and the dream to be federally legal moves closer, more M&As will likely keep getting headline attention during 2021.

One great example of industry expansion and innovation is cannabis and hemp company Stem Holdings, Inc. (OTCQX: STMH) (CSE: STEM). Stem recently completed the acquisition of e-commerce and DaaS (delivery-as-a-service) provider Driven Deliveries, Inc. (formerly OTCQB: DRVD), giving birth to Driven By Stem. Without a doubt, this is only one of the many great things ahead for the company this year.

Why Is This M&A Special?

Vertical integration is known as owning all production stages of a business without involving a third party. The cannabis chain starts with seeds for great genetics, cultivation and processing, and wholesale/retail operations with branded finished goods sold directly to end-users.

This business model allows cannabis operators to have better oversight and control of the seed-to-sale process including superior quality and compliance with the current state-by-state regulatory environment, a prerequisite for the leaders of the space that want accretive margins. However, as social distancing and the current pandemic took over last year and accelerated the need for virtuality, an additional layer to the vertical model became necessary as consumers required more than just relying on going to retail cannabis dispensaries (stores), and demanded home delivery as in other consumer goods sectors.

Stem Holdings, Inc. d/b/a Driven By Stem, is known for its proprietary capabilities in sustainable cultivation, processing, extraction, and R&D with a family of cannabis brands in all segments from flower to edibles and extracts, as well as wholesale and retail distribution operations aligned with state-by-state regulations.

Stem Holdings' CEO Adam Berk, a pioneer in home meal delivery who started Osmio, quickly recognized the trend toward cannabis home delivery and acquired Driven Deliveries.

Driven Deliveries is a proprietary cannabis DaaS platform servicing California, the single largest cannabis market, reaching 92% of the state population with its Budee and Ganjarunner services. This created, as Berk describes, "the first multistate, vertically integrated, Farm-to-Home™ (F2H) cultivation and technology omnichannel cannabis company, featuring a proprietary DaaS marketplace platform that can rapidly be expanded into new markets."

Driven By Stem will integrate this platform into its existing markets beginning in Oregon, and expand in its own trading areas as well as through strategic partnerships.

"Driven By Stem will accelerate growth with great brands and products, disruptive innovation, streamlined supply chain and infrastructure, and a DaaS platform for home delivery, the fastest-growing trend in cannabis to build shareholder value with excellence in execution as a unique cannabis and technology company," stated Berk. "Customer loyalty driven by superior CX/UX will be pivotal to our growth."

Stem Holdings Third Quarter 2020 Results

Prior to the acquisition of Driven Deliveries, 2020 was an excellent year for Stem Holdings. During CY20/Q3, it reported gross revenues of $6.7 million, a 960% revenue spike over the prior year, and its first positive adjusted EBITDA of $0.3 million from ongoing operations.

Additionally, its gross margin for the quarter rose to $1.77 million compared to $0.36 million in the corresponding quarter of 2019 as it reduced SG&A by 27%. In the same period, Driven achieved record gross revenues of $7.2 million, a 393% increase YOY. Operational and financial synergies will continue to drive performance post-consolidation beginning in CY21/Q1.

Corporate Highlights

• The company's combined operations are expected to generate gross revenues of $75 million and a combined gross profit of $30M in CY21.

• The management team has extensive experience and a strong track record for delivering results.

• The company's strong balance sheet reflects real estate assets of over 1.8MM sq. ft.

• Market cap of $149 million as of 3/3/21, trading a significant discount to the sector.

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